DECIDE IF YOU ARE READY FOR HOME OWNERSHIP
Purchasing a home is a big decision that can be both exciting and overwhelming. It is one of the biggest financial purchases that most people make in their lives, and in addition to considering the investment itself you’ll also have to find a place you’d like to live in too!
Before you start looking for your dream home, decide if you’re ready for home ownership by considering some initial questions:
What can I afford?
What are my options?
What do I need in a home?
Am I OK with the risks?
Am I ready for the responsibility of home ownership?
Knowing and understanding what is involved in the purchase of a home and where you will be able to live comfortably is an essential first step in the home buying process.
FIND YOUR REALTOR
Having a realtor to guide you through the process of buying a home is an absolute necessity.
The buyer’s agent is there to assist you in the process, help to guide you in the right direction, show you homes and all of the great neighbourhoods, write an offer for you that protects you, and assist you towards completion to ensure smooth sailing.
FAQ: Who pays the realtor commission?
The service of a realtor when you are purchasing a home is free – the seller pays your agent’s commission. Make sure that your best interests are protected and that you hire a buyer’s agent to consult you throughout your purchase.
You can expect licensees to provide you with such services as:
- Helping you to clarify the type of home you need and can afford
- Providing information about available properties and sources of financing
- Determining market value of a property so that you don’t overpay
- Arranging appointments to view available properties
- Providing accurate answers to any questions you may have about a specific home you are considering
- Writing an offer and recommending terms, subjects, and agreements to ensure that you are protected in your purchase
- Reviewing documentation related to your purchase
- Presenting your written offer to the seller and negotiating on your behalf
- Facilitating the steps between an accepted offer and completion/possession
For more details on the role of the buyer’s agent read this blog post:
What Does a Buyer’s Agent Do
FIND YOUR MORTGAGE BROKER
Your realtor will have a network of mortgage broker’s that their clients have used in the past, and your friends and family will also most likely have a recommendation.
Another option is to go to your bank and find a mortgage broker that can assist you with the home buying process.
Your mortgage broker will be able to help you get pre-approved and determine your affordability based on your income and various factors, as well as search for the best rate and term for you based on your real estate goals.
It’s important that you hire a mortgage broker that has a good availability, as offers oftentimes happen last minute and in the evening. Having a mobile mortgage broker with a flexible schedule will assist you greatly throughout your purchasing journey.
PRE-APPROVAL PROCESS – DETERMINE YOUR BUDGET
A mortgage pre-approval is when your mortgage broker has sent in your basic financial information (income, credit score, current debts, etc.) to the lender for review. From there, the lender will have determined the maximum amount of money they will lend you, along with an estimated interest rate and monthly mortgage payment. Many home sellers nowadays will not even look at offers if the buyer is not pre-approved.
Pre-approval assures the sellers that you are a motivated and ready buyer that is certain of their affordability and not just taking a shot in the dark from an online calculator.
CONFIRM YOUR DOWN PAYMENT
During the pre-approval process, you will need to confirm your down payment and how much you will be putting down.
Minimum down payment rules in BC are as follows:
- 5% for properties for the portion of the purchase price under $500,000
- 10% of the portion of the purchase price above $500,000 but less than $1,000,000
- 20% on the purchase price for properties valued above $1,000,000
The amount that the bank is willing to lend you plus your down payment will be the maximum purchase price that you can afford. There are various sources available for your down payment:
- RRSP withdrawal: You can withdraw up to $25,000 per borrower to be used towards your down payment. The funds have to be repaid within 15 years and you cannot take out RRSPs unless they have been in your account for at least 90 days.
- Gift: A common way for buyers is to receive a gift from a family member to help with their down payment
- Borrowed funds: You may borrow funds from a line of credit to assist with your down payment.
For more details on the minimum down payment and down payment details read this blog: Minimum Down Payment in BC
KNOW YOUR BUYING COSTS – COSTS TO CLOSE
To complete the transfer of title there are a number of costs in addition to the purchase price that you will need to consider.
In short, some costs associated with the subject removal period and closing are:
Home inspection fees
One of the common subjects to put in an offer is a home inspection clause; therefore, this buyer cost is typically incurred during the subject removal phase.
A home inspector will come and inspect the property as well as provide a report on the condition of the home.
