Everything You Wanted To Know About Buying a Home

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.

A Great Time To Buy

Obviously, fluctuating interest rates have delayed the plans of many people to buy first homes. Once the economic outlook becomes clearer, pent-up demand among people currently renting will impact housing prices especially in urban centres. Demand for trade-up housing will also strengthen. This should see the average home price increase slightly next year as more Canadians enter the housing market.

Housing in most parts of Canada is as affordable now as at any time since the 70s. A number of factors work in favour of potential buyers including:

The current housing market won't continue indefinitely.
- Canadian government programs such as the First Home Loan Insurance, allowing five per cent down payment as well as the RRSP Home Buyer's Plan have also provided buyers with more opportunities
- there's a large selection of houses available in all price ranges, assuring buyers a wide choice of designs, sizes and types of housing.
- lower interest rates and the highly competitive mortgage market have resulted in more flexibility and a range of financing choices that benefit the homebuyer.
- and, finally, household incomes, hard-hit by the recession are becoming more secure as the economy improves.

Finding and Purchasing the Right Home

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, daycare, 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, find a real estate agent who is really interested in giving you service...whose attitude and availability indicates that they are working for you. Do this by seeing who's most active in your neighbourhood. An agent who actively makes sales calls, who keeps you informed of sales or listings in your area, or who leaves flyers at your door is one who is aggressively involved in pursuing business.

Set up appointments with a few agents from different companies and assess their presentation package to you. Are they prepared? Have they done some homework in advance? Do they have any special affiliations or packaged discount programs with other corporations where you can save on your mortgage, on moving costs or on household purchases for your new home? You'll want to work with someone you relate to, with whom you have some chemistry, and who offers you excellent service and value. Make sure you ask if the realtor is acting for a vendor or for you.

Affordability and Financing

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 lendor 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 37 per cent (40 per cent if it's CMHC) 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

Selecting the Right Mortgage

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. Short term mortgages are appropriate if you believe interest rates will drop come renewal time. Long term mortgages are suitable if you feel current rates are reasonable and you want the security of budgeting for the future. This is especially important for first time homebuyers. The key is to feel comfortable with your mortgage payments

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 to occasionally 25 years. A variable rate fluctuates with the market.

Prepayment Privileges

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.

Mortgage Life Insurance

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.

Before Signing the Offer

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 coordinate 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.

On Closing Day

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.

Making House-Hunting Fun

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.

Applying For Your Mortgage - A Checklist

- A copy of the accepted Offer To Purchase and the land survey.
- A salary letter from your employer.
- Self-employed individuals need financial statements for the past three years as well as personal income tax returns.
- 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.

Thank You!

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"