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    Email: mortgagesagas@gmail.com

  • 6 Step Home Buyers Guide

  • Step 1: Make Sure You’re Ready to Buy

    If you’re thinking of buying a home, this 12-step plan will help to guide you in the right direction. But before we jump right in, you have to make sure three things are ready: you, your bank account, and the real estate market.

    Are you ready? Be sure.
    Owning the roof over your head will bring you great pride, but with that pride comes accountability and sacrifice. There’s the obvious financial responsibility, but your home will also require constant care and upkeep. That’s what real pride of ownership is all about.

    Is your bank account ready? Check it twice.
    Your first home will be the biggest financial obligation you’ve ever faced. You should already be an experienced saver, and good at managing debt like student loans or credit cards. Ideally, you’ve also saved up some money for a nice down payment. Talk to your financial institution about the Home Buyers Plan too. Our next step will give you a crystal clear picture about how much you can afford.

    Is now a good time to buy? Here’s the hottest market tip you’ll ever get.
    Markets go up, markets go down and even the smartest experts can’t accurately predict when a market will peak or bottom out. The good news is, if you’re buying a home as a long-term investment (and for long-term enjoyment), you’re protected from short-term changes in the market. Over time, real estate has almost always increased in value.

    All you have to do is pick a home that meets the needs of you and your family. Then you’ll enjoy living in your investment as it grows in value. A home is one of the best financial decisions you can make, so make sure you think things through.

     

  • Step 2 - Figure out how much you can afford.

    Before you start looking for your dream home, let’s find out how big you can dream. Knowing your true budget is the first and most important step in buying a home. Why?

    A home is a big purchase.
    It’s probably the most expensive thing you’ll ever buy, and there are lots of expenses you might not even know about. Everybody’s total costs are different, but it’s almost guaranteed you won’t have that much money saved up. Hopefully you have enough for a nice down payment. Here’s the reality in detail:

    Cost of buying a home =    One time costs (down payment, legal fees, inspection fees, taxes)   

    Monthly costs (mortgage, utilities, maintenance, insurance, property taxes)

    Yes, you need a mortgage.
    Step 9 is practically bursting with tips on how to arrange your mortgage but for now, we just need to figure out how much a bank will lend you.

    How much will a bank lend you?
    Well that depends on how much you can afford each month. This is determined using two lending principals.

    The first lending principle is that your monthly housing cost should not exceed 32% of your gross monthly family income. This principle is known as the Gross Debt Service (GDS) ratio calculation.

    The second lending principle used, the Total Debt Service (TDS ) ratio calculation, is that your monthly housing cost and payments on all of your other debts (including loans, credit card and lease payments) should not exceed 40% of your gross monthly income.

  • Step 3: Find a Realtor® that is Right for You.

    You know how much money you have, and you have a good idea of what you want. Now you need the help of a real pro, to make your search a success.

    REALTORS®. Highly trained, and continually training.
    In Canada, licensed REALTORS® are members of their local real estate board, a provincial association and The Canadian Real Estate Association. This system of membership ensures the highest level of service and that you are always treated with honesty and integrity. This is backed by the REALTOR® Code of Ethics. Take a look at ‘The REALTOR® Commitment’ to learn more.

    The Three REALTOR® Relationships
    The relationship between a real estate brokerage and a client is called “Agency” and there are three major kinds:

    1.  Seller (Vendor) Agency
    The real estate brokerage and all its REALTORS® represent the seller exclusively and it’s their job to get the best offer on the home. They are legally obliged to tell the seller anything known about a buyer. For instance, if a seller’s REALTOR® knows a buyer will pay more for a property, they must tell the seller.

    2.  Buyer (Purchaser) Agency
    The real estate brokerage and all its REALTORS® represent the buyer exclusively. They seek out homes that meet the buyer’s needs and help assess the merits and defects of potential homes. They keep the buyer’s information confidential and never disclose information like the maximum amount their buyer is willing to pay. You may be asked by your REALTOR® to sign a buyer agency agreement. In fact, in some provinces,
    REALTORS® are required to ask you for your own protection. This agreement ensures that the REALTOR® and the brokerage can look after your best interests.

