A complete guide of buying a home in Vancouver From Tony Lin
Buying a home is probably the largest purchase that youíll ever make in your life, and thereís a lot you would need to know. Our step by step guide on everything you need to know about buying a house in Vancouver will help you to understand.
DECIDE IF YOU ARE READY FOR HOME OWNERSHIP
Purchasing a home is a big decision that can be both exciting and overwhelming. It is one of the biggest financial purchases that most people make in their lives, and in addition to considering the investment itself youíll also have to find a place youíd like to live in too!
Before you start looking for your dream home, decide if youíre ready for home ownership by considering some initial questions:
- What can I afford?
- What are my options?
- What do I need in a home?
- Am I OK with the risks?
- Am I ready for the responsibility of home ownership?
Knowing and understanding what is involved in the purchase of a home and where you will be able to live comfortably is an essential first step in the home buying process.
FIND YOUR REALTOR
Having a realtor to guide you through the process of buying a home is an absolute necessity. The buyerís agent is there to assist you in the process, help to guide you in the right direction, show you homes and all of the great neighbourhoods, write an offer for you that protects you, and assist you towards completion to ensure smooth sailing.
FAQ: Who pays the realtor commission?
The service of a realtor when you are purchasing a home is free $the seller pays your agentís commission. Make sure that your best interests are protected and that you hire a buyerís agent to consult you throughout your purchase.
You can expect licensees to provide you with such services as:
- Helping you to clarify the type of home you need and can afford
- Providing information about available properties and sources of financing
- Determining market value of a property so that you donít overpay
- Arranging appointments to view available properties
- Providing accurate answers to any questions you may have about a specific home you are considering Writing an offer and recommending terms, subjects, and agreements to ensure that you are protected in
- your purchase
- Reviewing documentation related to your purchase
- Presenting your written offer to the seller and negotiating on your behalf
- Facilitating the steps between an accepted offer and completion/possession
For more details on the role of the buyerís agent read this blog post: What Does a Buyerís Agent Do
FIND YOUR MORTGAGE BROKER
Your realtor will have a network of mortgage brokerís that their clients have used in the past, and your friends and family will also most likely have a recommendation.
Another option is to go to your bank and find a mortgage broker that can assist you with the home buying process.
Your mortgage broker will be able to help you get pre-approved and determine your affordability based on your income and various factors, as well as search for the best rate and term for you based on your real estate goals.
Itís important that you hire a mortgage broker that has a good availability, as offers oftentimes happen last minute and in the evening. Having a mobile mortgage broker with a flexible schedule will assist you greatly throughout your purchasing journey.
PRE-APPROVAL PROCESS & DETERMINE YOUR BUDGET
A mortgage pre-approval is when your mortgage broker has sent in your basic financial information (income, credit score, current debts, etc.) to the lender for review. From there, the lender will have determined the maximum amount of money they will lend you, along with an estimated interest rate and monthly mortgage payment. Many home sellers nowadays will not even look at offers if the buyer is not pre-approved.
Pre-approval assures the sellers that you are a motivated and ready buyer that is certain of their affordability and not just taking a shot in the dark from an online calculator.
CONFIRM YOUR DOWN PAYMENT
During the pre-approval process, you will need to confirm your down payment and how much you will be putting down.
The amount that the bank is willing to lend you plus your down payment will be the maximum purchase price that you can afford. There are various sources available for your down payment:
- RRSP withdrawal: You can withdraw up to $25,000 per borrower to be used towards your down payment. The funds have to be repaid within 15 years and you cannot take out RRSPs unless they have been in your account for at least 90 days.
- Gift: A common way for buyers is to receive a gift from a family member to help with their down payment
- Borrowed funds: You may borrow funds from a line of credit to assist with your down payment.
Minimum down payment rules in BC are as follows:
- 5% for properties for the portion of the purchase price under $500,000
- 10% of the portion of the purchase price above $500,000 but less than $1,000,000
- 20% on the purchase price for properties valued above $1,000,000
However, your mortgage broker will tell you the accurate amount.
To complete the transfer of title, there are a number of costs in addition to the purchase price that you will need to consider. In short, some costs associated with closing are:
Notary or lawyer fee
This fee ranges from $1000 to $1600 depending on complexity of the deal and whether or not they need to order additional documents.
The lender may charge an appraisal fee, this is typically around $250-$400. Ask your lender/broker if they cover this cost for you.
Property transfer tax
If you are a first time home buyer then you may qualify for a property transfer tax exemption.
In BC the property transfer tax is calculated as 1% of the 1st $200,000 and 2% on the balance up to $2,000,000, 3% on the portion of the fair market value greater than $2,000,000, and if the property is residential, a further 2% on the portion of the fair market value greater than $3,000,000.
If your purchase price is less than $500,000 and you are a first time home buyer that matches the exemption requirements then you are exempt from the entirety of the tax.
Maintenance fee adjustment
If you are purchasing a strata property such as a condo or townhome, then you will need to pay the difference in the monthly maintenance fee for the time that you are living in the home
Property tax adjustment
All homes pay a property tax once a year in July. Depending on whether or not the seller has already paid the property taxes, you may have to pay for the portion of time that you are living in the house. This can often be a large sum of money and it is important that you have your realtor and/or notary calculate this for you in advance.
ADDITIONAL BUYER COSTS TO BE AWARE OF
The federal government requires high-ratio mortgages with less than 20% down payment to be insured against default.
This amount works on a sliding scale depending on how much money you put down towards your home purchase & have your mortgage broker estimate it for you.
Home inspection fees
One of the common subjects to put in an offer is a home inspection clause. A home inspector will come and inspect the property as well as provide a report on the condition of the home.
