Buying a home is a great achievement and a large financial undertaking. As such, most buyers have a lot of questions about the finances, process, and timing when it comes to figuring out the process. We’ve listed ten of the most common home buying questions that we have been asked throughout the years in hopes of helping new home buyers like you understand the process and make buying a home much less intimidating!
I’m buying my first home; where do I start?
Your first step is to get pre-approved for a mortgage. A pre-approval lets you know how much you can spend and locks you in at the current interest rate for 90 days or more. This allows you to shop with more confidence knowing where you stand and that things won’t be shifting around. Any potential interest rate hikes can impact your mortgage rate and ultimately, your home-buying budget.
Should I talk with a bank before looking at homes?
Yes, absolutely you should! There are tons of reasons why you should talk with a bank before looking at homes. We’ve already discussed how talking with a bank can help you understand exactly how much you can afford but did you know that, if you’re a first-time home buyer, talking with a mortgage professional beforehand can help you when applying for first time home buyer programs? The bank will help you to understand any costs that may come up, and give financing advice, as well as explaining any potential closing cost compensations you may deserve.
Is there a “best time of year” to buy a home?
Short answer: not really. Prices depend on many different factors like supply, demand, and other housing market conditions. These can also vary greatly from city to city, and from one neighbourhood to the next. Certainly, buying during the summer can be a little more hectic but it doesn’t make it a worse time to buy. Rather than focusing on season, you should pay attention to the numbers of days the house has been on the market. This is the biggest indicator of your negotiating power. If the home was recently listed, the seller will have had less time to test the market and gauge buyers’ response to the price and, as such, will be less likely to negotiate.
Does a higher credit score mean a better mortgage rate?
Yes, it does, because your credit score is a measure of your financial health. According to the Government of Canada, your rating “indicates the risk you represent for lenders, compared with other consumers … The higher your score, the lower the risk for the lender.” So, a higher rating will typically secure a better mortgage rate, since you’re considered more likely to make your scheduled payments.
Besides the down payment, what other fees will I be paying?
Besides the down payment, your closing costs will be the second largest expense. Closing costs cover items such as lender fees, escrow, and title insurance. If you’re looking to make a quick estimate of your closing costs you can usually expect it to be anywhere from 1 to 4% of the purchase price of the home. You’re also going to have home inspection costs and any costs that will be associated with moving.
How much will I need for closing costs?
As we said above, closing costs typically range from 1 to 4% of the home’s purchase price. These costs include things like legal and administrative fees and are payable on closing. Make sure to budget for this! On a $500,000 home, closing costs can range from $7,500 to $20,000 so you’ll need to keep this in mind.
What is the new mortgage “stress test”?
The new mortgage rules that took effect on January 1 now require that all mortgage applicants qualify at a rate that’s 2% higher than your contracted rate or the Bank of Canada’s five-year benchmark rate (currently sitting at 4.99 %). This was put in place to make sure that borrowers will be able to make their mortgage payments should interest rates increase. For those who may have gotten lost in all those numbers, this means you will have to qualify for a mortgage loan at a rate of 6.99% – even though you’ll only pay at a rate of 4.99%.
Should I sell my current house before buying a new one?
There are pros and cons to both options here. If you choose to sell your house BEFORE you buy the new one, the benefit is that you (and your lender) will know exactly how much money your home sold for, allowing you to set an appropriate budget. Of course, this means you will have to find somewhere to live in between the sale of your house and the purchase of the new one, and you will have people coming to view your home while you are still living in it.
If you choose to sell your house AFTER you buy the new one, the move will be fairly seamless and, by the time you sell your first home, it will be vacant for showing! The negatives here are that you will have some uncertainty in the budget which can be a large problem when getting a loan on the new house. The other issue is that if your house takes some time to sell, you will end up paying for two houses. So, really, it’s up to you to figure out what you’re most comfortable with and what you can budget!
What should I look for in an investment property?
Whether you’re thinking about resale value down the road, a quick reno-and-flip job, or for long-term rentability as a landlord, location is the golden rule of real estate. If you’re looking to buy for investment purposes down the road, consider that it might be tougher to sell a nice house in an unappealing community. Of course, when looking into the future, there are quite a few things that can come about.
Here are some questions to ask when considering buying a home:
– Is the area experiencing population, income, and employment growth?
– Will the area benefit from an economic or real estate ripple effect?
– Are there any major transportation improvements in the works?
– Is there a short-term problem happening right now that is likely to disappear in the future?
Should I buy or continue to rent?
Depending on circumstances, different options will be better for different people. By and large, purchasing a home can be a very solid investment and, if you get a good interest rate, mortgage payments can sometimes be cheaper than paying rent. One of the most important things to consider when buying a home is the length you plan on staying if you were to purchase. If the answer is only a few years, it’s likely the better decision is to continue renting. Another question to ask yourself is if you are ready to take on the additional “responsibilities” of owning a home. Are you ready for general home maintenance that will come about?
With the importance of such a big purchase, it stands to reason that you might have a few burning questions you need answered. We hope this list of common home buyer questions helps you with any concerns you may have had with your process. If you’ve read through and have any questions beyond these listed here, please feel free to reach out to Mosaik Homes; we’d love to hear from you!