The fees range and is typically $400-$900 depending on the size of the home and the complexity of the inspection.
If you need a mortgage to purchase, it is common for a lender to hire an appraiser to appraise the value of the property as a part of their mortgage commitment. This is a part of your subject to financing clause, and therefore the appraisal is typically done during that time.
The lender may charge an appraisal fee back to you, this is typically around $300-400. Ask your lender/broker if they cover this cost for you or if you have to pay it.
Notary or lawyer fee
This fee ranges from $1000 to $1600 depending on complexity of the deal and whether or not they need to order additional documents.
Property boundaries and cannot usually be determined without an up to date Survey Certificate. A survey is prepared by a Land Surveyor and the cost varies depending on the region. Your bank may also require that you present a survey certificate that shows exactly where the boundaries of the property are and where the buildings fall within them.
If the previous owners can’t provide this certificate, you’ll have to pay for the surveyor’s fee.
Property transfer tax
If you are a first time home buyer then you may qualify for a property transfer tax exemption.
In BC the property transfer tax is calculated as 1% of the 1st $200,000 and 2% on the balance up to $2,000,000, 3% on the portion of the fair market value greater than $2,000,000, and if the property is residential, a further 2% on the portion of the fair market value greater than $3,000,000.
If your purchase price is less than $500,000 and you are a first time home buyer that matches the exemption requirements then you are exempt from the entirety of the tax.
For more information on property transfer tax and exemptions read this blog:
Everything You Need to Know About Property Transfer Tax in BC
Property Tax & Utilities adjustment
All homes pay a property tax and utility fee each once a year. Depending on whether or not the seller has already paid the property tax/utilities, you may have to pay for the portion of time that you are living in the house.
This can often be a large sum of money and is calculated based on the annual cost of tax/utilities, and when you take possession of the property. It is important that you have your realtor and/or notary calculate this for you in advance.
Maintenance fee adjustment for strata properties
If you are purchasing a strata property such as a condo or townhome, then you will need to pay the difference in the monthly maintenance fee for the time that you are living in the home.
Move in fee for strata properties
Many strata’s charge a one time move in fee, and your realtor should verify the move in process and whether a fee is applicable when purchasing. This can typically be found in the bylaws section of the strata documents, and commonly ranges from $100-$300.
Mortgage default insurance for high-ratio mortgages
The federal government requires high-ratio mortgages with less than 20% down payment to be insured against default.
This amount works on a sliding scale depending on how much money you put down towards your home purchase. To calculate the amount based on your down payment, use the premium calculator for Canada Mortgage Housing Corporation (CMHC).
It is often possible for you to blend this in to your mortgage payment so that you do not need to pay a lump sum fee all at once.
Many lenders require title insurance before they will advance mortgage funds.
Title Insurance may insure the Lender and the Owner in the event of defects in title that are not readily apparent.
Goods and Services Tax (GST)
The GST on a new home is 5% of the price.
If the home you are purchasing is a newly built home priced up to $350,000, a GST rebate equivalent to 36% of the GST paid is available. A partial rebate on new homes priced up to $450,000.
Buyers also pay the GST on fees for services from appraisers, home inspectors, lawyers, Notary Publics.
Foreign Buyer Tax for Metro Vancouver & Fraser Valley (Additional Property Transfer Tax) – an additional 20% of the fair market value is charged if your title is transferred to a foreign entity. If this is purchased with an entity that is not deemed a foreign buyer, then it is only 20% of the proportionate share. This applies to foreign buyer purchases in the following regions:
The additional property transfer tax doesn’t apply to properties located on Tsawwassen First Nation lands.
For more details on closing costs and the cost of buying a home read this blog:
Costs to Expect When Buying a Home
KNOW POTENTIAL TAX EXEMPTIONS THAT APPLY TO YOU
A great real estate team (realtor & mortgage broker) should make you aware of the exemptions that you may qualify for when purchasing.
