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Thinking of buying a new home? Keep these things in mind before starting your search

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Barry Choi

September 25, 2020
Saving strategies
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Buying a home is one of the most exciting things you’ll do in your life. It represents a significant milestone that should be celebrated, but it also requires careful planning since there are so many steps involved.

While it’s nice to think about what area you want to live in or what kind of furniture you want to buy, you don’t want to get too ahead of yourself. Instead, it would be best to focus on the steps that need to be taken before you even put in an offer.

 

Check your credit score and report

If you want to buy a home, the odds are you’re going to need a mortgage. To qualify for one, your credit score needs to be in good standing. Generally speaking, if you’ve been making all of your monthly payments including credit cards and other loans, you should be in good shape. However, if you’ve missed some payments in the past or had some debt issues, you may want to try and boost your credit score.

You’ll also want to check your credit report from both Equifax and Transunion to see if there’s any suspicious activity. Identity theft has become a real problem over the years, and many people have become victims without their knowledge. By checking your credit report, you can see if everything looks right. If there are any questionable accounts open, you can investigate and correct them.

 

Eliminate debt

When you apply for a mortgage, any outstanding debt that you have will factor into how much credit a lender is willing to extend to you. For example, suppose you have $50,000 in outstanding consumer debt. In that case, lenders will likely reduce the amount of mortgage they offer you by an equal amount.

Your debt level is used to determine your total debt service ratio and is calculated as the percentage of your monthly family income that goes to pay your total monthly expenditures. This is one of the standards mortgage lenders use to determine how much home you can afford.

 

Get a pre-approval

Many lenders offer mortgage pre-approvals and it’s a good idea to get pre-approved for a mortgage if possible. The nice thing about pre-approvals is that you’ll know how much you’ll qualify for and the rate is usually guaranteed for three months. You’re under no obligation to use the pre-approved financing terms so if mortgage rates go down, you can apply for the new lower rates. On the other hand, if rates go up, you can use your pre-approved rates.

If you’re getting a pre-approval, consider reaching out to a mortgage broker instead of checking with just one bank. Mortgage brokers work with multiple lenders so they can shop around for you and get the best rate. Of course, you can still look on your own while working with a broker to see if you can get an even better deal. Mortgage brokers are paid by the lenders, so you might as well take advantage of their services.

Note that some mortgage brokers work virtually these days, so you can get pre-approved without ever having to meet someone in person. Be sure to ask your broker any questions that you may have.

 

Get your team in place

You’re going to need quite a few people working with you when you buy a home. A realtor is someone you’re going to need to work with closely, so you should choose someone who has experience. Look for someone who knows the areas you’re interested in and can educate you on the buying process. Choosing someone who sells real estate as a side hustle probably isn’t a good idea since they may not give you the attention you need or may lack the experience.

Although it’s unnecessary to have a real estate lawyer in place before you start searching for a home, it’s a good idea to have someone in mind. It’s also a good idea to have your lawyer review any offers prior to submitting to the seller.

Once your offer is accepted, things can move fast, so you need to get all the documents to your lawyer ASAP. For those buying a condo, your lawyer will need to review a lot of things, such as the status certificate and the condo board report. They’ll also be able to advise you of closing costs so you can prepare accordingly.

 

Final thoughts

By preparing yourself for the home buying process, you’ll be able to make informed decisions. Happy house hunting!

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Barry Choi - Author bio

Barry Choi is a personal finance and travel expert who makes frequent media appearances in Canada. You can follow him on his personal site at moneywehave.com or you can reach out to him on Twitter: @barrychoi