Buying a home can be a stressful and trying time, especially for first-time home buyers, because it is usually the largest transaction a person will ever make. A lot of the concerns stem from the unknowns of the process. Knowing what to expect can help make home-buying less stressful. In this blog post, we’ll share five facts every first-time home buyer should know in 2022. Keep reading to learn more!
The First Step To Buying A Home
It’s fun and exciting to look at homes for sale, but before you can get serious about looking, you’ll need to know your budget. This can be figured out a couple of different ways, but ultimately you will need to connect with a mortgage lender who can give you the correct estimate of what you can afford. They will let you know what you pre-qualify for, which gives you an idea of how large your loan could be. The number could be bigger than you imagined, so you’ll want to go a step further and figure out your estimated monthly payment.
It’s important to note that a monthly mortgage payment isn’t just the principal and interest of the loan but includes taxes and insurance too. Your loan officer can help you determine an estimate of what your monthly payment will look like that includes all of these factors. You may already know you only want to spend x-amount of money each month. In that case, they can determine how big of a loan that equals and, as long as it’s under the maximum amount you pre-qualify for, then you should be set.
Pro-tip: It may be a good idea to get connected with a reputable real estate agent first and ask them who they recommend using as your lender. Often, they’ve established a good working relationship with the mortgage company, which can make a huge difference in your process of buying a home.
Know The State Of Your Finances
Being pre-qualified is great, but it will behoove you to go a step further and get pre-approved. In order to get pre-approved for a mortgage loan, there are a few important factors you need to have in place. A lender will help you determine the state of your finances and let you know if they’re golden or if they need some work. Typically, this conversation starts at one of the first contact points, so the lender can learn how to best serve you.
Some factors the lender will need to know to get you pre-approved include looking at your credit report, checking to see if you have a high credit score, and knowing how much money you have saved. They’ll also ask for a list of documents from you. It will include things like:
- A form of government ID for personal identification.
- Most recent bank statements from all your accounts.
- Information about your debts (for example line of credits, credit cards, personal and student loans, car payments and leases, and spousal or child support).
- Source of down payment. Even if the source is a gift, you’ll want to provide a gift letter.
- Proof of employment documents: Letter of Employment, T4 slips, last two pay stubs, previous 1-2 years tax returns, and Notice of Assessments from the last two years. Be sure to include extra money you make outside of your main income (i.e. pension or rental properties).
- If you own a business, you will be required to provide your Business License or Articles of Incorporation.
Pro-tip: If you need assistance with your down payment, you might qualify for the First-Time Home Buyer Incentive (FTHBI). It’s a shared equity mortgage program the government offers by providing 5-10% of the down payment to eligible homebuyers.
If it is determined that your finances aren’t where they need to be in order to buy a home right now, do not fret! Your lender should be able to tell you the weak points of your financial situation and guide you on how to fix them. Unfortunately, this will take time. How much time will depend on what requires adjusting, but if you stay focused, you will become a homeowner!
Know The State Of The Market
Once you’ve received your pre-approval, it’s time to start actively looking at homes for sale. It’s important to know the state of the market when searching, so you know what to expect and how to game plan with your realtor. If this overwhelms you, don’t worry, your real estate agent will fill you in on how the market is doing in your specific area. As the real estate market moves through ebbs and flows, it will fluctuate back and forth through a seller’s or a buyer’s market.
- A seller’s market is when the demand for homes is high, but there isn’t enough supply to keep up. You’ll typically see home prices rising as buyers compete in bidding wars.
- A buyer’s market is when there are more homes for sale than buyers. Home prices drop, and in some cases, you’ll even see foreclosures or short sales.
In 2022, the real estate market is in the seller’s hands and bidding wars are expected. The market is moving at unprecedented rates on all fronts, with homes for sale in Canada being on the market for 12 days before going under contract. The average price of homes in Canada is $1.2M, but depending on the type of home you’re looking for, this price will fluctuate.
- Single Detached Homes average: $2M
- Condos average: $785K
- Townhomes average: $1.4M
Real Estate Forecast for 2022
In order to share predictions on Canada’s real estate market in 2022, we must take a look back at 2021. The nation’s home sales were historically high at the end of 2021, with the number of property listings lower than any other point on record! The number of homes sold in December ‘21 ended at 9.9%, below the record previously set in 2020.
The housing supply issue continued to be strained through the beginning of 2022. A dip in sales at the beginning of every year is common due to the season, but the demand was still up this time. Just like every year, it’s expected there will be more homes for sale by spring, though. Not enough to fix the shortage, but things should move more.
Though Canada as a whole is experiencing a deficit, not all markets are experiencing extreme shortages or fast-rising home prices. It’s essential to look at the markets on a smaller scale and be more specific to where you’re buying. This is where your agent will be helpful!
For example, the prices in the Province of British Columbia have risen 25% year-over-year but actually remain lower in its cities of Vancouver and Victoria. Saskatchewan and Alberta’s markets are staying below 10%, and even Manitoba’s is only up 12% year-over-year. Ontario and New Brunswick real estate markets are both above 30%, but that’s because of very specific sought-after areas like the Greater Toronto Area and Greater Moncton. While Newfoundland and Labrador is at 11% year-over-year.
Real estate market shortages are expected to continue throughout the year as the demand continues. The most obvious way to fix the shortage issue is to build more homes. This can be done, but it takes time, so we may not see the market ease up for quite a while.
Know How To Win A Real Estate Bid As A First Time Home Buyer
There’s no denying the real estate market seems intimidating to a first-time home buyer, but if you have all of your financing in order, you have what it takes to buy a home! It may take a few tries at submitting an offer before a seller accepts your bid, or it may not. Either way, there are several ways to win a real estate bid, and this is where your agent can be helpful.
Negotiations start with your purchase offer, and even if you’re not confident at bargaining, a good real estate agent will guide you through this. They know what a good offer is, and it’s not always just having the highest bid. There are many conditions you can leverage that your agent will suggest, like, no contingencies or a higher buyer’s deposit or “good faith money” that shows the seller how serious you are in your purchase (this is different from a down payment).
Your Offer Is Accepted! Here’s What Happens Next
Congratulations! You’re one step closer to becoming a homeowner! This part of home buying can typically take a few weeks to a few months before the transaction is completed. As the buyer, there is still work to do on your part in order to close. This will include things like securing financing and a home inspection. You’ll also need to give your lender a copy of the agreed offer to make sure it lines up with your pre-approved financing.
Once your inspection is complete, there may be things that need to be addressed and fixed in order for the mortgage company to fund financing. Whatever the outcome of the inspection is, your real estate agent will recommend the best plan of action to resolve any issues that may have appeared during the inspection. It’s not uncommon to negotiate any repairs with the sellers at this point. The resolution could look like having the seller fix the problem before closing or giving you money to fix the issue at closing as long as the lender is okay with it.
After the conditional period has ended and the repairs or adjustments have been fulfilled, all paperwork will be finalized, including processing mortgage documents with your lender. Once all necessary paperwork has been completed, the next step is to close. This is a significant day as this is when everything you’ve been working for finalizes, and you become a homeowner. Your realtor will be able to prepare you for what really happens on closing day so that things will run as smoothly as possible.
Knowing The Facts Of Buying A Home
We hope you now have a better understanding of the process of home buying and you feel more equipped to start the process. Now you can start preparing, and before too long, you’ll be a homeowner!
