The Importance of being an educated Buyer.
Buying your first home is easy, right? You look at houses online, go to a few open houses, write an offer, talk to your bank and voila! SOLD. I mean, of course you know what an encroachment is, title insurance? Closing costs? Differences between a deposit and down payment? Right? Making sure you are truly educated at every step of the process is paramount to a successful transaction. After all, this is one of the largest purchases you will ever make, so doesn’t it make sense to know all the facts first?
I have worked with my fair share of first-time home buyers, helping them to learn along the way and trust me, you are not the only one who doesn’t know how this whole process works. Situations change, deals become more complicated, processes may seem a bit confusing, which is why I must emphasize the importance of asking questions.
Us Realtors, we have done these transactions millions of times, sometimes (and I do mean SOMETIMES) forgetting that this is your first time. If we are explaining things too fast or talking about some condition you’ve never heard of, STOP US! Never feel embarrassed if you don’t understand a term or concept, we LOVE educating our clients, not to sound cliché but, “There is no such thing as dumb question”.
This blog will not answer ALL of the questions that will come up during your real estate experience, but I just wanted to share with you some of the most FAQ I have received from buyers in the past, giving you a head start on your journey! Enjoy!
I went online and filled out a questionnaire with my bank. Am I pre-approved?
Simply, No. There is a big difference between a pre-approval and pre-qualification. A mortgage pre-approval is a detailed letter from your lender letting you know the amount they are willing to lend you as well as the interest rate that they are locking you in at. It may also have conditions attached to it that you must fulfill in order to be approved for the mortgage amount. Before receiving the pre-approval letter, you will have to provide your mortgage specialist/broker with the required documents as well consenting to a credit check. A pre-qualification on the other hand, is something you may fill out online through your bank or financial institution, no documents are required and there will be no credit check. Before a lender will approve your mortgage, they will need all of these documents, so by having a pre-approval you are already ahead of the game when it comes time to securing those funds.
Did I mention it gives you the upper hand in bidding wars? Pre-approvals allow you to move fast when you find the right home, especially if there is someone else thinking it may be theirs as well!
I just started my home buying process and came across a house I love online, I don’t have an agent, is there a difference between using the listing agent or a Buyer’s agent to represent me?
This one may seem obvious, but you would be surprised by the amount of people who don’t know the difference.
The seller’s agent (or listing agent) is the real estate agent that is listing the property. You will normally see their name on the sign out front, or on the listing online. These agents represent the SELLER. They have fiduciary obligations to their client (the seller), meaning they must disclose conflicts, avoid conflicts of interest and maintain utmost loyalty, as well as providing duty of care and their general obligations. In short form, the Seller’s agent is looking out for the best interest of the Seller.
Now on the flip side is a Buyers Agent. How you choose your agent is your own choice, but I highly recommend finding someone you mesh well with and trust. Whether it be by going to open houses, scrolling online or just someone you know, it is important to form that bond early. A buyer’s agent has the same fiduciary and general obligations to a Buyer as a seller’s agent to the seller. Therefore, the Buyer’s agent is looking out for the best interest of the BUYER.
I want to see a house on the other side of the city, I don’t want to inconvenience my agent, should I just call the listing agent and set up an appointment?
ALWAYS CALL YOUR AGENT. Remember what I just said about Buyers Agency? They are there to look out for your best interests. The seller’s agent still represents the seller even if they are the one showing you the house. If you have an agent who you are already working with, TRUST ME, they want to show you the house, even if you think its an inconvenience for them, its not, so call them, please…. One more time? CALL YOUR AGENT. All Realtors have access to all MLS listings; therefore, your agent can show you every single one of them. There should never be a situation where you would have to set up a viewing yourself with the listing agent. Leave it to them. There are exceptions if you want to use the listing agent as your own, this is called dual agency, but please ask them to explain this fully to you before signing any agreement.
I see there is an Open House happening tomorrow but my agent can’t make that time, can I still go?
Of course, you can! Tell the agent at the open house that you are represented, don’t worry, they won’t mind at all! That agent will then follow up with US instead of harassing (did I say harassing?) you for the feedback.
On a side not, if you are still looking for an agent, open houses are great opportunities to “interview” potential agents and see if they are the right fit for you. Most times, the agent doing the open house is not the listing agent. Ask them some questions, (there is a theme here).
We LOVE it! Who writes the offer? My agent or my lawyer?
Your agent. Whoever is representing you at the time will write the offer for you, with you present and explaining terms and conditions as you go. It is always nice to familiarize yourself with the Offer to Purchase prior to writing an offer as it can look a little intimidating at first. Ask your agent for a spare copy, they will be happy to provide one for you.
People keep warning me about these things called “Closing Costs”, how much should I set aside for them?
Anywhere from 2-2.5% of the purchase price of the home. These closing costs include (but aren’t limited to): Lawyers Fees, Land Transfer Tax as well as Title Insurance.
I’m putting down 5%, my lender told me I have to pay CMHC fees, more fees!? What the heck are those?
This should be explained to you in detail when you are going through the pre-approval process, but I will give you a quick explanation here. If you are putting down less than 20% of the total purchase price as your down payment, you will be getting what is called a high-ratio mortgage. These mortgages have attached to them mortgage default insurance, which you will commonly hear being called CMHC Fees. These fees are not an upfront cost to the buyer but built into your mortgage. CMHCC Fees insure the lender in the case of the borrower defaulting on payments. They are calculated depending on the purchase price of the home as well as the amount you put down. Rate Hub has a great Mortgage Default Insurance Calculator.
What is a deposit? Do I have to come up with MORE money!?
A deposit is a portion of your down payment paid on the day you write the offer. This deposit acts as security for the seller, and lets them know you are a serious buyer. Your deposit will be held in the listing brokers trust account (some exceptions) after acceptance of the offer. Once all conditions written in the Offer to Purchase are fulfilled, the deposit will form part of your down payment, meaning you will only pay your lawyer the remaining balance of your down payment at closing. Now, if the conditions aren’t satisfactory to you, the deposit will be returned to you in full without interest. With that being said, there are situations where the listing brokerage will have every right to withhold that deposit, please ask your agent for examples of situations where this may arise.
I’ve heard of this thing called Title Insurance, do I need it?
I personally love Title Insurance, it’s a one-time fee you pay at closing that protects against losses arising from problems related to the title of your property. What does that mean you ask? When you are buying a home, you are registering your name to the title of that property. You want your title to be free from all defects that would prevent you from total ownership such as, unpaid liens from previous owners, encroachments not registered to the title or fraudulent ownership. Title insurance covers you from a number of risks, even if the defect existed prior to you purchasing the property. It normally costs anywhere from $200-$400. You can always ask your lawyer to explain this further.
Home Inspections? What are your thoughts?
It depends on the situation. For the most part, I always recommend buyers to do a home inspection as they provide a tremendous amount of information in regards to the property. They will look at the structure, the roof, the utilities, the electrical etc. and they will likely get a whole lot dirtier in the process than you will from just a simple tour of the house. We will gladly recommend you to some of the best home inspectors around! Home Inspections normally cost roughly $500.00 and will last anywhere from 2-4 hours.
I did say that it does depend on the situation though. There are some cases, such as when dealing with multiple offers, where a Home Inspection might affect the strength of your offer. Make sure you have all the questions you need answered before going forward, and always remember we are only here to guide you in this process, you always make the final decision.
I have only just skimmed the surface of what there is to learn when buying your first home. Never be afraid to ask the important questions and remember,
“The man who asks a question is a fool for a minute, the man who does not ask is a fool for life” – Confucius
Tel: (204) 781-1767