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SELLING/BUYING YOUR HOME:
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Part Two: Buying a Home |
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Part Two: Buying a Home
What Do You Want?
Begin by listing your needs:
- Living requirements (i.e. how many
bedrooms);family size.
- What you're bringing with you from your old
house.
- How close to schools, shopping and other
services.
- The size of down payment you can afford.
- The price range.
It's important to be realistic when you're thinking about a down payment
and setting a price range. You don't want to be saddled with something you can't
afford. We can assist you with finding the best mortgage rates and financial
institution.
What's Out There?
The marketplace offers both resale homes and new homes.Resale homes
may be protected by a warranty offered by the seller. Resale homes
are more likely to be in established neighbourhoods, close to amenities and have
mature trees and gardens.
Remember, however, a resale home has been lived in. It has been exposed
to the elements for a number of years. The house may have experienced some
degree of shrinkage and settling.
Quick Service with the MLS® System
We will look at your needs, help choice a neighbourhoods, price range and
immediately come up with a list of suitable properties for you to preview.
Touring a House
When you visit a house, consider these points:
- What type of wiring does the house have? Does the electrical panel
use fuses or circuit breakers?
- What type of heating system does it use?
- What about the roof and foundations?
- What about the plumbing?
- What about power outlets? Different appliances, and power tools use
different types.
There are other things to look at, as well. If you don't have time or
don't feel comfortable doing it, home inspection services are available for a
reasonable fee.
Making an Offer
In the offer, you are:
- Saying how much you're willing to pay.
- Suggesting a closing date.
- Proposing a set of conditions.
- Stating when the offer expires.
At this time you'll present a deposit, along with your offer. An
appropriate deposit will show your good faith to the seller. The seller's agent
is bound by law to bring all offers to the seller's attention.
After your offer is accepted and all the conditions are met, the offer
becomes binding on both sides. If you walk away from the deal at that point, you
may lose your deposit. You may also be sued for damages. Therefore, make sure
you understand and agree with all of the terms of the offer before signing.
Conditions
Most offers carry some kind of conditions which have to be met before the
sale is complete. Some common types of conditions are:
- You getting a suitable mortgage (include the amount, interest rates
and any other figures you feel important).
- You selling your current home (the seller may continue to look for
a buyer, but will give you the right of first refusal).
- The seller providing a current survey, or a
"real property report," showing the location of the house on the property owned
by the seller and that there are no encroachments.
- The seller having title to the property (your lawyer will check
this out when he or she conducts a title search to see if there are any liens on
the property, easements, rights of way or height restrictions).
- Iif there is a septic system, the seller should have a health
inspection certificate, stating the system meets local standards.
- If you still have any doubts about the home's safety and
construction, you may wish to make the purchase conditional on an inspection by
a qualified engineer.
- Any inclusions (we've talked about this earlier -- basically,
what stays and what goes).
The seller may counter your offer, by changing the conditions, price or
both. Look at the counter offer in terms of what you're looking for in a new
home: how does it fit in? And you can, of course, always counter the counter
offer.
The Mortgage
A quick way to see how much you can afford is to use the gross
debt-service formula (GDS). Here, the Principal, Interest and Taxes (PIT) on
your mortgage loan should not exceed 30 per cent of your gross income.
Increasingly, financial institutions will factor energy costs into the PIT
formula, moving the rule of thumb GDS from 30 to 32 per cent.
You can work it out in reverse: multiply the monthly payment on
principal, interest and taxes (include any condominium maintenance fees) by 40.
So if your monthly payment for these items is $1,000, you'll need a gross annual
income of at least $40,000. Discuss your mortgage limit and different types of
mortgages with your salesperson before you begin seriously looking for a new
home.
There are several different types of mortgages:
Pre-approved Mortgages:
Pre-approval means that you as a buyer, have qualified in advance for a
mortgage of X dollars, contingent upon the lender approving the property. Many
financial institutions offer pre-approved mortgages, with your interest rate
guaranteed not to rise for a certain period.
Conventional Mortgages:
Most banks and trust companies offer standard loans using the property as
security and require you to make a monthly blended payment including principal
and interest. Conventional mortgages require at least 25 per cent of the
purchase price as a down payment.
High-ratio Mortgages:
If your down payment is less than 25 per cent, you may still qualify for
a mortgage, but you will need mortgage insurance. Canada Mortgage and Housing
Corporation (CMHC), a federal crown corporation, and GE Capital Mortgage
Insurance Company, a private company, provide insurance for high-ratio
mortgages.
