The first question you’re bound to ask is “How much home can I afford?” That answer depends on a number of factors:
Your selected location: Are you set on a specific area? Downtown? The suburbs? A rural setting?
Your preferred type of home: Detached? Semi? Duplex? High-rise? Link? Townhouse? New or Resale? There are a variety of home styles you will want to explore.
Your income: It’s not just the mortgage you have to take into account. There are property taxes, utilities and in some cases condo or strata fees. As a general rule of thumb, your monthly home carrying cost should not exceed 30-35% of your income.
Market conditions: Is it a buyer’s market, or a seller's market?
It’s a good idea to work out exactly what you want and what you can afford before you begin your search. Be specific! Stick to looking at houses in your price range. The more you’ve thought about what you want in a home, the better your sales representative can meet your needs.
Once you’ve figured out your monthly expenses and what you can afford, its time to start your search. It could happen that the first home you see is the one you want; or you might look at home after home with none of them catching your interest. Rest assured, the home you’re looking for is out there, and when you find it, you’re ready to make an offer. If your offer is accepted, the next steps are closing and moving into your new home.
First time home buyers have access to the RRSP holdings, up to $25,000 with no tax consequences provided they pay them back within 15 years, freeing up funds for a down payment. Home buyers who make contributions to their RRSP by March 1, 2010 can withdraw funds under the HBP after a period of 90 days. Here is a basic overview of some the HBP rules:
1. You must be considered a first time home buyer, i.e. you cannot have owned and owner occupied home in the previous 5 years.
2. You must be a Canadian resident.
3. The property purchased must be for a principal residence.
4. The RRSP must be repaid within 15 years, with minimum annual payments of 1/15th of the withdrawn amount.
5. Funds must have remained in you RRSPs for a minimum of 90 days before they can be withdrawn under the Home Buyers Plan.
YOUR BUYER TEAM AND THEIR ROLES
A Real Estate Sales Representative is a professional who can save you time and trouble, and possibly even a lot of money. Real Estate Sales Representatives have the home buying experience most people lack. They know all the steps and are good negotiators, who will work on your behalf.
A Sales Representative will:
§ Fine tune your wants/needs list
§ Get special access to listing information
§ Screen houses so as not to waste your time
§ Arrange appointments
§ Offer helpful advice about the neighbourhood
§ Introduce you to trusted contacts who should be on your team, such as mortgage brokers, lawyers and home inspectors
§ Find a Sales Representative who is a professional in the type of home you’re looking for. A country home professional may not be the urban market specialist you need. When speaking with your sales representative, be as clear as possible about your needs.
Resale real estate fees are typically paid by the seller to both the listing broker and the co-operating (buyer’s) broker through the MLS listing agreement. There is usually no direct cost to the buyer. In the case of new homes, fees are sometimes paid all or in part to the buyer’s broker by the builder. The buyer may be required to pay additional fees to the buyer’s representative. In either case commission details will be outlined and agreed to within the Buyer Representative Agreement.
Hiring an appraiser to appraise the value of property you are considering to buy may seem sensible but it is highly unnecessary. Your lender will want their own personal appraiser anyway, so you could be wasting valuable money. As well, most sales representatives are competent and can do a “Comparative Market Analysis” for you, to establish a value range. The only situation where hiring an appraiser would become necessary is where the property is unusual with no comparable sales.
The true test for a buyer is “What else can we buy for the same or less money?” In short, a lender is anyone who will give you money. There are private lenders and institutional lenders, like banks and credit unions. Even your brother-in-law can be your lender. Of course, when you’re looking for a lender, you’re looking for a long term relationship and terms and rates which are beneficial to you.
You really have a few options. You should go to a mortgage broker who will search the mortgage market for the best rates and conditions based on your circumstances. Usually the broker is paid by the lender without cost to you. However, the cloudier your credit history, the more likely there will be a fee! A good mortgage broker will be connected to all major lenders through the mortgage market.
You can also do your own search. With a good credit history, it’s really not that complicated. Pick up your newspaper and you’ll see what the different lending institutions are offering. Find the institution you feel you would be most comfortable with, and one that offers the terms and conditions you’re looking for, then go in person and negotiate your best deal.
This is a person who will do the leg work in finding the institution which offers the mortgage terms and conditions that are right for you. Much like an insurance broker, this professional works for you and can offer you an unbiased referral. Although most brokers are paid a finders fee by the lender, some will charge 2% of the total mortgage to find you a lender.
