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.
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.
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.
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.
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.
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.
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.
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 us any time.
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