Saturday, December 12, 2009

I Am A Home Owner

I did it. I purchased a condo. I move in next month.

It's been a steep learning curve (there's a whole new language to learn when buying one's first property) but my friends who are already home owners have been terrific at giving me hints and advice along the way. So, in the same spirit, I will now share my experience so that if any of my bloggy friends are thinking about home ownership then perhaps I may be of some assistance.

Step 1. Go to your bank and get a mortgage pre-approval. This involves verification of your job and income and a look into your credit history and FICO score (if you don't know either then you're likely not ready to start this process because they affect your pre-approval in a huge way).

When the bank comes back with a ridiculously high number, crunch the numbers and determine how much such a mortgage will really cost you. There are mortgage calculators all over the internet. Google is your friend. I dropped $100,000 lower than the pre-approved amount to max out at 35% of my net monthly income. It's a number that I am comfortable with because I don't have any other debt. Be sure to add up not only your monthly mortgage payment but also things like condo fees (if applicable), monthly heating and insurance costs and property taxes.

Step 2. Now you know how much you can afford to spend so you can start looking with that number being the maximum home listing price. Find yourself a realtor. My realtor put me on a mailing list (with a minimum/maximum purchase price and neighbourhood-specific results) that sent me any new listings as well as updates to sold listings so that I was able to get an idea for the active/current market.

Step 3. Drive to each of your specified neighbourhoods at the peak of rush hour (both ways). Believe me, you may save yourself a lot of time by not looking in those neighbourhoods if the commute is horrific. In my case, those drives ruled out two neighbourhoods that I was considering because the commute each way approached one hour. I'm not willing to make such a long commute and so I didn't waste my time looking at properties in those two neighbourhoods and instead was able to focus on my third choice of neighbourhood (where I in fact ended up buying and where I will be an easy 10 minute commute from work).

Step 4. Start looking at properties. Your realtor will be particularly useful at this step as he or she can quickly contact the seller's realtor(s) and set up viewings. My realtor was also very knowledgeable about the area and so was able to warn me away from buildings if they had problems.

Step 5. When you find your new home, be prepared for things to move very quickly (especially if you live in a city like mine, which didn't suffer a housing slump over the past year or two ... properties move quickly in this part of the world). I viewed my new home at noon on a Thursday. I put in an offer on Thursday evening. It was countered at 10:30 in the morning on Friday. I countered that counter offer at 3:00 on Friday afternoon and the offer was accepted at 4:30 that Friday afternoon.

Step 6.
It's actually not as simple as that. You need to consider what you are making the offer subject to. I made it subject to a unit/building inspection, confirmed mortgage financing from the bank and a few minor visible repairs. The seller came back and accepted those subjects on the condition that they be lifted and the sale be legally binding and finalized just one short week later. See? You've got to be prepared to move quickly. You also have to be prepared to assign a closing date (the date when you will actually be handed the keys and start paying your mortgage). The seller pushed for a closing date of December 31st, 2009. There's no way that I want to be moving over the holiday period, so I pushed back with a closing date in January 2010. The seller agreed.

Step 7. Find a building inspector. Again, Google can be your friend here or you can ask for a recommendation from a friend. I went with my friend Google and found an excellent, thorough building inspector. The building inspection went ahead on the Monday. It cost me $300 for a two-hour inspection but you can't put a price on the peace of mind of knowing that your roof isn't going to cave in any time soon. He didn't find anything major with the unit or the building but did find some minor small repairs in the unit that my realtor then added to the sale contract. The seller agreed to make those repairs at his cost prior to the closing date.

The other good part about having a building inspection done is that it allows you to spend some significant time in the property. Let's face it, you've only looked at it once so far (at the viewing). The time in the unit served to make me feel really good about the place; I enjoyed the feel of it very much. That went a long way to soothing the anxiety that naturally occurs with such a large purchase. I knew I was in the right place and that it would be a happy home.

Step 8. Confirm your financing with the bank. They will want a copy of the sale contract and other stuff like a title deed (your realtor will know what documents to ask for from the seller). The bank will also want proof that you have money for the down-payment. The payment of your down-payment will likely differ depending on where you live. In my case, I had to confirm the funds and then request a bank draft for 5% of the home value, to be delivered to my realtor in trust on the day that I lifted the subjects. Then, on the actual closing date, I will be required to deliver another bank draft for the remainder of my down payment. I didn't know about this going into the whole process, so it came as a bit of a surprise to have to write such a large cheque so early in the process.

Here's an example of how it works where I live (purchase price is hypothetical):

Purchase price: $500,000
Total down payment confirmed: $100,000
Due on the day that subjects are lifted: 5% of the purchase price = $25,000
Due on the closing day: the remainder of your confirmed down payment = $75,000
Amount of mortgage that the bank will give you: $400,000.

That last point is important because you will sign your mortgage (at which point it will be transferred to a lawyer -- no lawyers are needed in the offer to purchase; the realtors take care of those negotiations) long before your closing date, so they want to be sure that you're good to cover the entire promised down-payment. In short, the bank will give the seller $400,000 on the closing date and you need to be able to cough up the other $100,000 to give to the seller.

Step 9. Prepare to feel panicked, sick to your stomach and dizzy. You now have to make the decision to sign off on the subjects and enter into a legally binding contract of ownership. If you back out after this step then you will lose your 5% deposit and the seller can sue you. It is therefore perfectly normal to feel panicked, sick to your stomach and dizzy. Expect those feelings to last through until the day after you lift the subjects.

Step 10. Meet with your realtor to lift the subjects and sign the document that now makes the home legally yours. This happened for me exactly one week after I put in my offer to purchase (I lifted the subjects a day earlier than required by the contract).

Step 11. Find a lawyer. I took a recommendation from my banker, but you can use a friend's recommendation or Google. You may also choose to go with a notary and they usually cost a little bit less than a lawyer, but they can also be a lot more institutional than a lawyer (this advice comes from a friend who has bought two properties and once used a lawyer and once used a notary). I went with a lawyer. Expect to cough up between $1000 - $1500 in legal fees for a routine, problem-free transfer of title (and whatever else it is that lawyers do with a home purchase ... I've only spoken with my lawyer on the phone so far and I actually haven't yet gone through this step but will do so in early January).

Step 12. Go in and sign your mortgage papers. They will then be electronically transferred to your lawyer (at least they were in my case). I did this the day after lifting the subjects, so exactly one week following the accepted offer to purchase.

Step 13. Now you have some time to breathe. There's no rush to meet with the lawyer. You only have to have all of the papers signed before the closing date. I'll meet with my lawyer two weeks before my closing date in January.

And that is my home buying adventure to date. Now I'm moving on to booking a moving company and other details such as day boarding the kitty cats on the actual moving day.

I still occasionally feel panicked, sick to my stomach and dizzy but by-and-large those feelings have been replaced by excitement and anticipation of moving day.

I did it! I am a home-owner!


Dr. K said...

Oh, I forgot about property taxes. You either need to be prepared to reimburse some of the property taxes already paid by the seller (property taxes are paid to the city in advance) or pay a large bill for your own up-coming pre-paid property taxes, depending on what time of the year it is when you buy.

Obviously the amount will depend on your property and the city that you live in, but be aware of them because the bill is not insignificant.

ABC said...

Congratulations! I went through a variation of this process last spring, and I almost threw up outside the lawyer's office where the closing took place. After I signed my life away I went out of town for the weekend just so I could recoup my sanity and get some perspective.

That was the worst part about it all though, and I've thoroughly enjoyed home ownership since then.
Best of luck with the rest of the formalities and with moving!

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