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If you’re buying a home for the first time, you may be surprised to find out just how many parties will be involved in the transaction along the way. As such, it’s important to have a basic understanding of what each one does. Here’s a list of players that will make up your home buying team, so to speak. Even though you may not deal with everyone personally, it’s good to know who they are and what they do.
A mortgage broker receives your mortgage application, but they then shop it around to several financial institutions, placing it with the one that makes the most sense given your situation. The goal of a mortgage broker is to get you approved for a mortgage with features that meet your needs, at the best possible interest rate. Often, the broker will be the only person you see before meeting with a lawyer to finalize your home purchase. Other times, they will arrange for you to meet with the lender to sign documents. Mortgage brokers are compensated by the mortgage lender for placing your loan with their institution.
The mortgage lender is not a person, but the company granting the mortgage. In Canada, most personal mortgages are still held by banks and credit unions, but there is a growing number of mortgages held with smaller, specialized companies. Lenders are in the business of lending; in other words, they want to find ways to approve your mortgage. However, they must weigh every decision against the potential risks, hence the reason not all mortgages get approved.
When your mortgage application is submitted for approval by the mortgage broker, the decision rests in the hands of an underwriter, or a team of underwriters. Credit underwriters are responsible for considering all of the facts presented before making a decision to either approve or decline your application. This includes, but is not limited to, your credit history, employment status, income, assets and liabilities (net worth), property details and down payment. The mortgage approval process can be very complex, so it’s not uncommon for an underwriter to reply back to the mortgage broker with questions, or to request further information.
When it’s time to begin house shopping, you’re going to want the help of a real estate agent. Agents represent buyers and sellers and perform different services for both. The primary goal of the buyer’s agent is to help you find your ideal home. They’ll need to consider your budget, your ideal location, and other things that you’re looking for in a home. Interestingly, the buyer does not pay the real estate agent. They are compensated by the vendor, or seller of the home, by receiving a portion of the overall commission.
A listing agent, also known as the selling agent, is the person who is listing the home on behalf of the vendor. The listing agent has a variety of tools at their disposal to present the home to as many potential buyers as possible. They’ll oversee the staging of the home, schedule and host open houses, list the home on various websites and social media channels as well as in traditional print media. The listing agent is paid by the vendor when the home is sold, but their commission must be shared with other parties, such as the real estate brokerage and the buyer’s agent. A typical commission is 3% – 7% of a home’s selling price.
The vendor is the person(s) who is selling the home. If you’re buying a home through a real estate agent, rather than a private sale, you’ll likely never deal with the vendor in person, as they will be represented by the listing agent. When you submit an offer to purchase the home, your agent will present it to the vendor’s agent for their review. If they agree to your offer, they’ll sign the contract, and include any conditions they wish to add. Sometimes, purchase and sale offers move back and forth between buyer and seller until a final agreement is reached.
Real Estate Lawyer
For the sale of a home to take place, the transaction must be conducted by a lawyer who specializes in real estate. Usually, the buyer will reach out to a lawyer shortly after finding a home they wish to purchase. Once you choose a lawyer to represent you in the purchase, you’ll need to provide their contact information to your broker or mortgage lender, so that they know who to communicate with when the time comes to close on the purchase. You’ll need to pay the lawyer for their services, an expense referred to as closing costs. Home buyers should budget at least 1.5% of the purchase price for closing costs.
In many cases, though not all, your mortgage lender will require that the house you’re buying be appraised prior to the final approval of the mortgage. This is done to ensure that the price you’re paying for the home accurately represents its value since the lender will be holding the home as security against the mortgage loan. In most cases, the buyer is responsible to cover the cost of the appraisal, which can run $100 – $300 for a typical personal residence, depending on the location. To arrange for an appraisal, the mortgage broker provides the appraiser with the real estate agent’s contact information, and they in turn schedule a time with the appraiser to view the home. The turnaround time for an appraisal can be anywhere between 24 – 72 hours.
It’s always recommended that a home buyer request an inspection when they enter into a purchase agreement. The home inspection is a condition of the sale to the benefit of the buyer. In other words, if the home doesn’t meet proper standards, the issues identified must be addressed, or the buyer can choose to cancel the contract. In lieu of a home inspection, a seller may complete a Property Disclosure Statement, in which they are required to make known any issues with the home that they are aware of, like a mould problem, a previous sewer backup, or trouble with rodents.
When you get a mortgage, it will be a requirement of the mortgage lender that you purchase home insurance. You’ll be expected to visit an insurance broker to register a policy prior to your possession. In most cases, your lawyer will be responsible for confirming that you have purchased insurance and will pass the details along to the mortgage lender. Home insurance will protect the building and its contents against things like fire, storm or hail damage, flooding, sewer backups etc. Coverage varies among insurance providers, so always make sure you understand exactly what you’re covered for.
Understanding The Home Buying Process
As you can see, there are a lot of different parties involved in the home buying process. From mortgage brokers and underwriters to lawyers and home inspectors, everyone plays an important role. Knowing who you’ll be dealing with, and what they’re responsible for, should make the overall experience that much easier.
Tom Drake is an authority in Canadian personal finance. He is a financial analyst and has been writing about personal finance since 2009 at the award-winning MapleMoney. His work has appeared in MintLife, Canadian MoneySaver, and U.S. News & World Report, and has been quoted in The Globe and Mail, Yahoo Finance, and Financial Post.