Vendor Take-Back Mortgages:
The seller underwrites part of the purchase, as a loan to be repaid by
the buyer. These are often used as second mortgages, to bridge any gaps or to
make the property more attractive to the buyer. In some provinces, the seller
may also transfer the mortgage to the buyer.
Open and Closed Mortgages:
Open mortgages allow you to make extra payments on the principal,
reducing your borrowing costs. Because of this flexibility, interest rates for
open mortgages are a little higher. Closed mortgages have no flexibility; you
must wait until the term is up to pay your mortgage. However, interest rates for
these mortgages are generally lower. In the middle, are the partially open
mortgages that have some of the characteristics of both open and closed
mortgages.
Just as there is a range of mortgage types, there is also range of
repayment schedules. As well as the traditional monthly payment plan, there are
now semi monthly, biweekly and even weekly payment schedules. Accelerated
repayment options speed up the process even more, paying down the mortgage
faster and spending less on interest charges. You may also opt for a shorter
amortization period, or mortgage "life". It raises your monthly payments in the
short-term, but saves you in the long-term, on the interest you pay.
Note: Through our web site, browsers can now automatically calculate
their estimated mortgage payments on listings. Simply find you're desired
property and click "Calculate Now!" to find out what your estimated monthly
mortgage payment is on that particular listing.
Those Extra Expenses
You should plan on a few extra expenses. In some provinces, you may have
to pay a land transfer tax (a sales tax on property). You may also have to pay:
- A mortgage broker's fee (as much as one per cent on the
principal).
- An appraisal fee.
- Surveying costs (if the seller couldn't come up with a current
survey).
- A high-ratio mortgage insurance premium.
You also face a possible interest adjustment. Mortgages are normally
calculated from the first of each month: if your closing date is the same as the
beginning of your mortgage, there will be no adjustment. However, if your
closing date is July and you move in on June 15, those last 15 days are the
interest adjustment period. Your lender will expect you to cover the cost of the
interest during that time.
You'll also have to reimburse the seller for the unused portion of any
prepaid property taxes or utility bills. As well, you must also pay any legal
fees, and, if applicable, any REALTOR fees. Be prepared to furnish proof to your
lender that you have insured your new house... that will cost, as well.
Closing
Before the house can formally change hands, there are still a few things
to do. Here's what to expect on or before closing day:
- Your lawyer/notary and the seller's
lawyer/notary will arrange to transfer title of the property from the seller to
you.
- The mortgage money will be transferred to your
lawyer's trust account, and then to the seller.
- Your lawyer will bill you all additional
expenses -- land transfer taxes and any outstanding legal fees.
At this time, be sure to:
- Check with your lawyer that everything is as
stated in the offer-to-purchase.
- Make a pre-possession walk-through with the
agent.
- Is everything in good condition?
- Is everything you wanted there?
- Once you're satisfied and the keys to the front door are in your
hands, there's nothing else to say...
Except, welcome home.
In addition to what is written here, there are good sources of
information on how to buy/sell a home from the provincial real estate
associations and financial institutions.
The comments contained on this site are for information purposes only and
do not constitute legal advice. Procedures and laws vary from region to
region.
WORKSHEETS
Selling Your Home
(This worksheet will let you make an estimate of the total proceeds --
less expenses -- from selling your home. Some fees and charges may not apply.
Please note also, that GST may apply to some of these items.)
Selling price of property
______________________
Less - mortgage balance
______________________
- other
encumbrances
______________________
Subtotal
______________________
Projected gross equity
______________________
Selling costs:
______________________
Legal/notary
fees
______________________
Mortgage pre-payment
penalty
______________________
Appraisal
______________________
Survey
______________________
Termite
inspection
______________________
Corrective
work
______________________
Unpaid property
taxes
______________________
Unpaid
utilities
______________________
REALTOR
commission
______________________
Other
______________________
Total
costs
______________________
Net selling price:
______________________
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The Cost of Purchasing a Property
(This worksheet will let you make an estimate of the total cost of buying
a home. Some fees and charges may not apply. Please note also, that GST may
apply to some of these items.)
Purchase price
________________
Additional purchase costs:
Moving expenses
________________
Inspection
fee
________________
Appraisal fee
________________
Mortgage
application fee
________________
Property
survey
________________
REALTOR
commission
________________
Legal/Notary
fees
Purchase/mortgage ____________
Disbursements
_______________
Estimated total legal/notary
fees
________________
Land transfer/sales
tax
________________
Interest
adjustments
________________
Utility
adjustments
________________
Property tax
adjustments
________________
Home
insurance
________________
Immediate
repairs
________________
Appliances, draperies, carpets,
etc.
________________
Other
________________
Total
estimated purchase price:
___________________
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