This is a reproduction of a 4 page hand-out that I give to first time homebuyers and should considered as a “Macro” look a the overall process. A more detailed guide will be coming soon for the Canadian Real Estate Market.

WHAT TO DO BEFORE LOOKING AT PROPERTIES…

1. GET PRE APPROVED

Before bothering to start looking at properties, getting excited, and writing offers, you should first speak to a mortgage broker and get pre approved. A pre approval is, normally (but not always), a written offer by a bank or financial institution indicating the amount they are interested in lending to you, and the rate that will be applicable. It is very important to note that this is just a PRE approval. The bank looks at the application as submitted, and says, “should your paperwork support what you have put in the application, we will lend you this amount at this rate.” A pre approval is not a guarantee, no matter what bank you deal with, that your mortgage will be approved when you have an accepted offer. The only time that a bank will fully underwrite and review the documents on a mortgage application is when they receive a “live” deal with an accepted offer. A very high percentage of pre approvals never turn into “live” deals, and therefore banks and lenders of all kinds, will only review documentation and provide a firm, binding mortgage commitment when you have an accepted offer. Many borrowers make the mistake of assuming that because they are pre approved, they do not require a financing subject in their offer. This is incorrect, and is a very financially dangerous assumption that many buyers make. Unless you have sufficient financial resources to purchase the property without a mortgage, an offer with no financing clause is not advised. If you are writing an offer on a property on which there are many offers, and feel that the financing clause is impacting the strength of your offer, speak to Rowan Smith about what additional steps are possible during the pre approval phase to put you in a stronger financial position.

2. FIND A REALTOR

Now that you know how much you will approved for when you write an offer, it is now time to find a suitable realtor. Realtor commissions are paid by the seller in a real estate transaction, so there is no cost to you to utilize their services, skills, and expertise. Many buyers make the mistake of selecting a realtor that is their friend or family member, but not necessarily an expert in the market they are looking to buy in. You would not go to a foot doctor for a stomach ailment, and nor should you use just any realtor on your purchase. You will want a realtor that is familiar with the market you are buying in, has hopefully done many transactions in the market, and also has a good working rapport with you. If you are a detail oriented person, it would be prudent to select a realtor that is of a similar mind set to avoid any professional confrontations during the emotional and stressful process of buying a home.

Many buyers are tempted to approach the seller (or the seller’s realtor) directly, incorrectly assuming that because they are cutting a realtor out of the transaction, that they will get a better deal by using the same realtor that is selling the property as their buyer’s agent. Nothing could be further from the truth. Using one realtor for both sides of a transaction (referred to as “Dual Agency”) is not allowed in most provinces in Canada, with BC being an exception. By using one realtor, it becomes unclear whose interests they are serving: yours or the seller’s. Given that realtors are compensated based on the sale price of the home, it stands to reason that they will likely want the property to go for the highest price possible both for their own sake, and the sake of their selling client. They have a fiduciary duty to the seller as well. This is a clear case of “conflict of interest” and should be avoided. Get your own realtor. You will be happy you did.

3. DETERMINE WHAT YOU WANT IN A HOME

Before going and looking at properties that are unsuitable, determine what characteristics you want in home such as number of bedrooms, bathrooms, location, size, location relative to schools and amenities, location relative to restaurants and entertainment, and most importantly, price (based on the pre approval you should already have received). It does you no good to look at properties well beyond your pre approval limit, and it wastes your realtor’s time driving you around and arranging appointments with other realtors whose time and efforts can be better put to use finding a more suitable home. Once you have found a suitable property, get ready to have your realtor prepare an offer.

4. WRITE AN OFFER

At this point in the process you will have to rely heavily on your realtor to prepare the proper documentation and observe the rules of the process. You will sit down with your realtor and determine what price to offer based on a multitude of variables that include (but are not limited to): the price of comparable sales in the area (not listings), the number of competing offers (if any), the condition of the property, what fixtures are included in the property, and any other mitigating factors. There are a lot of tricks and tips that your realtor will advise you on at this point to get an optimal price. It is important that your offer not be so low as to be insulting, but not so high that it makes financing difficult. Your broker and realtor can discuss this prior to writing the offer to ensure that all parties and parts of the process are properly aligned.

