House hunting

 
 

In this article, we will explore the second stage “House hunting” in detail. Don’t forget that a real estate agent will want you to get a mortgage pre-approval before finalizing your home buying budget.

Financing Property Risk Protection
  • Get pre-approved for a mortgage.
  • Provide the Mortgage Broker with documentation.
  • Come up with a buying strategy.
  • Visit open houses.
  • Plan your offer subject conditions.
  • Select a Home Inspector.

Rendering: Skyloft in 8X on the Park

Get pre-approved for a mortgage.

Have your mortgage broker pre-approve you for a mortgage.

Caution-Warning.jpg

A pre-approval or pre-qualification is not a firm commitment from the bank. They are looking at your declared savings and income and saying they would likely approve you after reviewing all of your documentation. It also provides an upper limit for the interest rate they would offer.

Once your offer to purchase a home is accepted by the seller they can provide a firm approval, but even this is conditional.

To find out why mortgage pre-approvals and approvals are conditional visit our guide to Mortgage Basics.

Provide the Mortgage Broker with documentation.

Typically once you are approved, the bank will ask for documentation to confirm the information in your application. To avoid risking an issue with mortgage funding, we recommend you provide as much documentation as possible to your mortgage broker up front. Common documents needed are:

   Income

  • Employment letter confirming the date you started and your salary/wage and whether you are a full-time or part time employee.

   Down payment

  • Bank statements showing the savings used for your down payment have been in the account for at least 3 months

   Home to Be Bought

  • Copy of Purchase and Sale Agreement

  • Copy of Seller’s Disclosure

  • Copy of Condo Unit Form B (Strata Only)

  • Copy of Strata Building Depreciation Report (Strata Only)

Come up with a buying strategy.

With your home buying budget, you will have an idea of what you can qualify to buy, but that may mean your monthly spending on housing will be a lot more than what you’re used to. Just because the bank will lend you a lot of money, doesn’t mean you should take it. At Mortgage Sandbox we see 4 common strategies and each has its benefits and drawbacks. They are:

  • Big Bang: Beg borrow and steal to get the largest and nicest home possible, because it will be out of reach in a few years. Target the highest affordable price point.

  • Baby Steps: Get a comfortable starter home and with the smallest mortgage possible and then upgrade to a nicer home every 5 to 10 years. Target the smallest possible mortgage amount for a home that meets your requirements.

  • Lifestyle Protection: Get the nicest home possible while maintaining a comfortable lifestyle. Target a specific monthly financial commitment that allows you to maintain your preferred lifestyle.

  • Strategic Leverage: Get a comfortable home and with the smallest possible down payment possible. Target the largest possible mortgage amount for a home that meets your requirements.

 
 

Big Bang

Baby Steps

Lifestyle Protection

Strategic Leverage

Target

 Highest Affordable price point

 Smallest possible mortgage for a home that meets your requirements

 Monthly financial commitment that allows you to maintain your preferred lifestyle.

 Smallest possible down payment for a home that meets your requirements.

Description

  • Use all available savings for the down payment.
  • Get help from family for the down payment
  • Apply for the largest mortgage possible
  • Apply for the smallest mortgage possible
  • Use all available savings for the down payment 
  • Apply for the exact mortgage amount that allows you to live the lifestyle you want.
  • Use minimum savings for the down payment.
  • Apply for the largest mortgage possible.
  • Use minimum savings for the down payment. 

Benefits

  • Lock in the property price in case home prices rise at a higher rate than your income and savings.
  • You should not have to move for a long time… this is your dream home.
  • You are in the market and have a home of your own that you can make improvements to.
  • You are not cash poor and you are paying the least amount of interest possible to the bank
  • You are in the market and have home of your own that you can make improvements to.
  • You are borrowing a comfortable amount of money from the bank that allows you to do the things you love most in life.
  • Mortgages have a low interest rate, so you borrow as much as possible.
  • You invest your savings and earn a return higher than the interest charged on the mortgage.
  • You benefit from the growth in your investments and the appreciation in house price while taking advantage of the cheap mortgage money lent to you by the bank.

