FIRST TIME BUYERS
Making the right choice when it comes to purchasing a
home is a matter of good planning, not good luck. No one
person can be expected to know everything, so it's important
to surround yourself with qualified professional assistance
throughout the process.
Today I would like to offer you
these simple steps to help you buy your dream home with
complete confidence. And you couldn't be starting your house
hunting at a better time. If you're waiting for house prices
to hit rock bottom, you might be wise not to wait any longer.
Scroll down for a complete list.
The next step is to
review your current expenses thoroughly. Find out how much
added expense will be incurred in taking on a mortgage. Before
you embark on your housing search, visit or contact your local
mortgage office and get a pre-approved mortgage, especially if
you're a first time buyer.
A pre-approved mortgage lets you
know how much money you qualify for, so when you're looking at
houses, you will know what you can afford and can shop in
comfort. When you sit down with your lender or his agent to
pre-qualify, it's a good idea to review all your questions at
that time.
To determine affordability, your
mortgage agent will look at your Gross Debt Service Ratio
(GDS) and your Total Debt Service Ratio (TDS). The GDS ratio
is based on what you can afford to pay each month and it
includes mortgage payments, taxes and heating. Our maximum GDS
ratio is 32%.
We also help you estimate the
carrying cost with the Total Debt Service Ratio. The maximum
TDS ratio is 40 per cent and this includes items covered under
GDS plus all other financing obligations.
If these are near the maximums,
your mortgage agent will help you do a complete budget
analysis based on net income looking at current and projected
budgets to determine what you can actually afford and what
size of mortgage payment is realistic.
This pre-qualifying stage is also
the time to find out about the differences between
conventional mortgages and high ratio insured mortgages. Ask
about assistance for first time homebuyers such as the five
per cent down payment allowed under the "First Home Loan
Insurance Program" sponsored by the Canada Mortgage and
Housing Corporation (CMHC) and the federal government's "RSP
Homebuyer's Plan" letting you use funds from your RSP to
purchase a home.
Treat your pre-qualification
meeting with your mortgage agent as a fact-finding mission to
go over closing costs, too, such as land transfer taxes, legal
fees and other disbursements. And let's not forget that if you
buy a new home from a builder, you will pay the seven per cent
GST on its purchase price. A good rule of thumb is to budget
about three per cent of the purchase price for closing
costs.
Before you're automatically
pre-qualified, your mortgage agent will need to run a credit
bureau report and receive written confirmation of income and
how much you plan to put down on your purchase.
Once you're pre-qualified, the
interest rate at which you pre-qualify is frozen for 60 to 90
days from the time of your application. If rates drop below
what you pre-qualified for, you'll get the lower rate and if
they rise, you're covered. And, just because you pre-qualified
for a mortgage at a certain financial institution, you're by
no means obligated to obtain your mortgage through that
particular bank. We can shop the market to get you the best
deal.
A copy of the accepted Offer To Purchase and
the land survey. A salary letter from your employer.
Confirmation that your down payment came from your own
resources (i.e. bank statements or a gift letter). A list of
all your assets and debts along with account numbers. A copy
of the Real Estate Listing if buying an existing home.
Condominium financial statements, if applicable. If you are
buying a home to be constructed, bring a picture of the
property, a copy of the building plans and specifications, the
land survey, plus your agreement with the
builder.
Your mortgage agent can help you
determine how much you can afford (perhaps even obtain a
pre-qualified approval), and you've selected a Mortgage that's
right for you. This allows you to act quickly when you find
the perfect home. As soon as your real estate agent draws up
an Offer To Purchase between you and the vendor (this
agreement sets the final price and all the conditions of
sale), come back to your mortgage agent and your deal is
almost complete.
[TOP] The same advice applies to selecting your
lawyer as to your real estate agent. Competitive fees,
excellent service, knowledgeable, approachable and, in a word,
VALUE...make sure that you get the right combination of price
and service.
It's not a bad idea to involve your
lawyer before you sign the Offer, which becomes the legal
Agreement of Purchase and Sale once signed by both the buyer
and seller. If you wish, have your lawyer read the document
carefully and review it with you. Once signed and accepted,
your lawyer will order a series of searches from various
municipal offices. This is to ensure that the vendors have not
been sued and that they have paid all of their realty taxes,
hydro, water and gas bills; and that there will be no old
mortgages or liens on the property once you become the
owner.
Your lawyer will also draft a
series of closing documents, and will review the closing
documents drafted by the lawyer for the vendor, since both
lawyers participate in this process.