The fees range and is typically $300-$700 depending on the size of the home and the complexity of the inspection.
Goods and Services Tax (GST)
The GST on a new home is 5% of the price.If the home you are purchasing is a newly built home priced up to $350,000, a GST rebate equivalent to 36% of the GST paid is available. A partial rebate on new homes priced up to $450,000.
Buyers also pay the GST on fees for services from appraisers, home inspectors, lawyers, Notary Publics.
CHECK OUT HOMES
Once youíve determined a very strict list of needs and wants, itís time to go out and search for homes! Youíll have the chance to attend open houses.Not every home you see online will still be available or have an open house & have your realtor check availability and book private showings.
NARROW THE SEARCH
After checking out some homes you should be able to narrow down exactly what you like and donít like.From there, your realtor should perform a comparative market analysis for you to determine the market value of your favourite homes. If they are within your budget, then rank those homes from best to worst and decide which home you would like to write an offer on. The process of finding the right home can take anywhere from one day to more than a year. Take your time, and know when the right one really comes along and go for it.
WRITE AN OFFER
Once youíve found the home that you can see yourself living in the next step is to write an offer with a Contract of Purchase and Sale. In a hot market, they may be an exact date when the seller is reviewing offers, and in this case you may be encountering a multiple offer scenario. Alternatively, if the home has been on the market for a long time or the seller has requested it, they may be doing offers on a first come first serve basis.
FAQ: What should you include in the offer?
When writing an offer youíll need to decide on a few things:
- included/excluded items
- terms to ensure youíre protected
- expiry time/date of your offer
TYPES OF SUBJECTS TO INCLUDE IN AN OFFER
Subjects that you will typically see in a real estate offer are:
- Subject to financing
- Subject to title search
- Subject to property disclosure statement
- Subject to inspection
- Subject to strata documentation (if applicable strata property)
The above subjects will ensure that the buyer is able to perform due diligence on the property with regards to the most important matters of purchasing a home.
One of the earlier steps was to find a realtor, and if you havenít done that by the time youíre ready to write an offer you should look for representation as soon as possible. Once your realtor has drafted your contract to present to the sellers, you should review and adjust accordingly in preparation for your offer to be submitted.
NEGOTIATE THE OFFER
Once youíve submitted your offer, the seller can respond one of three ways:
- Accept the offer
- Reject the offer
- Counter the offer
FAQ: What if the seller makes a counter offer?
If the seller counters the offer then they will be crossing out some of your terms, dates, or negotiating the price. Once the seller changes your offer in any way, it becomes a new offer by the seller known as a ìcounteroffer.î
At the time of receiving the counter offer, you now have the decision to accept, reject, or counter again. The counteroffer cancels the previous offer, so keep in mind that every change that is made takes the previous offer off of the table.
It is very common for negotiations to last 3-4 counters, and you will have to be aware of the expiry time of the offer as all negotiations and an acceptance (if any) must be completed by that time.
BEGIN SUBJECT REMOVAL
Subject removal is there for the buyer to perform due diligence on the property as well as ensure that their finances are in order prior to handing in the deposit.
FAQ: How long is subject removal?
Typical subjects that you will need to perform prior to the subject removal date [usually 7 days long] are financing, inspection, title, property disclosure statement, and strata documents if required.
If you are satisfied with all of your subjects before the subject removal date, then you will proceed and provide the deposit. If you are not satisfied with the results of the subjects that you have the option to collapse the deal and walk away.
REMOVE SUBJECTS AND PROVIDE DEPOSIT
If you remove subjects, then you will need to provide the deposit to your realtor within 24 hours of subject removal. [unless otherwise agreed to in the contract] Some contracts may require you to submit the deposit upon subject removal.
FAQ: How much should you pay for the deposit?
The deposit is typically 5% of the purchase price, and is held in trust by the buyerís agentís brokerage until completion.This deposit will form a part of your down payment on the home. Once you remove subjects and provide the deposit, the deal is now considered ìfirmî and all you have to do is wait until you move in!
CHOOSING A NOTARY OR LAWYER
Anyone buying or selling a home needs a notary or lawyer to represent them in their real estate transaction. If you are buying and selling, it is best to keep the same notary or lawyer for both transactions. They will be the ones to draft up a statement of adjustments for you, in which you will know how much money is due upon completion and what the exact closing costs are to complete. In the case that something goes wrong, they will be your representation to ensure things are smoothed out.
FAQ: How do you finish the purchase?
Prior to closing, your realtor will instruct their conveyancing team to send your notary or lawyer all of the documents that they need to start your file and work towards completion.
Your lawyer or notary should have already calculated how much money you will need to bring in a week or two prior to closing in order to complete the transaction. You will be instructed to bring them a bank draft or certified cheque to cover the balance of any funds necessary to close, along with proper government issued ID.
The completion process requires a fair amount of paperwork to go through, and you will need to sign off on documents required in order to complete the transfer.
Depending on which lender you use, you may also have to visit the branch to review important mortgage details like preferred payment dates and ensure that they have all of the documents that they need before closing.
Your possession day will have been stipulated in your contract of purchase and sale, along with the time that you should receive the keys. Make sure that your realtor reviews this with you and tells you exactly when you are able to move in so that you can schedule with your movers accordingly. The sellers should have already cleaned the house, but a secondary clean before you start moving all the furniture in wonít hurt!
Your realtor should pass the keys along to you at the time of possession and double check that they are all working and none are missing as per the contract.
CHANGE THE LOCKS
Itís better to be safe than sorry, and itís important that you change the locks to your new home and obtain new keys from a locksmith upon possession.