Anyone who says buying a place is “fun” is either really rich or is fortunate to live in really privileged life circumstances. Last year, I bought my very first apartment and while the feeling of living in a place I can call my own, and making it my home has been really fun – the process was definitely not. I live in the Lower Mainland of Vancouver, British Columbia and there are dozens of articles on how unaffordable the housing market is here. It’s routinely ranked as one of the top 3 most unaffordable cities in the world in comparison with cities like London and New York (not really a title a city wants to brag about), but somehow here I am.
And while there are literally a million factors regarding the housing market and it’s super dependent on where you live and the lifestyle you prefer (owning a home is not for everyone and that’s okay!), it is a really big decision. Not only is it a big financial decision, its big legal decision.
Finally, I’m not a financial or mortgage expert by any means. This is truly from my experience as someone who:
- Lived in a very expensive housing market in a big city;
- Didn’t know anything about buying property prior to 2017; and
- Had a very limited and tight budget.
Market rates and mortgages are going to vary from place to place and definitely from country to country. Your province/state/country may have policies or even laws that dictate how homes are purchased, sold, and taxed. Buying a home is a really big endeavor and the best possible advice I could give you (even if you don’t read the rest of this article) is to find a trusted and educated financial expert and talk to them about the best options for your personal situation.
1. Fixed Rates vs. Variable Rate
This is one of the first things that people ask you when you look into a mortgage and if you’re anything like me, you also pushed these math-like words out of your head, then I’ll give you a truly simplified explanation.
Fixed and variable refer to different terms of interest rates. A fixed rate is when you have the same interest rate for your contracted term (which can vary from 3 to 5 years). So even if the market interest rate goes down, you’re still obligated to pay that set rate within that timeframe before you can re-finance. A variable rate is one that follows the market. It has a base number but can go up or down to a certain percentage depending on the market rate.
The interest rate is a critical part of a mortgage because it determines how much money you will be paying the bank for borrowing the money. Literally the difference of a couple of points could cost you thousands over the course of a mortgage.
While you need to sit down with your mortgage broker to figure out what’s right for you in the current market, a lot of choosing a fixed or variable rate is about how risk adverse you are. Having a fixed rate means your mortgage payments will be the same every month and having a variable rate means it can change (lower or higher) from month to month.
For me, I’m risk adverse in these types of situations (plus Canada was at its all-time lowest interest rate) so I chose a fixed rate. There are definitely benefits for variable as well, but it didn’t make sense for me as I have a very steady income and was making the purchase on my own. Maybe if I bought it with another person, I will be a little more risky in this situation but it’s not a chance I could personally take. There’s no black and white straight answer, choosing a rate will truly depend on the economy at the time, your personal financial situation, and your personality for risk – and those are all factors you should discuss with your mortgage broker so they can present with the best options for your situation.
When buying a place, you’ll notice that you don’t really have to “pay” anyone (other than your notary and that’s only after the purchase). When you really delve deep into the world of real estate, you’ll learn that’s because everyone is super eager to help you – including the real estate company you are working with, your realtor, the seller’s realtor and your mortgage broker are most likely working on commission. While this is great because it means you don’t really have to pay that much to start looking at a home, it also means they are profiting off the expense. Now I’m not against anyone making money for their job; these people do truly have to through tons of education and accreditation processes to maintain their profession, it’s just something to keep in mind.
The more money you spend, the more money they make.
And while any good realtor/mortgage broker wouldn’t push their client into something that was truly not right them, they are those that do, and you have to be careful.
That’s actually one of the reasons I wrote this article about my experience, because I’ve seen some really terrible mortgage terms before. A little while after I bought my apartment, my friend was also in the market and sent me over the offer letter from his mortgage broker at a bank and the terms were terrible. I’m not a financial expert, but having also gone through the exact same process; it made me literally angry to think that anyone would ever accept those terms. And the truly scary part? There are people that do. Some people do accept bad terms because their mortgage brokers and real estate agents didn’t have their best interest at heart; they just want to flip the sale as soon as possible and don’t care if these terms will affect the next 20 to 30 years of their client’s life.
