The Ultimate Buying Guide for Purchasing a Property
The Ultimate Buying Guide for Purchasing a Property
Are you in the market for purchasing a property? Whether you’re a first-time buyer or an experienced investor, navigating the buying process can be overwhelming. That’s why we’ve put together the ultimate buying guide for purchasing a property and to help you make informed decisions and find your dream property.
Determine the right reasons to become an owner
Buying a property is not a decision to be taken lightly. This is an investment that requires monthly repayment and that commits you to paying a mortgage over several years, hence the importance of being financially stable. Take the time to determine if now is the right time to become a homeowner and if you have good reasons to start.
The reasons for investing in real estate are specific to each person. However, here are several points that can represent good reasons to become an owner:
This is one of the main reasons why an individual decides to become a homeowner. Some decide to buy to stop paying rent, others still receive a gift or an inheritance and decide to invest it. It must be said that the reasons for investing in real estate are particularly numerous.
For many people, being a tenant represents a certain lack of security. At any time, the owner can decide to sell or start renovations in his home, forcing you to move. The best solution to this would be to have your own home.
Real estate is an investment that increases in value over time. For this reason, some choose to buy in order to create a heritage to bequeath to their offspring, so as to ensure that they will not miss anything when they die.
People who buy a house are not necessarily their first acquisition. Indeed, many have one or more second homes. In addition, some decide to sell their main house to buy another that better meets their needs.
Important to know:
Becoming a homeowner comes with its share of expenses and responsibilities. You will have to take care of all the damage that can occur at any time in your home. In particular, you will have to pay other costs related to the maintenance of your property, as well as municipal taxes and other related expenses.
Buying guide for purchasing a property
This buying guide for real estate properties will help you navigate through the process and make an informed decision.
1. Determine your budget
Before you start looking for properties, you need to determine how much you can afford to spend. Consider your monthly income, expenses, and debt to figure out how much you can comfortably pay each month. Don’t forget to include the down payment and closing costs. This will help you narrow down your search and avoid the disappointment of finding a property that you cannot afford.
Know your borrowing capacity
Buying a house is certainly a good investment, but you still have to start at the right time. If you already have several loans and your credit rating is not looking good, then you may have to postpone your purchase project.
In order to determine your borrowing capacity, you will need to calculate your debt ratio. Two ratios are generally used: Gross Debt Amortization (GDA) and Total Debt Amortization (TDA). To access a mortgage, the GDA must be less than 32%, while the TDA must not exceed 40%.
This includes knowing your repayment capacity depending on your:
- Monthly gross income (before taxes and deductions).
- Monthly rent or monthly mortgage payment (including heating, electricity, home insurance, condominium fees and all related taxes).
- Loans (line of credit, personal loan, credit card, car rental).
- Alimony (if applicable). Alimony is financial support paid by one spouse to the other after divorce or separation. It aims to help the lower-earning spouse maintain their standard of living. Its amount and duration are determined by the court based on various factors.
Good to know:
Non-debt-generating expenses such as groceries, phone plans, transportation, or entertainment will not be taken into account in the calculation of the debt ratio. However, it is strongly recommended to take them into consideration in order to know all the expenses relating to your budget.
2. Learn about mortgages
Buying real estate will undoubtedly be the biggest investment of your life. You will certainly have to apply for a mortgage loan that will commit you for several years. Before consulting a broker to find you a suitable loan, it is essential to know certain basic concepts, including the types of mortgages and their characteristics:
It involves paying a fixed amount for the duration of the mortgage term. The interest rate is lower, but it is spread over a longer period. Financial penalties apply if you want to increase your payments to pay off your loan faster. Once the mortgage is closed, the borrower becomes responsible for making regular mortgage payments to the lender based on the agreed-upon terms. These payments typically include the principal amount borrowed, interest, and any applicable taxes and insurance.
It is characterized by a shorter term and a higher interest rate. You can repay your loan at any time, in whole or in part and without penalty. This is the ideal option for people who expect a large cash inflow in the short term (sale of a house or acquisition of an inheritance).
It assures you of paying fixed installments for the duration of the term. This is a guaranteed rate where variations in the rate of your mortgage are blocked. Although it is higher compared to a variable rate, the fixed rate represents the best option to simplify your financial planning.
It implies that mortgage payments are changed up or down depending on the state of the financial market. The advantage will be to pay less for your monthly payments each time the rate in force drops. However, the risk of seeing its rate increase if the markets collapse should not be eliminated.
