What You Need to Know About Home Buying

Written by Kevin Li

2022-05-10

There are several aspects of a house buying process that home buyers need to be prepared for in advance. For example, getting a mortgage approved involves having the lender review the borrower’s debts, savings, income, and, most importantly, the borrower’s credit score.

Understanding the financial situation before applying by speaking with a mortgage broker will help to set realistic goals. A credit score is the most critical factor, as it represents the borrower’s creditworthiness and determines whether or not the borrower can repay the mortgage without going into default. Understanding everything about home financing before going home buying helps avoid any major surprises.

When shopping for a home, knowing how much one can afford before going house hunting with real estate agents is essential.

Mortgage prequalification

Prequalification for home buying can help borrowers organize their finances and mortgage plans, allowing them to start house hunting confidently. While prequalification is not a guarantee of getting the mortgage approved, it can help borrowers estimate their monthly and down payments before they begin looking for a home. However, if borrowers are denied prequalification, they may want to take steps to improve their financial situation. These steps may include paying all bills on time, saving more money for a down payment, paying off most recurring debts, or fixing a credit report error.

To obtain a prequalification for home buying, borrowers must submit basic information about themselves and their assets and income. They will also need to know their Social Insurance Number (or Social Security Number for borrowers in the U.S.) and date of birth. Other important information to have on hand is their marital status and if they have any recurring spousal support payments to make. According to their lending guidelines, lenders will assess how much money a borrower can borrow based on the verifiable information submitted in the application.

Although prequalification does not guarantee a loan, it helps borrowers decide on a price range for house buying. Prequalification does not affect the borrower’s credit score. When shopping for a home, knowing how much one can afford before going house hunting with real estate agents is essential.

Closing costs

Closing costs of home buying are not just one single line item. Instead, these costs are a collection of different expenses. Closing costs depend on many factors, including the province (or State) or county someone is buying in, the type of mortgage, and the real estate lawyer fee. To avoid surprises, be sure to consult with a licensed mortgage broker for the best deals. 

Lender’s fee and Land Transfer Tax

In addition to the lender’s fees, closing costs can also include pro-rata monthly insurance or property taxes. Finally, home buyers will need to pay a “Land Transfer Tax” to transfer the legal ownership of the home to the buyer. Transfer taxes vary by province and city. Although closing costs can be high, they can be added to the total home loan with available equity.

Mortgage Default Insurance

In addition to attorney fees, closing costs may include mortgage default insurance if buyers purchase a house with less than a 20% down payment. While closing costs are non-negotiable, getting an estimate from a mortgage broker can help home buyers compare different lenders and determine which ones are best suited.

Average closing cost

Closing costs are estimated at 2 to 5 percent of the purchase price, which can add thousands of dollars to the cost of home buying. For example, 5% of a $300,000 home would equal about $15,000 in closing costs. But these figures are just a ballpark estimate and should be reviewed with a licensed mortgage broker for a more accurate number. In addition, many lenders will roll closing costs into the loan amount, making them more affordable.

Closing costs depend on many factors, including the province (or State) or county someone is buying in, the type of mortgage, and the real estate lawyer fee. To avoid surprises, be sure to consult with a licensed mortgage broker for the best deals. 

House Inspection

It is critical to have a property inspection by a licensed building inspector before buying a house. A home inspection can uncover various minor issues and some significant repairs that can result in a negotiation with the seller on the best purchase price. Alternatively, a home inspection before buying a home can also allow buyers to ask the seller to repair any significant problems before the sale is final. A real estate agent is a valuable resource in negotiating the purchase terms. With this in mind, it is vital to have a professional home inspector inspect the home for any significant problems.

Ensure easy access for inspection

When hiring a home inspector, it is essential to ensure the seller provides easy access throughout the property. Any attempt to block access could indicate that the seller is trying to hide something negative about the house. 

Perform internal and external house inspection

A proper home inspector will check the home’s internal systems and exterior siding and trims. The inspector will not look for areas cluttered with stored items and are not conducive to the home’s aesthetic appeal.

Once the inspector has finished the inspection, buyers can negotiate with the seller to have any issues repaired. Negotiation is critical if the inspection finds significant defects, such as roof leaks or foundation issues. If a large portion of the building requires repairs, buyers can ask the seller to pay for the repair. The inspection becomes a powerful bargaining tool for buyers when appropriately used.

Buy with no emotional attachments

Many people fall in love with a home’s eye appeal and overlook problems like water damage, crumbling exterior mortar, or mold. Therefore, by having a professional inspect the house before buying, buyers can purchase with a fully informed decision and avoid buyer’s remorse in the future.

Although closing costs can be high, they can be added to the total home loan with available equity.

Manufactured housing

House buyers planning to buy a new home might want to consider manufactured housing. This type of home is a factory-built dwelling assembled off-site and then moved to the buyer’s lot. These homes are often cheaper than on-site homes and faster to build.

Manufactured homes have numerous advantages, including an affordable cost of living. Most of them are also equipped with intelligent, energy-efficient features that make them an appealing choice for environmentally conscious millennials. Additionally, these homes are more customizable than traditional ones, allowing homeowners to create the perfect home. Some even offer luxury fixtures like hardwood floors, granite countertops, and large kitchen islands. By combining the different options, a manufactured home can become the ultimate dream home.

Building a custom home

There are many advantages to building a custom house over buying an existing one. However, it takes more time, effort, and cost to complete the process than to buy a current home from a builder or a homeowner. Building a custom house starts with finding and purchasing a plot of land. Then, finds an architect to get all specifications approved by the city. Next, hand over to the construction crew to own the entire construction process from the basement up to the roof. This option gives the most freedom for buyers to decide on a style and budget that suits their criteria.

Drawbacks to building a custom house

A significant drawback to most people is that building a custom house is the potential for a runaway cost exceeding their projected cost. This could happen due to fluctuating price of raw materials such as lumber and the potential increase in labour cost over time. In addition, buyers have to go through the closing cost of buying a plot of land first, with ongoing expenses such as property tax and mortgage. Plus, there is a cost associated with getting permits and utilities connected to the property.

What You Need to Know About Home Buying

Understanding everything about home financing before going home buying helps avoid any major surprises.

Home Resolution is a curated platform providing home buyers/sellers and homeowners in Canada with helpful tips and connections to the professionals in the local area. Reach out to a trusted local expert in your area when you are ready.

Connect Me To A Local Expert

Related Articles

Building Houses With 3D Printing Technology

Building Houses With 3D Printing Technology

The increasing popularity of 3D printing has opened a whole new horizon to the way we build our homes. The possibilities are endless, and the technology is still in its early stages.

Nova Scotia Removes Non-Resident Property Tax

Nova Scotia Removes Non-Resident Property Tax

Non-resident property tax is a tax that some provinces require property owners to pay who do not live in the province. A tax professional can help you understand what tax to expect and how to be on the right side of the law.

About The Author

Kevin Li

Kevin Li writes about home buying and home selling tips and news for Canadian homeowners and home buyers.