Typically mortgage brokers usually make between 0.5-1% of the borrowed amount and real estate agents typically split 3-7% between themselves (the buying agent and the selling agent). These commissions are usually paid by the loaning institution (like a bank) and the selling agent (for the agent’s commissions).
In my personal experience, I was extremely lucky to have mortgage broker who was my old coworker and a family member as my real estate agent. I could 100% trust that these people would have my best interest at heart and they really walked me through the process and explained everything thoroughly to me. This was super beneficial
3. Shop Around
This is two-fold. On the one hand, it’s really important to look at a lot of different options. Even if you know what type of home you would like to buy, it’s really important to look at everything. The idea of what you would like in a home could be very different from the reality and from the price you are willing to pay for it.
For instance, for me, I originally had my heart set on living downtown. However, as I started looking at places, I realized how
- Hella expensive it is;
- How noisy it is and how many shady people are around convenient areas like train stations; and
- How much I hate people (I’m kidding, but not really). I learned that I don’t like living in a huge towers because all of the busyness and noise actually stress me out. I currently live in a quiet and residential area where I actually know people in my building.
The next component is to ensure you are shopping around for your mortgage as well. Make sure you are getting quotes from different institutions, banks, etc. The percent of your down payment, credit history, and job stability will all be factors, but different lenders will have different rates. Even though my mortgage broker is my friend, even he told me to get different quotes. In the end, his quote and terms were the lowest but if they weren’t I would have gone with someone else. This isn’t a personal decision in supporting a friend’s business or work, this is one of the most significant financial decisions you will make and even if it’s your mom that’s the mortgage broker, it doesn’t matter. The lowest rate wins, always.
4. Timing Really Is Everything
If you are truly on a budget and serious about a home, you have to obsess about it. This is not something I say lightly because in my experience, it’s true. It is very rare that the perfect home will come at the perfect time at the perfect price with no hiccups or issues whatsoever.
It’s not that realistic, especially in today’s market.
This was something I had to even explain to my parents. The housing market in my area has really changed from 20 years ago where there were many more homes to buy and more options. Now, living in a big city, the population has increased and with fewer homes, it’s gotten more expensive. This probably isn’t as applicable if you’re looking in areas where the housing market doesn’t sky rocket (literally).
I (and many people I know) ended up buying homes on the lower end because the seller really needs to sell their property quickly. In my personal experience, I was the first offer, and actually went lower than asking price (even though I was perfectly happy to pay asking) and the owners accepted it because they were looking at upgrading and needed the cash to buy their own home.
Situations like this do come up. You never know a seller’s position, they may not really be in a rush to move and could keep their home on the market for a while for their set asking price, or they may be desperately looking to sell to either buy a new home or have life circumstances change like moving to a new country. You can’t tell from the ad, you have to go to open houses and really do research on every property that gets listed.
If this is your first property, having the luxury of flexibility and time in an offer can be a great benefit.
5. Money Talks
Finally, it’s important to remember that while you have a real estate agent and a mortgage broker, you need to do your own research as well. When I was looking at properties, I had alerts sent on to my phone the second they got listed. So before my real estate agent could even ask me about it, I had already looked through property details, noted down the open house times and decided if I wanted to go see it or not. Obsessed.
But that’s how I was able to make the first offer on my apartment.
You may think it’s your mortgage broker or real estate agent’s job to do all of the work because that’s what they are paid for, right? Well, yes. But remember when you’re first starting out, they also will probably have high paying clients are working on commission, remember? So while they will of course help with the work, the person that is buying it is you. And to get the best possible situation, you have to be willing to do the work as well and that includes looking at all the options and doing your own research as well. Like a lot of adulting life, you have to learn that it’s not going to be anyone’s responsibility but your own to kick yourself into gear and create the life you want.
I hope you enjoyed this article on all the things I learned when searching for a home. Truth be told, I want to go into so much more but this article was getting a little too long. I will be doing a follow up on what I learned from negotiations, contracts, and the purchase on a later post in this series. Let me know if that’s something you will be interested in!
Thanks again for following along and let me know below if you have any advice for first-home buyers.