It is at this point that you and your realtor will need to discuss the subjects to the offer. Subjects are the conditions that you place in your offer upon which your offer is contingent. Your offer is not binding on you until you “remove subjects,” which means you sign a form stating that all conditions have been satisfied. Depending on the property, you might make your offer “subject to a viewing” or “subject to a review of the strata documentation” or “subject to a property inspection.” The precise subjects will be dictated to you by your realtor and will depend heavily on the property and its history. However, the most important subject that you should include is the “subject to financing” clause which will state that your offer is not binding unless you receive financing by a specific date (usually 5 business days). Once you and your realtor have sorted all these factors out, you will sign the offer, and your realtor will submit it to the seller’s realtor for presentation to the seller. The seller will then review your offer (and the others) and determine which is best.

5. GET FINAL APPROVAL

Now that you have an accepted offer, you should get your mortgage broker to get you final approval from the bank. You will be expected to provide several pieces of documentation to support your application such as (but not limited to): job letters, pay stubs, bank statements, and, depending on the lender and property, an appraisal of the property by a qualified, unbiased, licensed third party appraiser. Don’t be surprised if the lender calls your employer to verify the content of your job letter, or requests additional documentation of where your down payment originated from. For self employed people, the last two years Notice of Assessment from Revenue Canada may be required along with your T1 Summary that you submitted and possibly business licenses (if applicable). Don’t take this request for information or verification on the part of the bank personally! The banks need to do their due diligence both to ensure they follow the law as well as to ensure that all information submitted is accurate. After all, they are going to be lending hundreds of thousands of dollars to you, and you should expect them to act accordingly. Once you satisfy the lender’s conditions, you will receive a final approval letter from your broker indicating that your financing is secured and that you can proceed. You should not proceed under any circumstances until you receive a letter of final approval from your broker!

6. CONDUCT A HOME INSPECTION

Depending on your level of knowledge and confidence in the property, you may elect not to perform an inspection. The inspection process is where a neutral 3rd party inspector of your choice walks through the property and prepares a report indicating any deficiencies noted. Many people buying a strata unit (condo or townhouse) often elect not to have an inspection conducted as inspectors are not allowed to comment on building envelope or roof issues. These issues are the domain of a building engineer and are beyond the scope of a simple purchase transaction.

7. REMOVE SUBJECTS

Once you have received final approval of financing, are satisfied with the results of the home inspection (if conducted), and have read and approved any documentation regarding the property (if applicable) you and your realtor will prepare a subject removal addendum where you legally sign off on the removal of the conditions to the contract that you placed when you initially wrote the offer. At this point the contract is binding, and you will be required to give your initial deposit (usually approximately 5% of the purchase price) to the seller’s realtor, in trust. This deposit will be included in your down payment that you will ultimately be required to produce.

It is important to note that the moment you remove subjects, your financial position has changed. You are legally bound to complete on the purchase according to the terms of the contract. No further negotiation will be possible unless something arises that was concealed or materially impacts the value of the property. Should you walk away at this point, your deposit can be forfeit to the seller as liquidated damages. It can be possible, though unlikely, that you can get your deposit back should you walk away, but this will surely require the initiation of legal proceedings.

The fundamental message to take away from this step of the process is that once you remove subjects, you are committed to buying the property. As a result, you should only be removing subjects when you are 100% sure that your financing is in order and that you are satisfied with the property.

8. GET YOUR DOWN PAYMENT TOGETHER

Now that you are sure you are proceeding, you should pool your down payment in one account before the closing date. It might take several days to get funds from one company to another, out of RRSPs, out of stocks, and you should take the processing time into account and ensure you have sufficient time to get the funds together. Ultimately, you will be required to give the balance of your down payment in the form of a certified cheque so be prepared for this step. If your down payment is coming from the sale of another property, your broker will have sorted this out with you during the approval phase and, if necessary, arranged “bridge financing” if the dates of your sale and new purchase don’t line up.

9. SIGN THE FINAL DOCUMENTS WITH YOUR SOLICITOR

The lender doing your mortgage will send “mortgage instructions” to the solicitor that you have chosen to use on your purchase. From these instructions, your solicitor will prepare all the final documents for signing. In this day and age, real estate transactions are very common, and as a result you should choose a lawyer with a competitive price, good communication, and fast turn around. Some lenders will require you choose from their list of approved lawyers / notaries who are familiar with their documentation. Other lenders will allow you to choose whichever lawyer or notary you like.

Upon receipt of the mortgage instructions, the solicitor will prepare all the final documentation (which in BC must be signed in the presence of a lawyer or notary), and will provide you with a “statement of adjustments” outlining all closing costs, taxes, and the balance of your down payment that is due. You will collect the funds from your bank in a certified cheque, and will arrange a final signing appointment (usually 3-7 days prior to the closing date) where you will sign off on all documents, pay the legal bills and taxes (if applicable) for your transaction and then wait for the closing date.