Frequency of payments
You may think that the frequency of payments does not commit your mortgage in any way, but in reality it is possible to generate significant savings on your interest. So you can decide to pay off your mortgage monthly, every two weeks, or weekly.
It represents the total time to repay your entire loan. The longer your amortization period, the more interest you will pay. The majority of Quebecers take out a mortgage for 20 or 25 years.
It commits you to make a determined repayment during a given period (between 6 months and 10 years). Once this period is over, you will have to renegotiate the terms of your loan, if you still have a balance to pay.
3. Get pre-approved for a mortgage and financing
Getting pre-approved for a mortgage can help you narrow down your search by giving you a clear idea of how much you can borrow. This will also show sellers that you’re a serious buyer.
There are different financing options available such as mortgages, home equity loans, and personal loans. Evaluate the different options to determine what is best for you.
4. Find a real estate agent
A good real estate agent can help you find properties that fit your budget and criteria. They can also negotiate on your behalf and guide you through the paperwork.
5. Visit and find a house to buy
Now that you know a little more about your borrowing capacity, it’s time to make visits to find THE dream home. By defining your criteria and using a real estate broker, you maximize your chances of quickly finding a suitable property. Your broker will be a great ally in negotiating the conditions and the selling price.
It is recommended to prepare specific questions before each visit. These questions will cover the following:
- Characteristics of the house: number of rooms, area, year of construction, insulation and soundproofing
- State of the property: monitor the presence of cracks, humidity or mold and ask if there has already been water damage
- Related expenses: price of municipal and school tax, home insurance and energy consumption
Renovations: ask if any renovations have been done and if there is a need to renovate certain parts of the property
- Neighborhood: it is essential to find out about neighborhood problems, burglaries and future development projects
- For condominium houses: ask to know the amount of the charges and what they include
Research the market
Do your research on the area where you want to buy a property. Look at the property values, crime rates, school districts, and other factors that may affect your decision.
Attend open houses: Attend open houses to get a better idea of what you’re looking for. Take note of the property’s condition, size, and location. Don’t be afraid to ask questions.
Get a home inspection
Before making an offer, get a home inspection to check for any hidden problems. This will give you an idea of any potential repairs or maintenance that may be needed.
The location of a property is one of the most important factors to consider. A good location can increase the value of your property, while a bad location can decrease it. Consider factors such as proximity to transportation, schools, and shopping centers.
Type of Property
There are different types of properties available such as condos, apartments, townhouses, and single-family homes. Each type of property has its own set of advantages and disadvantages, and you should consider what suits your lifestyle and budget.
The condition of a property can greatly affect its value. Before making an offer, hire a home inspector to assess the condition of the property. This will help you avoid any unexpected repairs and additional costs.
Legal considerations include zoning laws, property taxes, and homeowners association fees. It is important to research and understand these legal aspects before finalizing the purchase.
6. Negotiating the Sale and Make an offer
Once you’ve found the right property, make an offer. Your real estate agent can help you with the negotiations and paperwork. Negotiating the sale of a property can be a challenging process. Consider hiring a real estate agent to help you negotiate and ensure that you are getting a fair deal.
Make an offer to purchase
The offer to purchase is a document that commits you to the seller to buy his property. He will have the choice between accepting, refusing, or proposing a counter-offer. It is important to know that from the moment the seller has accepted your offer, it will be very difficult to withdraw from you. On the other hand, signing an offer to purchase assures you that the property will be sold to you and not to another buyer.
The offer to purchase is a document drafted by your broker. This includes the following information:
- Identification of the buyer
- Description of the property (address, number of rooms, area)
- The price offered for the purchase of the property
- Down payment amount (if applicable)
- The conditions of the sale (you can require that the purchase be conditional on obtaining a mortgage loan, a positive pre-purchase inspection and that the signing of the deed of sale be done before a notary)
- Obligations of the seller (sell the house in its state, with or without the furnishings)
- Obligation of the buyer (apply for a mortgage loan)
- Date of possession (usually 30 to 60 days after the date of the offer to purchase, depending the law in your country)
- Deadline for acceptance (it is recommended to indicate a date for the acceptance or refusal of the offer by the seller. The usual deadline is between 24 to 72 hours, depending the law in your country)
- Signature of the buyer
Important to know:
If you use the services of a real estate broker, it is the latter who will prepare the purchase offer. However, if you are looking for a house on your own, it is imperative to go through a notary regarding the drafting of this document so as not to fall into certain traps.