Drawbacks

  • You are house rich and cash poor.
  • If interest rates rise a lot, it may put financial stress on you and your family.
  • Pay more interest.
  • You will have to pay realtor fees each time you sell a home to upgrade.
  • Prices may rise out of reach.
  • All your savings go into the down payment.
  • You aren't buying the largest or nicest home possible.
  • You will have to pay realtor fees each time you sell a home to upgrade.
  • Prices may rise out of reach.
  • You aren't buying the largest or nicest home possible.
  • Your investments could have a bad year and earn less you less than the interest on the mortgage.

Work with your Financial Advisor to determine the best strategy for you and your family. They are in the best position to understand your risk appetite, your financial commitments, and what you can stand to earn on investments that aren’t cashed in to help pay for a home.

Discuss each home with your real estate agent and estimate the home’s market value before making an offer. Just because someone is willing to pay more for a home that you want, doesn’t mean the home is valued at that price. For your mortgage, the lender will value home at the lower of the purchase price or appraised value. If you offer too much more than similar homes in the area, the lender may not give you as large a mortgage as you need to complete the purchase.

Visit open houses.

When you visit an open house, bring along your “Home Requirements” and “Neighbourhood Requirements”. Before you step in the door have a plan.

We recommend that you visit at least 5 homes before you begin thinking about making an offer. It is possible the perfect house will slip through your fingers, but you won't know it’s perfect until you’ve seen a few. Remember, this isn’t a real estate television show where you have to choose from only three homes the realtor has shown you, you should take your time.

It may take a few months of looking at homes before you feel confident you have a good deal. You should have an idea of the value of a home before you walk in the door. Remember, the list price is only a reference point and sometimes agents will list at a low price in order to generate interest and fuel a bidding war. Here are some tips:

  • Ask your agent for the prices of 3 similar properties that have sold in that area.

  • Check how long the home has been listed for sale – if it’s been on the market a long time then there may be room to make an offer below the list price.

  • Research properties you want to see and plan a route so that you move from North to South or East to West, rather than crisscrossing the town.

  • Wear a comfortable casual but work appropriate outfit. Think business casual or jeans day. You want the sellers’ realtor to take you seriously and you want the seller to feel comfortable trusting you with their home. Remember the seller often has fond memories in the home they are selling, and they want to entrust “their home” to someone who will care for it like they did.

  • Hold the criticism until after you leave. The sellers still call this place home and you want to be in their good books if there are multiple offers.

Plan offer subject to conditions

Your offer should always include the following:

  • A satisfactory building inspection

  • The arrangement of financing

  • Access to the home at least 4 times before closing (3 of these will be used up for the building inspection, the property appraisal, and a final walk-through)

  • If the home is a strata lot, include a condition that the buyer must be satisfied with the operation of the strata corporation (i.e., after reviewing strata meeting minutes, engineer’s reports, depreciation reports, financial statements, etc.)

  • A listing of major appliances and fixtures that you want the seller to leave in the home (if you don’t list it, they’re welcome to take them out).


Select a Home Inspector.

Select an inspector before you shop for a home. If you wait until after your offer is made, then you will feel rushed to choose an inspector and may feel pressured to pick the first inspector you meet.

A home inspection can reveal problems with the home you aren’t trained to notice. There are really 3 outcomes from an unsatisfactory inspection:

  1. You may require the seller to fix something as a condition of buying the home.

  2. You can ask to renegotiate your offer by the estimated cost to fix an issue.

  3. You may decide not to buy if the issues are more serious than you would like to deal with.

A typical home inspection covers all major mechanical systems, structural integrity, cosmetic features and other aspects of the house.

Read about “Closing the Deal” the next stage in the home buying process.


If there  is anything unclear in the explanations above. Please let us know so we can improve our advice for the next reader.