There are specific programs tailored to first time home buyers, but also additional options for new home buyers that are using their home purchase as their primary residence. Some options that you should be aware of that may apply to you as a home buyer in Vancouver are:
First time home buyer property transfer tax exemption
- PTT exemption for first time home buyers purchasing a resale property as their primary residence under $500,000 in BC
GST new home rebate
- Full GST rebates of 36% of 5% GST offered for new homes (ie presales) under $350,000. Partial rebates for homes valued $350,000-$450,000
Newly built home exemption
- PTT exemption for qualifying homes and qualifying buyers purchasing a newly built home (ie presale) under $750,000
For more information on home buyer exemptions in BC, check out this blog: Taxes to Be Aware of When Buying a Home
Knowing these exemption limits is EXTREMELY important as a first time home buyer. A full property transfer tax exemption for a first time buyer is worth up to $8000, and if that’s a deciding factor for staying within the $500K purchase price mark then it is important that you know about it BEFORE you start your home search.
PRIORITIZE WANTS AND NEEDS
Make a list of your needs vs. your wants.
Everything you want may not be realistic within your budget, so it’s important to narrow down exactly what you need. Everything else included after your needs will just be a bonus!
Bring your list with you when you go to check out homes. It can be difficult not to get caught up in the cosmetic nuances such as quartz countertops and hardwood flooring, but at the end of the day you should really be paying attention to structure, price, and dates.
CHECK OUT HOMES
Once you’ve determined a very strict list of needs and wants, it’s time to go out and search for homes! You’ll have the chance to attend open houses.
Not every home you see online will still be available or have an open house – have your realtor check availability and book private showings.
NARROW THE SEARCH
After checking out some homes you should be able to narrow down exactly what you like and don’t like.
From there, your realtor should perform a comparative market analysis for you to determine the market value of your favourite homes. If they are within your budget, then rank those homes from best to worst and decide which home you would like to write an offer on.
The process of finding the right home can take anywhere from one day to more than a year. Take your time, and know when the right one really comes along and go for it.
One of the earlier steps was to find a realtor, and if you haven’t done that by the time you’re ready to write an offer you should look for representation as soon as possible.
FAQ: Do you need a realtor?
There are different types of agency relationships in a real estate transaction:
Where a licensee acts only for the buyer or the seller, a sole agency relationship is generally created. The buyer or seller who engages a licensee to act as a sole agent is known as the “client”.
Limited Dual Agency
When a brokerage acts for both the buyer and the seller, with their agreement, the nature of the relationship created by contract is one of limited dual agency.
When you purchase your home with the listing realtor, they have the tough task of looking after both the seller and the buyer’s [you] interest – which is nearly impossible as one wants the highest price and the other wants the lowest price.Writing a contract is a legal document, and should be done by a realtor that is working solely for you and acting as your agent. [the buyer’s agent]
A brokerage or its designated agent may also agree with a buyer or seller that they will not act as an agent on their behalf in a transaction. In other words, there will be no agency representation and you will be an unrepresented party.
Once your realtor has drafted your contract to present to the sellers, you should review and adjust accordingly in preparation for your offer to be submitted.
WRITE AN OFFER
Once you’ve found the home that you can see yourself living in the next step is to write an offer with a Contract of Purchase and Sale.
Your realtor will be the one that can make recommendations on what to include in the offer to keep you safe and protected, as well as help to estimate market value to ensure that you don’t overpay for the home.
In a hot market, they may be an exact date when the seller is reviewing offers, and in this case you may be encountering a multiple offer scenario. Alternatively, if the home has been on the market for a long time or the seller has requested it, they may be doing offers on a first come first serve basis.
FAQ: What should you include in the offer?
When writing an offer you’ll need to decide on a few things:
- included/excluded items
- terms to ensure you’re protected
- expiry time/date of your offer
FAQ: What subjects should I have in an offer?
Subjects that you will typically see in a real estate offer are:
- Subject to financing
- Subject to title search
- Subject to property disclosure statement
- Subject to inspection
- Subject to fire/property insurance
- Subject to strata documentation (if applicable strata property)
The above subjects will ensure that the buyer is able to perform due diligence on the property with regards to the most important matters of purchasing a home.
NEGOTIATE THE OFFER
Once you’ve submitted your offer, the seller can respond one of three ways:
- Accept the offer
- Reject the offer
- Counter the offer
FAQ: What if the seller makes a counter offer?
If the seller counters the offer then they will be crossing out some of your terms, dates, or negotiating the price.
Once the seller changes your offer in any way, it becomes a new offer by the seller known as a “counteroffer.”
