Buying a House – 10 Real Tips from Real People

(September 12, 2022 )

Tip No. 1 Understand What Home Ownership Is and Is Not.Some people mistakenly believe that because they own a home and the land that it is located on they can do whatever they like with what they own. This is not reality. First of all, in Canada we do not actually own the land on which our homes are situated. We own rights to the land as detailed in the land title applicable to our property. Moreover, our property use is regulated by local zoning bylaws and our land titles often have restrictions on them. In addition, there are building codes that apply to the construction and renovation of our homes. Knowing and understanding the rights that do and do not come with land and home ownership is important.Tip No. 2 Confirm That You are Indeed Ready for Home Ownership.Home ownership is a big decision that comes with responsibilities. It involves a large upfront purchase and it will involve ongoing maintenance and upkeep to preserve the value of what you initially buy. As well, there are risks associated with home ownership such as fires, floods and earthquakes that should be addressed through the purchase of appropriate insurance that often comes with additional costs.Tip No. 3 Know Why What is Driving Your Home Purchase Plans.While this may sound silly, the point being made here is to ensure that you have thought about the reason for your purchase and the consequences of not making the purchase. For example, if you are being relocated by your employer, you may have a limited amount of time to buy a home. Think about the consequences of not finding the home that you want in the time frame that you have set or the one that has been set for you. If you need to find a home in a new location in a short period of time, your motivation will be different than if you have no time constraints. Time is often directly connected to price, especially when others are competing to buy the same home as you. If you must buy, and you find the perfect home for you, you may be more inclined to pay more to secure it than if you have all the time in the world to buy, and you are not set on buying a specific home.INITIAL FINANCIAL PREPARATIONTip No. 4 Know and Prepare Your Credit Rating.If you are thinking about buying a home in the near future, do not forget to ensure that you are doing all that you can to get your credit rating in good shape. Start by asking for your credit report. Your report is maintained by at least one of Canada’s two major agencies (TransUnion and Equifax Canada). Know exactly how good or how bad your credit rating is so that you do not get this news the first time that you apply for a mortgage and then find out that you are not able to obtain one. Scores range from 300 to 900 in Canada and they are produced under brand names such as FICO, Beacon and Empirica. A good credit rating will often mean that you will qualify for a larger loan, lower interest rates and lower monthly payments. Do everything that you can now to improve your credit rating. Pay your bills on time, pay off or pay down credit cards, loans and other obligations that affect your credit worthiness.Tip No. 5 Understand the Difference Between a Mortgage Broker and Lender.Most financial institutions will employ mortgage officers and they will be happy to discuss your mortgage options by explaining their products to you. A mortgage broker is not affiliated with a specific institution and they will be able to discuss a range of products from different institutions with you.Tip No. 6 Shop around for a Mortgage.Before you start to look for a home, shop around for the mortgage lender or mortgage broker that you will want to deal with. Mortgage brokers will examine a number of options for you in order to find you the best mortgage rates from a number of different financial institutions. Mortgage lenders are limited to what their specific financial institution offers. By shopping around for the best rates, you may save yourself thousands of dollars over the longer term when it comes to taking out a mortgage. Understand the difference between an open and closed mortgage and decide what is appropriate for your financial needs. Remember to ask lots of questions about terms and conditions. You should also ask about pre-payment options and pre-payment penalties should you decide later that you want to pay down the mortgage sooner or pay off the mortgage earlier. While interest rates may separate the different financial institutions, often so do their terms and conditions of the mortgage.Tip No. 7 Suspect a quote that is too good to be true.It’s a cliché but it’s true. If something seems too good to be true, it generally is. If one broker quotes you an unbelievable rate and everyone else is in another ballpark, run for the exit. As a minimum, investigate what is being proposed further and through a different source. All lenders have to function in the same economic world, and a rate out of line with everyone else’s is cause for skepticism and concern.Tip No. 8 Know the law related to financing.Many people who take out residential loans and mortgages are not always conversant with the law that governs financial institutions in Canada. For example, Section 10 of the Interest Act provides for the right of prepayment in circumstances where principle or interest under a mortgage are payable more than five years after the “date of the mortgage”. The mortgage can be prepaid in full after the expiry of the five-year term, together with an additional payment equal to three months interest. No additional payments or penalties can be charged by the lender. This is important to know if you take out a mortgage term of more than five years and after five years find yourself in a position to pay off the mortgage. As another example, Section 8 of the Interest Act prevents a lender from charging a higher rate of interest following a default on a mortgage or real property than that charged during the term of the mortgage. Remember that laws are regularly updated and changed so it is always wise to stay up to date on the current version of the Act in question. Know your financial rights before you take out a loan or mortgage to prevent surprises down the road.Tip No. 9 Get financially pre-qualified.There is a difference between getting prequalified for a mortgage and getting pre-approved for one. Prequalified means that you have been provided an indication of how much money you can borrow for a mortgage after meeting with a mortgage broker (or lender), but you are not pre-approved. By getting pre-qualified you will obtain a sense of how much you may be able to borrow.Tip No. 10 Know the Standard costs of home buying.Know all of the standard costs, and the more typical potential costs associated with the purchase of a home. This is an area that a competent real estate agent should be able to help you. In British Columbia, property transfer taxes and legal fees can add up to thousands of dollars. If applicable, mortgage insurance can add to the bill. There are also other costs associated with the purchase, not to mention the costs of moving. By knowing what to expect ahead of time, you can properly plan to make offers within your budget.