A lawyer is there to represent your interest, and to process the documentation required. The legal aspects differ from province to province. Your sales representative can recommend lawyers to advise you on the steps to be taken before the keys to your new home are presented to you. A lawyer helps ensure you are protected!!! Costs range from $1300-1400 + HST which include title insurance. This is part of your closing costs.
Have the homes inspected! Whether you make it a condition or purchase or not, having the property pre-inspected by a qualified inspector will give you the added confidence that you’ve made the right decision. Be very careful to verify the qualifications of your home inspector because there are no government standards or licenses for home inspectors. Some home inspectors in Canada do not have any form of accreditation. For your protection make sure your home inspector is a member of (PACHI) or (OAHI). This is your assurance that they have met their requirements, have the experience and carry E&O Insurance. Costs are around $350-500 or more depending on the size of the house + HST. This is not required for new as you will have a pre-delivery inspection prior to closing and Tarion warranty protection afterwards.
You’ll want to make sure your property and valuables will be covered. A broker offers independent advice and can say you time, trouble and money. Plus, the bank will insist that you carry full insurance since your property is used as collateral against your mortgage. You will need to pay CMHC mortgage insurance if you are borrowing more than 80% of the purchase price. The costs of insurance varies based on how much you borrow, up to 2.75% if you borrow 95% . This means that you need to have at least 5% of the purchase cost as a down payment, including your deposit.
MAKING AN OFFER
When it comes time to make an offer, your Real Estate Sales Representative can provide current market information which will aid you in presenting your offer.
Your Sales Representative will communicate the offer, sometimes known as the Offer to Purchase, to the seller, or the seller’s representative, on your behalf. Sometimes there may be more than one offer on a property. Your Sales Representative will guide you through this process as smoothly and effortlessly as possible.
Firm Offer to Purchase
Usually preferred by the seller because it means that you are prepared to purchase the home without any conditions. If the offer is accepted – the home is yours.
Conditional Offer to Purchase
Usually means that you have placed one or more conditions on the purchase, such as “subject to home inspection”, “subject to financing” or “subject to sale of buyer’s existing home”. The home is not sold until all the conditions have been met.
Acceptance of Offer
Your Offer to Purchase will be presented at the earliest possible opportunity. The seller may accept the offer, reject it, or submit a counter offer. The counter offer could be in reference to any number of factors, including the closing date and/or purchase price. The offers may sometimes go back and forth until both parties have agreed upon an offer or until one or the other ends the negotiations.
A deposit is usually required as a pledge for fulfillment of a contract. It serves as a sign of good faith and sincerity and it represents part of the purchase price. Typical deposits range anywhere from $2,000-10,000 depending on the value of the house, but can be as high as the buyer is willing to go. The higher the deposit, the more binding and sincere the offer is from the buyer. This money must be deliverable at the time of the offer and is held in trust until time of closing when it is applied towards the purchase price. The deposit can be forfeited if the buyer withdraws from the contract without due cause.
New homes usually have a predetermined deposit schedule based on the builder’s timeline.
HST on Purchase Price
RESALE – the HST is usually included in the purchase price for residential. However, there may be HST charged in addition to the purchase price if there is any commercial element to the property such as farm, business, etc. Your Real Estate Representative and/or lawyer will help clarify this.
NEW – HST is charged on new homes. There are both federal and provincial rebates that substantially reduce these costs for homes under $400,000. These rebates progressively decline from $400,000 to $500,000 and are eliminated after that. Some new home builders will collect the rebate and include the HST cost in the purchase price under $400,000.
Tarion New Home Warranty
Every new home in Ontario is protected by a mandatory warranty that is provided by the builder and guaranteed by Tarion. Typically, the buyer pays for this upon closing. The Tarion fee for $200,001 to $250,000 is $720 + HST ($813.60 total). http://www.tarion.com/Warranty-Protection/Pages/Warranty-Fees.aspx
Closing Costs Adjustments
The buyer is required to pay any adjustments upon closing. These could include property taxes or full oil tank. Any of these costs should be fully detailed to you by your lawyer. You should not encounter any for a new home purchase.
Hook-up Costs/Service Deposits
RESALE – There may be costs and possibly service deposits for utilities such as bell, cable, gas, hydro, water and sewer, etc. These costs can be checked out ahead of time.
NEW – This is usually an additional cost paid to the builder on closing. Some builders will cap this cost at a set maximum that will be disclosed in the builder’s purchase agreement as a part of the agreed purchase price.
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