At the time of receiving the counter offer, you now have the decision to accept, reject, or counter again. The counteroffer cancels the previous offer, so keep in mind that every change that is made takes the previous offer off of the table. (void)
It is very common for negotiations to last 3-4 counters, and you will have to be aware of the expiry time of the offer as all negotiations and an acceptance (if any) must be completed by that time.
BEGIN SUBJECT REMOVAL
Subject removal is there for the buyer to perform due diligence on the property as well as ensure that their finances are in order prior to handing in the deposit.
FAQ: How long is subject removal?
Typical subjects that you will need to perform prior to the subject removal date [usually 7 days long] are financing, inspection, title, property disclosure statement, and strata documents if required.
FAQ: What happens during subject removal?
During the subject removal period you and your realtor are working actively to perform due diligence on the property with regards to the included subjects. This may include tasks like the following:
- Getting financing in order. Sending all the documents to your mortgage broker, coordinating with them, and getting an appraisal.
- Reading through all of the strata documents, identifying any red flags, confirming information with the property management company or seller regarding the documents
- Coordinating with the inspector, completing the inspection and reviewing maintenance items and any potential repairs required
- Contacting the local city to see if there’s any notes about the property or lot that you should be aware of
- Reviewing title and reviewing any charges and how they would affect you as a homeowner
- Reviewing the property disclosure statement, following up on any red flags, communicating with the seller regarding history of the property
- Obtaining home insurance, and if a strata property then confirming there is existing strata insurance and obtaining coverage so you can purchase yours accordingly
If you are satisfied with all of your subjects before the subject removal date, then you will proceed and provide the deposit. If you are not satisfied with the results of the subjects that you have the option to collapse the deal and walk away.
For more information on subject removal and how it works, read this blog: Everything You Need to Know About Subject Removal
REMOVE SUBJECTS AND PROVIDE DEPOSIT
If you remove subjects, then you will need to provide the deposit to your realtor within 24 hours of subject removal. [unless otherwise agreed to in the contract] Some contracts may require you to submit the deposit upon subject removal.
FAQ: How much should you pay for the deposit in real estate?
The deposit is typically 5% of the purchase price, and is held in trust by the buyer’s agent’s brokerage until completion.
This deposit will form a part of your down payment on the home. Once you remove subjects and provide the deposit, the deal is now considered “firm” and all you have to do is wait until you move in!
For more information on real estate deposits, read this blog post:
Real Estate Deposits 101
CHOOSING A NOTARY OR LAWYER
Anyone buying or selling a home needs a notary or lawyer to represent them in their real estate transaction.
If you are buying and selling, it is best to keep the same notary or lawyer for both transactions.
They will be the ones to draft up a statement of adjustments for you, in which you will know how much money is due upon completion and what the exact closing costs are to complete. In the case that something goes wrong, they will be your representation to ensure things are smoothed out.
FAQ: How do you finish the purchase?
Prior to closing, your realtor will instruct their conveyancing team to send your notary or lawyer all of the documents that they need to start your file and work towards completion.
Your lawyer or notary should have already calculated how much money you will need to bring in a week or two prior to closing in order to complete the transaction. You will be instructed to bring them a bank draft or certified cheque to cover the balance of any funds necessary to close, along with proper government issued ID.
The completion process requires a fair amount of paperwork to go through, and you will need to sign off on documents required in order to complete the transfer.
Depending on which lender you use, you may also have to visit the branch to review important mortgage details like preferred payment dates and ensure that they have all of the documents that they need before closing.
Your possession day will have been stipulated in your contract of purchase and sale, along with the time that you should receive the keys.
Make sure that your realtor reviews this with you and tells you exactly when you are able to move in so that you can schedule with your movers accordingly. The sellers should have already cleaned the house, but a secondary clean before you start moving all the furniture in won’t hurt!
Your realtor should pass the keys along to you at the time of possession and double check that they are all working and none are missing as per the contract.
CHANGE THE LOCKS
It’s better to be safe than sorry, and it’s important that you change the locks to your new home and obtain new keys from a locksmith upon possession.
Thinking of buying a home in Vancouver? As your local real estate experts, we’re head to guide you from point A to point B of the real estate process! Give us a call at 604-765-0376. Prefer text? 604-319-0200. or email [email protected] to start a conversation.