    3.  Dual Agency
    Sometimes, a brokerage may have an agency relationship with the buyer and the seller. Both the seller and the buyer must give their informed consent, and the REALTOR® must always provide full and timely disclosure of all pertinent information to both parties.

     SELL AND BUY WITH THE SAME REALTOR®?

    Absolutely! Especially if you’re remaining in the same community. Your REALTOR® is already an expert on your needs, so it can save you a lot of time and energy.

    Selecting a REALTOR®

    There are lots of ways to find a REALTOR®. As you drive through prospective neighbourhoods, jot down the names and numbers of REALTORS® on the ‘For Sale’ signs. Open Houses are a great way to meet face-to-face. Maybe friends or family members have worked with a REALTOR® they love. Interview two or three and pick the one you like best.

    How REALTORS® help buyers like you.
    A REALTOR® will review your list of wants and needs to help you determine your price range.

    • Answer questions about the markets you’re interested in and help you compare homes and    neighbourhoods.
    • Use the local Multiple Listing Service (MLS).
    • The MLS is the single most powerful tool for buying and selling a home. Your REALTOR® will give you access to exclusive features of the MLS system that the public is not privy to.
    • Preview properties to ensure you’re only shown homes that meet your needs and budget.
    • Make appointments and walk you through potential homes, answering all your questions.
    • Give up-to-the-minute information on financing and explain your mortgage options.
    • Negotiate with the seller, smooth out any potential conflicts and draw up a legally binding contract.

    Stick with your REALTOR®
    One dream, one team. The REALTOR® you select will become an expert on your specific needs and tastes. Scattering your time and energy amongst multiple REALTORS® will work against your goal of finding your best home. And because most REALTORS® have equal access to the same property listings, there’s no real advantage to having multiple REALTORS®.

  • Step 4: Make an Offer.

    You’ve found a home? Congratulations! Now, if you actually want to make it yours, you have to make a successful offer, one that the seller will accept.

    Preparing the offer.
    REALTORS® are expertly trained and will prepare the offer for you. Here are some terms you’ll see in the offer:

    • Buyer or Purchaser – That’s you.
    • Seller or Vendor – The present owner(s).
    • Purchase Price – The most important number.
    • Deposit – A cheque you write to the seller’s broker, who deposits it in a trust account. This is your way of saying “my offer is serious”. The size of the deposit is up to you.
    • Clauses particular to this agreement – Every transaction is unique, and your REALTOR® may add conditions important to you. Making your offer conditional upon a proper Home Inspection is a good idea.
    • Chattels included and fixtures excluded – Be sure you know what is included with the house! The washer and dryer, the microwave, draperies, light fixtures. Don’t leave anything to ‘chance’ because chances are, it won’t be there when you move in.
    • Irrevocability of the offer – The length of time you give the seller to consider your offer. Usually less than 48 hours.
    • Completion date – The glorious day you take possession! Often 30 or 60 days after signing.

    About the offer.

    When it comes to the type of offer you make, it really depends on your individual situation. Discuss your options with your REALTOR® to see which of these offers is right for you.

    • Firm Offer to Purchase

    Usually preferable to the seller as it means you, the buyer, are prepared to purchase the home without any conditions.

    • Conditional Offer to Purchase

    Usually means there are one or more conditions on the purchase, such as “subject to home inspection”, “subject to financing”, etc. The home is not sold unless all the conditions have been met.

    • Acceptance of Offer

    An Offer to Purchase is presented to a seller who may choose to accept the offer, reject it, or submit a counter-offer. The counter-offer may be in regards to the price, closing date, or any number of other variables. Offers can go back and forth until both parties have arrived at an agreement or either side ends the negotiations.

    Submitting the offer
    You’ve signed on the dotted line and your REALTOR® has whisked your offer to the seller’s REALTOR®. This process works best when you don’t meet the seller in person.

    The seller can accept your offer – Fantastic, when do you move in?

    The seller can reject your offer – It’s not common for an offer to be completely rejected. Your REALTOR® will likely investigate, to see if there was some sort of misunderstanding.

