FIRST
TIME BUYERS
ﾠ
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 we'd 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.
ﾠﾠ
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.
We can work with your real estate agent or builder and your lawyer to
come up with the best home financing package for you.
Remember to CALL US
FIRST
