Have you ever wondered how to prepare for home ownership on PEI. We thought we would sit down and right out the 10 Steps to Home Ownership right here on PEI.
1. PREPARE YOUR FINANCIAL SITUATION TO ENSURE MORTGAGE QUALIFICATION
Save a downpayment equal to at least 5% of your home buying budget, pay down your existing consumer debt, create a history of making payments on time, and do not acquire any new debt. Ensure a stable work history as well, lenders do not trust your income source if you were just recently employed – so don’t change jobs prior to house hunting. Also ensure that you know your credit score. This is a number between 300 and 900 that describes to lenders your creditworthiness.
2. DETERMINE HOME MUCH YOU CAN AFFORD & ENSURE THAT LENDERS AGREE
Your budget will be a combination of your downpayment and a percentage of your income after servicing other debt. So the less saved, the more debt, and the lower your income, the less home you can afford. Use a mortgage calculator to help you determine your budget. Remember to include expenses such as condo or HOA fees, heating, insurance etc and closing costs such as lawyer’s fees, land transfer tax etc.
3. DON’T RUSH IN & DON’T SUCCUMB TO FOMO – HOWEVER BE PREPARED TO PULL THE TRIGGER ON YOUR HOME OWNERSHIP DREAMS
Housing markets fluctuate. So when is the right time to buy. It is very difficult to determine precisely when home prices will represent the best deal in your area. Keep an eye on the market and the inventory. When you see a home that you like, tour it with an open mind and if you particularly like it you may consider buying even in a more inflated market. You will have to balance paying extra now against waiting, and paying more rent in the meantime.
4. CHECK OUT YOUR FINANCING OPTIONS
There are a multitude of lenders and mortgage opportunities. You can approach a bank directly, find a private mortgage lender, or use a mortgage broker. They all have their advantages. Make sure that you have a pre-approval letter from your lender in hand before shopping for a home as many vendors will not accept an offer without one.
5. RESEARCH GOVERNMENT PROGRAMS
There are usually a number of government programs that can help you when buying a home. Down Payment Assistance Program, a provincial program to refund land transfer tax, Home Buyers RRSP Program, PEI Home Comfort Program to renovate certain aspects of your home, plus a number of Federal Programs, can all help if this is your first home buying experience.
6. KNOW WHAT IS IMPORTANT TO YOU & WHAT WOULD BE A LUXURY
Have a “must-have” list and perhaps a “would be nice to have” list as well. It is important to keep these two sets of shopping criteria separate as “scope creep” starts as you begin to look at homes. You will see some extra features in some houses and these extra features will, in your mind, become important when in fact you weren’t even aware of them before. Too many extra features can substantially increase your required budget which, at the very least, will put these homes out of your reach, and at worst, if you manage to increase your budget, will cause financial strain for years. Make sure the one thing you don’t compromise readily on is location. Remember it is the one thing you can never change.
7. DON’T SKIP INSPECTION – WELL PERHAPS YOU MIGHT HAVE TO
Generally it is a good idea to have a home inspection. This can reveal a host of problems that would not be seen in a casual viewing. However, in a fast moving market such as we currently have in PEI you may, in some instances, have to waive the home inspection as a way to ensure that your offer is looked upon favourably. Ask your Realtor if the type of property you are looking at would fall into the range of those properties so heavily sought that you would need to forgo the inspection. Generally single family home $300,000 and under fall into this category.
8. GETTING YOUR OFFER ACCEPTED
In the current PEI market you may have to be creative to get your offer accepted. Obviously you can offer above asking and this has become quite common recently here in PEI. We never used to see that or experience price wars on the island, but it has become a fact of life. You can drop all contingencies, and even that has become common as more Realtors are telling buyers that they will have to waive financing, inspection and other conditions that used to be common to all offers. Additionally you can try writing a personal letter to the vendors to be delivered with your offer. When a deal is being brokered by real estate agents often the buyers and the seller have never met and a letter can put a “human face” on the buyer. It’s always worth a try.
9. USE A REALTOR
As a buyer having an agent represent you through your home buying process means that you get to know your Realtor and they get to know what you are looking for. Additionally they are solely looking out for your interests. You should be aware that if you view with the listing agent, even although they are governed by a code of ethics in terms of how they deal with you, their primary responsibility is to the vendor. The buyer does not usually pay the real estate agents fees, so there is really no reason not to have an agent represent you. The buyer will pay the commission and if you have used your own buyers agent, your Realtor will be paid by the listing brokerage.
10. KNOW WHEN TO HOLD THEM & KNOW WHEN TO FOLD THEM
The PEI real estate market is tight right now. There is more demand for homes that there are homes available for sale. This unequal supply and demand creates a problem for buyers. Remember the deal you accept today will be the costs you pay for the next 25 years. This is the BIGGEST financial transaction of your life. You can not be sure that the home you buy today will continue to be worth that in the future market. Rationally if you continue to live in a home that you over paid for the market will catch up with you again and long term you will be fine. However you may have a few sleepless nights in the meantime and if you had to sell and move when home values were in a down turn you could actually lose money. Be careful, think well, don’t rush unless you are very sure, if you don’t like the deal, walk away. Remember there is always another house.