As you set upon your home buying journey, it’s fun to check out model homes and visit shiny, inspiration sales centre. Once you find ‘the one’, you’ll need to act fast to make your offer.
Things can move rather quickly, especially with pre-construction projects, where there are sometimes dozens of other purchasers vying for the same unit or lot.
Before putting in an offer, the builder or homeowner will want to ensure you can carry a mortgage on that property. Mortgages can be provided by banks or via mortgage brokerages. What’s the difference?
Banks, sell their own branded mortgage services at their bank’s own rates, whereas a mortgage brokerage deals with hundreds of different lenders (including banks), offering far greater range in rates, opportunities, including approving mortgage scenarios that a conservative bank may automatically reject.
Given that this is the largest purchase you’ll likely ever make in your life, it would be prudent to obtain mortgage quotes from both parties, so you can compare their offerings and make a decision that best suits you and your circumstances. Tip: when you use a mortgage broker, ask if they charge a broker fee…in most cases, mortgage brokerages are paid by the lender (not you). You just reap the mortgage brokerage’s research/leg work…but best to ask upfront.
Part of the qualifying process will include ensuring you have all of your mortgage requirements prepared and ready to go.
1. GATHER THE KEY DOCUMENTS A LENDER WILL ASK TO SEE
- Identification: driver’s license, passport or other government ID
- Proof of Employment:
- recent letter of employment (can’t be more than 3 months old)
- recent paystub,
- last 2 years of T4 slips
- Last 3 month’s bank statements
- Information about any other assets you may own
- Information about your debts or other financial obligations
- Be prepared to have a credit check done
The administrative process of gathering documents, checking details and considering the application may take anywhere between a week to three weeks (depending on how busy the market is).
2. PRE-APPROVAL
You hear from your bank or mortgage agent and get your pre-approval letter. This is the essential step that homebuilders will want to see before a pre-construction purchase can be made! Knowing how much you’re pre-approved for determines not only your price range, but also reveals what your monthly payments will be. The pre-approval also guarantees your rate for up to 120 days (4 months). If interest rates go down between the time of your purchase and your closing, you do not have to commit to the higher rate that was quoted. Fresh mortgage documents can be drawn-up at the time of closing (which may be years away). Now, if rates go up, and you no longer qualify for that mortgage, there are options for you to consider. You can read about them in this Toronto Star article.
3. SHOP THE MARKET & MAKE AN OFFER
You’ve found the one, mortgage pre-approval in hand, you’re ready to put in an offer. When visiting a builder’s sales office, your deal can be done with or without a real estate agent. Keeping in mind, if this is your first time buying, a real estate agent can help navigate you through the process, knows what questions to ask and even better, you don’t pay the realtor—the builder does.
Alternatively, you can work directly with the builder’s sales staff.
4. OFFER IS ACCEPTED
If you’ve purchased a condo, your immediate next step is to show your Agreement of Purchase and Sale to a real estate lawyer. Condo purchases have a 10-day cooling off period (from the date that the purchase agreement is first signed and the Disclosure Documents received) in which you can legally cancel your purchase, under the Condominium Act (Ontario). A lawyer will look through the often complex set of documents and bring to your attention anything they think you should be cognizant of, so that you don’t experience any surprises.
If you’ve purchased a freehold property (singe detached, semi or townhome), a 10-day cooling off period does not apply. However, having said that OREA (Ontario Real Estate Association) supports the government’s proposed cooling off period for freehold purchases as well.
It remains to be seen if that will take place. It would certainly be a good thing for the consumer and make things consistent, no matter what type of property a buyer purchases.
5. OCCUPANCY & CLOSING
Occupancy Phase
As per Tarion Guidelines, you will hear from your builder’s Customer Care team, informing you of your occupancy and closing date. It’s beneficial to know that during the occupancy phase, your mortgage is not yet due (because the building has not yet closed). The mortgage only comes due upon closing.
You will also need to obtain mandatory home insurance before you (or a renter occupies) the unit. Without proof of insurance, you (and or your tenant) will be denied access.
Closing Date
The closing date can be years away from the occupancy date. At closing is the time to finalize your mortgage and obtain a ‘mortgage commitment letter.’
Finally, you’ll meet with your lawyer to provide the remaining amount owed, beyond your down payment and closing costs.
Be prepared! Closing costs can equate to anywhere from 1-4% of the purchase price.
The Agreement of Purchase and Sale will list all your closing costs.