Your bank and lawyer will
co-ordinate and draft the appropriate documents. Your lawyer
will notify the property tax offices as well as the utility
offices that you will be the new owner as of the closing
day.
A few days before closing, you will
visit your lawyer's office to sign the closing documents. Then
you bring a certified cheque for the balance of the closing
funds, because the lawyer pays the relevant parties on your
behalf (land transfer to the government, balance owing to the
vendor etc.) Part of that amount covers the lawyer's fee and
the disbursements incurred. The lawyer obtains the mortgage
funds directly from the lending institution.
[TOP] So now that we've convinced you to make a
move, how do you go about it?
When it comes to the largest
purchase in one's life, the key phrase is "you'd better shop
around". Don't settle on the first home you see.
Decide where you want to live based
on such things as transportation, distance to work, proximity
to schools, day-care, recreation facilities, shopping, health
care etc. When you hear "10 minutes to downtown", find out if
that was determined at 2 a.m. in a BMW!
Next, rely on your real estate
professional. With the availability of all relevant
information and a pre-approval from preapp.com, they will help
you negotiate your best deal. Remember, it is the vendor who
pays your realtor. Ask
your realtor to explain clearly the legislated "agency"
agreement. Make sure you ask if the
Realtor is acting on behalf of a vendor or for
you.
[TOP] There's no shortage of information available
to help you make an informed purchase decision. Banks, as well
as CMHC, the Canadian Bankers' Association, the Ontario Real
Estate Association and the Home Builders' Association all have
brochures (even videos) to make house-hunting stress free and
fun. We have copies of these forms. Let us know if you would
like one by e-mail, fax or give us a call..
Take the guesswork out of shopping
for a home by taking advantage of all the professional
resources available to guide you through the many choices
available when purchasing your first home.
[TOP] You should look at mortgage life insurance,
especially where two incomes are involved. The cost is low and
can be incorporated with your mortgage payments. Your balance
will be paid in full (the maximum varies with different
financial institutions) in the event of death, terminal
illness, or permanent disability. These quotes are available
with each mortgage approved on the system.
[TOP] On closing day, your lawyer will meet a
representative from the vendor's law firm at the land registry
office. There, your cheque will be exchanged for the keys to
your home and the two sides trade closing documents. The
purchaser's legal representative will then register the new
deed and mortgage, so that anyone doing a search will learn
that you are the new owner. Finally, you pick up the keys and
YOU'RE IN!
After closing, your lawyer will
send you a reporting letter, as well as copies of all the
documents that you have signed including the deed, the
mortgage and the survey and a summary of the flow of
funds.
[TOP] We could go on at length about the various
features of each mortgage type but in the interest of time,
our best advice is to research your options. We know the
pre-payment privileges of the various financial institutions
on the system. These let you pay down your mortgage faster.
Also be aware that the longer the amortization period (the
time it takes to pay off a mortgage), the more interest you
will end up paying. Amortization periods range from five to
twenty-five years.
Weekly or bi-weekly payments,
instead of monthly, will shave as much as eight years and
$38,000 off a $100,000 mortgage.
Another option to consider is
portability. If later, you decide to sell your home and buy
another, you should be able to take your mortgage with you or
transfer it to the buyer of your home without penalty. This
can turn out to be a major advantage if your mortgage rate is
below current market rates.
[TOP] The basic choices to look at in selecting a
mortgage include
- Conventional or high ratio
mortgages.
- Short term vs. long term.
- Specialty mortgages that
creatively combine the best of all worlds
- Closed or open mortgages.
- Fixed rate vs. variable
rate.
A conventional mortgage is a loan
for no more than 75% of the appraised value or purchase price
of the property, whichever is less. A high ratio mortgage is
usually for more than 75% of the appraised value or purchase
price. This type of mortgage is often referred to as an NHA
mortgage because it is granted under the provisions of the
National Housing Act and must, by law, be insured through CMHC
for which the borrower pays the insurance premium,
application, legal and property appraisal fees.
A closed mortgage usually offers a
lower interest rate than an open one of the same term, but the
open mortgage lets you pay off as much as you want, any time,
without penalty.
The term you select is important
too. Consult your mortgage professional to determine what is
best for you and your family.
You can choose a fixed or variable
interest rate. A fixed rate mortgage allows you to budget
precisely for whatever term you select...anywhere from one up
to 25 years. A variable rate fluctuates with the market. A
variable rate mortgage allows you to take advantage of a rate
below prime and historically (last 30 years) has resulted in
great savings over both the term and the life of the
mortgage.
Thank
you for reading this summary. We hope that you have found our
comments helpful and we'd like to invite you to call me any
time.
|
