1] Prepare a financial information package that you can send to the lender where you intend to apply for a mortgage. This information should include but not be limited to the following;
- Proof of income (T-4 for the past two years, a recent pay stub and a letter of employment)
- CRA Notice of Assessment for the last two years
If you are self employed be sure your income tax returns have been filed and you can show there are no monies owed by you to CRA.
2] Contact your lender / financial institution or mortgage broker to get pre-approved.
- A lender will review your credit score, income, assets, liabilities, down payment (equity in your present home if applicable) and determine how much you can afford to pay for a new home.
- You will have options presented to you by the lender, such as mortgage term, monthly or bi-weekly payments, and the amortization length.
- Remember, a pre-approval is based your Credit, Income and Down Payment. In addition to one other very important factor, “The price of the property you wish to purchase”.
While your lender may provide you with a pre-approval on a financial number, they will require a property appraisal prior to giving an approval on a specific property.
3] Considering your lender will need to approve a mortgage for a specific property after conducting due diligence it is NOT advisable to write an offer without a ‘SUBJECT to financing”. In this case, give your lender a reasonable timeline to enable their appraiser to come to the property which should be in the range of ten to fourteen days.
4] Before viewing properties it will be imperative that your DEPOSIT is readily available since this will be due and payable usually within 24 or 48 hours of your offer being accepted by the Seller. In some cases a Seller may accept the deposit within 24 hours of the Subject Removal date, but don’t count on it.
While there is no established or set amount of a deposit, you could budget for 5% of the purchase price which in most cases seems to be acceptable in todays marketplace.
5] The next important step is to find a real estate agent to represent you, as your designated Buyer’s agent.
The agent will be working exclusively for you and will provide guidance throughout the entire buying process; property searches, viewings, writing and negotiating offers, liaison with legal representatives, house inspectors and a wide range of other service companies as may be required.
6] If the purchase of a new home is subject to the selling of your present home, it is highly advisable to include the following subject in any offer that you ask your real estate agent to write for you; ‘SUBJECT TO THE SALE OF YOUR PROPERTY’.
In a robust market, Sellers are less likely to accept an offer that is subject to the buyer selling their property.
Conversely in a slower market, Sellers are more likely to accept an offer that has a subject to the sale of a Buyer’s property. Keep in mind there will most likely be a 72 hour clause that the Seller can trigger if they receive an offer they choose to accept that does not have this clause. You then have this short window of time to come up with bridge financing or lose the deal.
7] Manage your expectations!
It’s a great idea to have a wish list for the home you wish to purchase, but ultimately the purchase price will determine how many of the boxes on your wish list will be ticked off. Location, yard size, bedrooms, age, condition and features of a given home all need to be taken into account when deciding whether or not to write an offer.