Closing costs often surprise people both in amount and number. See Rowan’s other Closing Cost Write Up for details

10. COMPLETION AND POSSESSION

The date that your purchase completes, and the date that you take possession are not always the same date. The completion date is the day when the money and legal title to the property changes hands. The possession date is the date when you physically get the keys to your new home. Common practice has the possession date usually following the completion date by one day (unless other mitigating circumstances make this impossible). On the completion date your solicitor will receive the funds from the bank (if required), and will take the funds from your certified cheque, and will transfer them to the seller’s lawyer who will then register the transfer documents and the property will be transferred into your name.

Congratulations! The home is now yours! You will take possession shortly (your realtor will give you your keys) and you will have completed a complex and difficult transaction that may have spanned several months and included the services of many professionals.

11. INSURANCE, MOVING, UTILITIES, AND BILL PAYMENTS

All that remains are the small, nitty-gritty details. If you are buying a detached house, you will need to arrange your fire insurance coverage (all lenders will require this). If you are buying a strata unit your fire insurance will be included in your monthly maintenance fees. However, you may want to consider content insurance to protect your personal belongings as these items are not covered in your strata plan’s insurance. You should try to arrange a moving company far in advance if you will be using one. If your completion date is near the end or middle of the month, you can expect a high demand during those times and you may pay a premium for the mover’s services. Reserve early to save yourself money and hassle. One of the most commonly overlooked details is remembering to update your existing monthly bills with your new address. Remember to update all your utilities, credit cards, retail store cards, banks, and lenders with your new address so that they can continue to keep in touch with you and so you have no accidental arrears on your accounts. Arrears can harm your credit score making future loans and lending difficult due to a simple error.

THINGS NOT TO DO PRIOR TO COMPLETION: Do not take on any additional debt. Do not change jobs. Do not go buy a new car or new furniture unless you are able to pay cash. Changing your financial situation may affect your financing approval, and can result in you no longer qualifying. Speak to your broker before making any changes!

This post outlines and explains only the major parts of the property purchase process. A more complete list applicable to your individual situation can be obtained by contacting me directly.

This information is being provided to assist in the planning of a home purchase. It is not intended to be legal advice, and the information set out may not be applicable in all cases. In addition, there may be additional costs and steps not included in this information brochure.

The Mortgage Centre – City Wide is as independent member of The Mortgage Centre Network

Hello,

This is the first of hopefully many blog posts that I will be doing in the future. I am a Mortgage Broker working out of the downtown core of Vancouver, Canada, and have noted a widespread lack of information available to people regarding mortgages, financing, how it works, tips, tricks, and strategies to maximize the amount they can be approved for, and minimize the amount of interest they pay. Whenever I attend industry trade shows, I am boggled by the amount of information out there that I need to assimilate on a daily basis, and have become aware that there is simply not enough time for the average person to try and fit this info into their daily lives.

The purpose of this blog is not just to cram the web with more mortgage product details, arcane jargon, tales of sub prime woe, and debt / leverage fear mongering. The purpose will be to teach people, in everyday english (hopefully with some humour thrown in for good measure) how they can use mortgages for a variety of purposes such as:

1. Buying their first home
2. Upgrading to a new home
3. Buying an investment property
4. Consolidating debts
5. Leveraging for investment purposes
6. Bailing out of a foreclosure
7. Developing land
8. Constructing new homes

There are lots of very valid reasons why using debt is a good thing. Owing money is not always bad, and there are times when it can be very good depending on the use to which it is put.

I also invite other industry professionals to post on this blog and have their say as well. There are many conflicting strategies on how best to use a mortgage and debt, and I’m happy to have my opinion swayed and changed by other articulate individuals whose opinion may run contrary to my own.

Hopefully there are a few other mortgage brokers out there that can see the noted lack of info and discussion available on these topics, and will post and add their insight where possible. If there is one thing that I’ve learned in the years I’ve been in banking and finance, it’s that experience does matter whether you are advising people on first time buying decisions, or complicated land/development situations. If anyone has a focused, unique background that can add to the dialogue, please please please add your input. I’d rather have constructive, accurate discussion occuring rather than random speculation.

Lastly, don’t be afraid to email or contact me directly if you have any questions that relate to your personal situation and would like me to answer them, not on the blog, to preserve your privacy. Any questions of a personal nature that are brought to my attention will be dealt with privately unless the affected parties provide me permission, in writing, to disclose the nature of their question on this blog. I presently cannot see any reason why this would arise, but I’d like that fact to be clear.

Sincerely,

Rowan Smith, AMP