Buying your first home in 2021? We have nine specific but very easy steps to buying your home this year. So let’s get right into it!
9 Steps to Buying Your First Home in 2021
Step# 1 – Are you ready to buy?
When you’re buying a home, you have to have a consistent income to qualify for a home loan. Lenders would require income proof for the past few months to approve your loan. That would give you an idea if you have a stable income to pay off the loan amount and strong work history.
The other thing you need to do is have a good credit score. To get a pre-approval home loan, you always need to maintain a good credit score. Pay your bills on time. Use two credit cards to pay for your expenses. Put a limit on your spending and try to stay under 70% of your total income.
Step# 2 – How much you can afford?
When you’re applying for a home loan, lenders are going to check your debt to income ratio. This ratio will help them calculate if you’re eligible for a home loan or not. Lenders often prefer a ratio of 50% or less. That means that your income should be at least 50% high than your current debts (credit card payments, car payments, house payments, etc.).
If the ratio is more than 50%, i.e., your debts are more than half of your income, lenders might reject your loan application OR could offer you less amount.
Here comes our bonus tip for condo buyers in Mississauga: Check home prices from this updated list of condos for sale in Mississauga.
Step# 3 – Save for down payment and closing costs
This is one large payment you make before you get the loan. So you have to have this amount before applying for the loan. That means you have to start saving long before you buy your first home.
Down payment is usually 20% of the normal house. But for first-time homebuyers in Canada, it is either 5% or 10%.
Then you also need to save for closing costs. They’re merely fees from your lenders, title work fees, etc. This cost is above your home purchasing cost. The closing costs could be between 3-4% of the home price.
Step# 4 – Get pre-approved
Getting pre-approval is imperative for you to know what you could afford and for your lender, to check if you qualify for the loan or not.
This task should start before you even get started on hunting your first home.
Step# 5 – Find yourself a realtor
As a homebuyer, you need to hire a buyer’s agent, who is by your side right from the beginning till the end. Any listed house already has a realtor. So you also need to prepare yourself to work with a competitive realtor
Hire a realtor with a good knowledge of the current housing market, know the area from the inside out, have good years of relevant work experience, is qualified, understands your need, don’t rush just to fill his/her pocket.
So if you decided to buy a condo in Mississauga, be sure to hire a realtor with an online presence so you could easily track their work history.
Step# 6 – Begin House Hunting
Now that you have a realtor, it’s time to list down all the things you want in your new house (chances are that you already have this list, if not prepare one). The list items could include:
- The price you could afford
- The amount of bedroom and bathrooms you require
- The best square footage for your dream house
It’s even better if you have a list with a comparison between what you need and what you want. That would help you and your realtor know exactly what type of house to look for. It would also help you avoid home buying mistakes, first-time homebuyers often make.
This list would also help you decide if you need a condo, a townhouse, a semi-detached house, or a detached home.
Remember, you might not find the perfect house (as there’s nothing like a perfect thing) but you would find a ton of houses with more pros than cons. You may have to work on the cons to make it the best house for you and your family.
Step# 7 – Make an offer
So now that you have a home insight based on the above list. It’s time to make an offer.
Here your realtor would help you a lot. Come with an appropriate offer and ask your realtor to roll out it to the seller. You’re if your offer gets accepted straight away. But don’t get upset if it gets rejected or if the seller made you a counter offer. You could always work on the latter to negotiate the terms with the seller.
And if things don’t go as you planned, there’s always another house for you.
Step# 8 – Get a home inspection
Hiring a home inspection service is completely your expense and is one of the best things you would to your house.
The home inspection company would look in every nook and corner to check if there is something fishy about the house. They would climb up the roof and check its condition. They would go to the basement to find if everything is working in order.
Now don’t get overwhelmed if they tell you some flaws, as most of them are repairable and won’t’ cost you a lot.
Step# 9 – Negotiating repairs
After the home inspection, you can negotiate any home repairs with the seller, unless it is an as-in-house. Highlight items from the home inspection report that aren’t working in order. For example, a broken kitchen sink could be the seller’s burden.
Send this list to the seller and wait for their formal response to repair the items you asked for.
Step# 10 – Get a home appraisal
Here your bank would send an appraisal agent to appraise the property and assess the value of the home. The appraisal’s price is also your burden and could become part of your closing cost.
There could be three outcomes of the appraisal’s report:
- Above the value – this is in your favour when the appraisal appraised a price above the contract price.
- At value – there’s no loss of gain here.
- Below value – this is against you as the lender would give you the amount equal to the appraisal’s assessment. Here you might want to re-negotiate the price with the seller.
Step# 11 – Final walkthrough
Here you should re-visit the house and check if the repairs are completed. Do ask the seller’s repair agent to provide you with all the receipts and proofs for what they have done.
One other reason for this final walkthrough is to check if the house is still standing. There was an incident when the buyer officially bought the house but the house burned down the night they made the deal.
Step# 12 – Close on the house
In this final step, your lender would give a closing disclosure with all the numbers you have incurred or would incur on the way. This closing disclosure would also include the amount you have to bring, i.e., the down payment and the close fees.
And then it is singing the documents. That’s it. This whole process might look overwhelming. But they get quite easy when you have a good realtor beside you. So don’t forget to check out your local realtors before you buy your first home in 2021.