    The seller can ‘sign back’ or counter your offer- The seller wants to alter ‘some part’ of your offer. It’s almost always the price. The seller will cross out the price on your offer and write a higher number. Now it’s your turn to sign back, and see if you can bring that number down. It can feel a bit like a ping-pong match. Emotions can run high, so both sides will be reminded that a little flexibility goes a long way. Good luck!

  • Step 5. Arrange a Mortgage.

    Money makes the world go round, and a mortgage gives you the power to buy a home. This isn’t the most fun step in buying a home, but it’s vital.

    Who do you talk to?
    There are hundreds of banks, credit unions and other lenders out there who would love your monthly mortgage payments. So talk to everybody. Now is not the time to be money-shy! Talk to your banker and call around to other banks. Ask people you know. REALTORS® are very knowledgeable about Mortgages and have lots of good advice.

    Call a Mortgage Broker.
    Mortgage brokers are another great resource. They find low rates for a living, and they usually don’t get paid unless you sign a mortgage through them, so they’re highly motivated to get you the best deal.

    Your best mortgage might be the seller’s mortgage.
    You can sometimes take over or ‘assume’ the seller’s mortgage. This is a great idea if the seller is locked into a lower interest rate than you can get right now. Your REALTOR® can help you.

     

    Mortgage Terminology

    Mortgage term – Typically from six months to five years, the ‘term’ refers to how long the bank has agreed to lend you the money. At the end of the term, you usually renegotiate a new term.

    Amortization – The length of time it will take you to pay off the whole mortgage. Often as long as 40 years, if you don’t accelerate your payments. The longer your amortization, the lower your monthly payments, but the more you pay in interest over time.

    Interest rates – Interest is the cost of borrowing money, and the interest rate tells you exactly how much. Using the mortgage calculator, check the difference between borrowing $100,000 at 6% and at 9% at the same amortization. Surprising, no?

    That interest rate not only affects how much you pay, it also affects how much you can borrow. So remember to keep searching for the best rate!

    How big a down payment?
    You want as small a mortgage as possible, which means making the biggest down payment possible. Just remember to set money aside for all the fees associated with buying a home. Not to mention moving, repairs, renovations, new furniture...think ahead.

    The RRSP Home Buyers’ Plan – A little sweet relief.
    If you’re a first-time homebuyer with money in an RRSP, you can withdraw up to $20,000 without paying any income tax. If your spouse is also eligible, that’s $40,000. Ask your REALTOR® how to best take advantage of this plan.

    Lock into an interest rate - for how long?
    It’s a tough question. What if you ‘lock in’ for five years and rates go into a period of decline? That could mean you’re stuck paying more than you had to for a long time. But if rates were to steadily climb over the next five years, locking in for five years now would be a great move. For many, a long-term mortgage offers peace of mind in knowing that their mortgage payments will stay the same for several years. Your REALTOR® will have a lot of good advice.

    What you need to apply for a mortgage.

    • Letter of employment confirmation – Ask your employer for a letter that confirms your position, your pay and how many years you’ve been with the company.
    • List your assets – Your car, stocks, bonds, GICs. Show which assets will be used for your down payment.
    • List your liabilities – Car payments, student loans, credit card debt. List all the money you owe, and note how you’re paying it off.
    • Social Insurance Number – And your chequing account number, and your lawyer’s contact information
    • Information about the house you want to buy-The home is your security on the mortgage, so the lender wants to know all about it.

     

    Don’t forget these extra costs.
    Face your new financial responsibilities head-on, and you may even dodge some of them. And then won’t you look smart!

    Application fee – Some mortgage lenders charge a fee to process your application. Many lenders will agree to waive this fee, so make sure you ask!

    Appraisal fee – Your mortgage lender may need to have your new home appraised by a professional, and they often pass the bill on to you. Sometimes your lender will also waive this fee. Again, it doesn’t hurt to ask.

    Mortgage broker’s fee – Your mortgage broker may charge a fee that’s payable on your closing date. Ask your broker, to avoid surprises.

    Land survey fee – Lenders may require a survey of your property. It can typically cost between $600-$900. Lenders will often accept an existing survey. Get your lawyer on the case.

    Home inspection fee – A home inspection is so important, we devoted an entire Step to it. Avoid surprises and protect yourself...this is money well spent.

