When it comes to placing an offer, financial unpreparedness won’t just cost you time and money – it may cost you the home of your dreams. Be ready ahead of time with the help of these four essential steps.
Step 1: Decide on a Down Payment
Chances are, you already know you need to have a down payment ready before putting in an offer. Of course, HOW MUCH you’ll need to put down will depend on the following:
What is the Average Listing Price?
Your down payment amount will vary depending on the style of home you’re interested in. For instance, in Edmonton, the 5% minimum for a single-family home vs. a duplex can differ by thousands of dollars.
Are You Willing to Pay Mortgage Insurance?
Mortgage insurance allows home buyers to purchase a home with as little as 5% down. Ranging from 2.80% – 4.00% of your overall mortgage amount, this fee is typically paid out monthly over the term of your loan. If you’d prefer to avoid this additional cost, you will require a down payment of 20% or more.
How Much Are You Willing to Pay Monthly?
The more you put down, the cheaper your monthly payments. A mortgage calculator can help you determine what you’ll be paying based on asking price, down payment size and loan terms.
What is Your Current Financial Situation?
Homebuyers with less than ideal credit face tighter loan restrictions and increased interest rates. In this case, a larger down payment will be looked upon more favourably by lenders.
Are You a First-Time Buyer?
First-time buyer programs are available for those new to real estate and require assistance coming up with their down payment. As many of these programs require you to apply in advance, be sure to investigate them before hitting the market.
Step 2: Get- Pre-Approved
A pre-approval is your next step. During this process, a lender will take an in-depth look at your finances – including your down payment, income, debts, assets and ability to pay closing costs. From here (if qualified), your lender will pre-approve you for a maximum mortgage amount (including your monthly payment and rate).
In short, a pre-approval determines how much you can afford to spend on a home. Much like “cash in hand”, sellers will automatically take your offer more seriously – allowing you to close on a home faster and with fewer hassles.
Step 3: Partner With an Edmonton REALTOR®
Partnering with an experienced Edmonton REALTOR® can help you save time and money – especially when it comes to placing an offer on a home.
They’re Well Connected
Seasoned REALTORS® have a wealth of contacts to draw from. This means they can connect you with reputable brokers, lenders, inspectors and other professionals likely to give you the best rates.
They Know the Market
A good agent knows the Edmonton market inside and out – and therefore what you should (and shouldn’t) be paying for a home. After researching comparable homes in the area, they’ll work with you to come up with an offer that’s both affordable and fair.
Negotiating Power
As many sellers come backed by their own REALTOR®, it’s important to have someone in your corner when it comes time to negotiate. Your agent will act in your best interests when it comes to getting the best possible sale price and conditions.
Step 4: Set Cash Aside for Additional Costs
On top of your down payment, there are additional costs you’ll need to be ready for as soon as you put in your offer. These include:
Inspection Fees
Home inspections are essential for revealing/identifying defects within a home before purchase – and can often be used as a bargaining chip on your offer. Prices generally range between $400 – $700.00.
Closing Costs
Coming in at roughly one to three percent of a home’s overall purchase price, closing costs include fees related to legal administration, insurance, taxes and more. Depending on the situation, your REALTOR® may be able to negotiate some of these costs for you.
Moving Costs
Once your offer is accepted, you’ll likely need to book a mover asap. While costs will vary according to distance and the amount of stuff you have, we recommend setting aside at least $1,000 beforehand.
For more helpful home-buying related info, check out our blog or download your free copy of our Buyer Guide.