Home, sweet home! To be or not to be?

For most people, owning a house which they can call their home is their lifelong dream, albeit a very expensive dream. Buying a house can best be described as your most expensive lifetime purchase.  In North America, the journey to finding the right house can be a tedious process.

First, you have to make a list of priorities. What are you most concerned about? Location, Square footage? A private backyard? Budget? Family Size? Must-have features? Reno or move-in ready house?

Then, you’ll need to find a realtor to guide you through the purchase of the house.A good realtor is essential – and can be very hard to find. There is a difference between a real estate agent, a real estate broker and a realtor. A real-estate agent is someone who has taken some basic training classes, and then has applied for, and passed the required licensing exam. Anyone can be a real-estate agent as long as they are affiliated with a licensed real estate broker. A real-estate broker, on the other hand, is required to take additional classes in various subjects to qualify to sit for the broker’s license exam.  Both a real estate broker and a real estate agent, once licensed, can legally represent buyers and sellers in real estate transactions.  They cannot, however, call themselves a Realtor unless they are a member of the Canadian Real Estate Association (CREA). It is advisable to hire a realtor to guide you through the process of buying your new house as they are bound by the Code of Ethics of the CREA.

The next hurdle is financing your purchase of the house. It is important for a new home buyer to take a realistic look at what he or she can afford and how he or she will pay for it. In Canada, most home buyers need a mortgage loan to purchase their homes. These mortgage loans are offered by banks or other financial institutions like credit unions and insurance companies. The term of the mortgage loan is usually for about 20-25 years. Usually, you are required to put down a 20% of the total price of the home as down payment. Where you do not have a 20% down payment, you may have to consider getting mortgage loan insurance. Mortgage loan insurance protects the bank or financial institution if you can’t pay back the mortgage. It also helps you get a mortgage for a lower down payment and a lower interest rate.

Qualifying for a mortgage is not automatic. It requires the potential homeowner to have excellent credit history and a decent credit score. A decent credit score will range from 620-760. For people with zero to low credit score, getting into their dream home may become a daunting task. This is why it is advised to have your financing in place before you begin looking for your dream home. A pre-approved mortgage is described as a preliminary approval given by a lender for a mortgage up to a specified amount with a guaranteed rate for a specified period. If interest rates go down within the specified period, you get the benefit of the lower rate and if they go up, your lower rate is locked in.

For many newcomers to Canada or people with average or low credit scores, getting a pre-approved mortgage may soon prove to be a herculean task. In a bid to circumvent this problem, a much-touted alternative way to buy a home is to enter into a rent-to-own agreement.  This type of agreement allows a buyer to rent a house for a set period of time before exercising an option to purchase the property before or when the lease expires. While it sounds like an attractive option, the rent-to-own agreement is not without many pitfalls. Unfortunately, many people desperate to have a house of their own have succumbed to the siren call of the rent-to-own agreement.

In my next post, I will be examining the rent-to-own agreement in greater detail, analysing what has made it attractive to certain categories of home buyers and identifying the potential pitfalls that such agreements may have.