    Home Insurance – Mortgage lenders require you carry fire and extended-coverage insurance because your home is the security deposit on the mortgage. Often you can have these payments added to your monthly mortgage payments. Shop around.

    Fire Insurance- Mortgage lenders require a certificate of fire insurance to be in place from the time you take possession of the home.  The amount required is generally the amount of the mortgage or the replacement cost of the home. This cost can vary on the property size, amount of coverage, the insurance company and the municipality. The cost can vary anywhere from $250-$600 annually for most properties.

    Provincial Sales Tax on Mortgage Insurance- If your mortgage is insured, you will be required to pay the applicable taxes on the insurance premium on closing.  While the insurance premium can be added to the mortgage amount, the tax must be paid at closing.

    Title insurance – Not mandatory, but it protects you from all sorts of fraud and potential errors surrounding the title to your land. It’s normally a few hundred dollars. Ask your lawyer for details.

    Legal fees – Your lawyer is vital to the home-buying process. You’ll pay legal fees for their time and “disbursements” which are the costs involved in title searches, drawing up the title deed, and preparing your mortgage.

    Maintenance and utility costs – Just a reminder, you now have more regular monthly payments in the form of property tax, utilities, repairs etc.

    Land Transfer Tax – Most provinces charge a land transfer tax payable by the buyer, and is based on the purchase price. First time home buyers purchasing a new home may qualify for a refund. Ask your REALTOR® or lawyer to calculate the payment.

    The HST and new homes – If you have decided to purchase a resale home, you successfully avoided paying HST. Nevertheless services associated with the property, such as a home inspection, will still be subject to a HST. When buying a new home, however, you will come face to face with that 12% HST rate of a combined 5% federal and 7% provincial tax. Make sure you confirm who is expected to pay this tax, you or the builder. On the housing offer, the purchase price will state "Plus HST" or "HST included" as well as the recipient of any HST rebates. For new properties at $350,000 one can expect a rebate of $23,800 and for properties worth $525,000 or more, one can expect a rebate of $26,250.

    Closing Adjustments – The previous owner may have paid property tax or utilities in advance, and they want to be credited for those payments. Any bills after the closing date are the responsibility of the purchaser. A lawyer will let you know what they are once the various searches have been completed.

    New Home Warranty- In most provinces new homes are covered by a new home warranty program. The cost to the purchaser for this warranty is approximately $600. Should the builder default or fail to build to an agreed-upon standard, the fund will finish or repair the deficiencies to a maximum amount.  For more information on Ontario new home warranty visit http://www.tarion.com.

  • Step 6 - Close the Deal.

    Your offer has been accepted and you can’t wait to move in. These are exciting times, but don’t break out the bubbly just yet. You have to close the deal. Your REALTOR® and lawyer will do most of the closing work, but here’s your checklist.

    Closing checklist

    • Immediately begin satisfying any conditions of the agreement that require action on your part. Your REALTOR® will fill out the documents stating that the conditions have been satisfied.
    • Have your lawyer begin searching title to the property. This can take a while, so make sure you give ample time.
    • We recommend a home inspection to avoid any unpleasant surprises on move-in day.
    • Well before closing, get your homeowner’s insurance. Your insurance broker will give you a ‘binder’ letter certifying that you’re covered. You can’t get a mortgage without this letter!
    • Contact your lender and have them finalize your mortgage documents. Have your lawyer review them before you sign.
    • Your lawyer will transfer essential utilities like hydro and water, but you’ll have to make sure telephone and cable companies switch their services to your name.
    • If you rent, you must give notice to your landlord, or sublease your apartment.
    • Begin planning your big move! Where are those cardboard boxes? Book your moving service early to avoid scheduling problems.
    • Send out your change of address information and fill out a card at the post office.
    • Contact the Ministry of Transportation about changing your driver’s licenses.
    • A day or two before closing, you’ll meet with your lawyer to sign the closing documents.
    • Your lawyer will tell you in advance what certified cheques you’ll need to seal the deal.
    The big day arrives

    Deliriously happy and emotionally exhausted, here you are on closing day. You made it! If your lawyer has arranged everything well, closing day can be surprisingly low on drama. Before you know it, you’ll be handed the keys you new home.

    Congratulations!