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Buying a Home Is it a good investment? Selecting a home type The key players in your purchase Purchase price checklist Financing a home Using your RRSP Buying with as little as 5% down Getting a pre-approved mortgage What type of mortgage should you choose? Is it a good investment?
Selecting a home type Don't be pressured into buying a home that is not right for you. There are a lot of choices out there and a lot of pressures to buy. Here are the Pros and Cons of the various options as well as a comparison of resale homes vs. new homes purchased directly from the builder.
Condo Apartment Pros:
Cons:
Condo/Freehold Townhouse Pros
Cons
Semi-Detached Pros
Cons
Detached Pros
Cons
Re-Sale Home vs. New from Builder As a first-time buyer, another major decision you may have to make is whether to purchase a re-sale home or a new home directly from a builder. Both options have their advantages and disadvantages. Here's how they compare. Re-Sale Home Pros
Cons
New Home from Builder Pros
Cons
The key players in your purchase Purchasing a home requires more than just the buyer and seller. You' ll also require the services of a variety of home-related professionals and I can help you find many of the right ones. Here are the key players in your purchase and the roles they play: Realtor Finding a home to purchase is a big job and a realtor can make it a lot easier by doing a good deal of the looking for you. The role of the realtor is to screen available properties, identify those that most closely meet your requirements and arrange to view them with you. Ideally, your realtor is more than a sales agent. He or she should serve as a resource person who can provide valuable advice and help you make an informed purchase decision. The realtor:
Lawyer Your lawyer makes sure that the property you purchase is legally yours and comes with no strings attached. When you buy property you are not just buying the land and building, you are also buying the legal rights of ownership so you need to be certain that no other party has a claim to them. Your lawyer will confirm that there are no legal obstacles to your purchase and help it proceed smoothly. The lawyer:
Mortgage Lender The financial backer in your real estate venture. In today's mortgage market it pays to shop around because there are many lenders and different financing options available. Save yourself the time and trouble. Sit back and let me find a lender who will give you the best rate for the best product to suit your needs. As the party providing the funding, the lender will want to be sure that you are a worthy credit risk and that the mortgage you are requesting corresponds to the value of the property you intend to purchase. The mortgage lender:
Appraiser Appraisers assess property value for the lender. When you purchase a property it's important for the lender to be satisfied that the price reflects the property' s true market value. An appraiser is an officially accredited valuator who is hired to conduct an inspection of the property for the lender to assess and certify its value. The appraiser:
Home Inspector The Home Inspector acts as your extra pair of eyes, able to see things about a property that may not be visible to you. If you are buying a resale home, it's always advisable to have it checked by a Home Inspector as a condition of purchase. This individual (not requiring provincial licensing in most cases) will inspect the property for major deficiencies, which may not always be apparent. The results are presented in a written Home Inspection Report. The Home Inspector:
Builder's Representative Your information resource when you buy a newly constructed home. Should you decide to purchase a newly constructed home from a Builder, then you will probably deal with a builder's representative who arranges the sale of new homes to the buying public. The builder's representative:
Buying a home costs more than the offer you make. There are numerous other expenses that will add to the amount that you'll need to spend. This purchase price checklist outlines all the costs you can expect. Please note that they can vary by province and are subject to change. Purchase Price The starting point in your calculation... if you're like most Lawyer's Fees Although fees vary across the nation, it can cost you up to $2,500 depending upon whether you are re-mortgaging your existing home or buying new. As prices do vary, INVIS has negotiated with the Canadian Lawyers Network (CLN) to provide superior service at a reasonable price. Contact me so I can assist you with this process. Land Transfer Tax A tax payable to the Provincial Government by the purchaser upon the transfer of title from a seller. This amount is usually not expected by most homeowners. It can be sizeable. The amount varies from province to province and is generally a percentage of your purchase price. I can assist you with this. Registration Fees Fees paid to the provincial government for recording a title transfer, mortgage registration or other instrument such as an Assignment or Lien with the local authorities. High Ratio Insurance Must be purchased if you are buying a home for less than 25% down. A sliding fee scale applies, depending on the percentage of the purchase price required in a first mortgage (some minor exceptions). For example, as of May 1997 Canada Mortgage and Housing Corporation (CMHC) and its competitor GE Capital charge a 2.5% one-time fee — which can be added to the mortgage — for any mortgage over 85% — 90% of the purchase price. See also Mortgage Insurance for a definition. Compliance Letter Obtained by your lawyer and required in many municipalities throughout Canada before a property transfer can take place. This is an acknowledgement from the building department that the property either has, or is clear of outstanding work-orders. Work-orders are specific clean-up or fix-up requirements that the owner is legally required to do, and which must be completed before ownership can be transferred. Tax Certificate Obtained by your lawyer at the time of sale to confirm that local taxes have been paid up to date. If they are not up to date, the seller is required to pay them from the proceeds of the sale. If there are insufficient proceeds, then you may be legally required to pay the outstanding taxes. If, on the other hand, taxes have been prepaid, you may have to compensate the seller for them. Provincial "New Home Warranty Program" premiums — New Homes Only! A third party (provincial) warranty program between a builder and a buyer. With the exception of Ontario and Quebec, membership in such a program is voluntary for the builder. Through these programs, your home is guaranteed against defects for at least one year. All homes with a high-ratio insured mortgage (greater than 75% loan to value) must be enrolled in such a program. Mortgage Appraisal and Application Fees Application fees apply on high ratio mortgages only while appraisal fees are common to most mortgages. Generally $150 — $235 each would apply. Home Inspection A report commissioned by a property owner or purchaser, usually to verify the condition of a property prior to the "firming up" of a purchase agreement. The scope and detail may vary, but most reports outline any particular problems and associated repair costs. Unfortunately, no licensing is required, and this service is not specifically regulated other than by general consumer protection legislation. The best safeguard against inadequate work is to ask for the resume of the Inspector, or select a name firm, such as Carson Dunlop, who stand by their work. Land Survey The legal written and/or mapped description of the location and dimensions of your land. The survey should also show the dimensions and placement on the lot of any structure, including additions such as pools, sheds and fences. An up-to-date survey is often required by a lender as part of the mortgage transaction. Title Insurance New to Canadian consumers over the last few years is the introduction of title insurance into the home buying process. Title insurance can be purchased by home buyers to protect against potential deficiencies in a number of areas, such as the land survey. There are numerous benefits to this product, and you should consult your lawyer or an INVIS Mortgage Consultant today. Connection Charges Some local utility companies (hydro, gas, oil) charge a fee on closing to connect new buyers up to their service. More common, however, is an extra charge on the first billing. Property Tax and Prepaid Utilities Adjustments If the previous owner prepaid property taxes or other utilities, they will be credited the prepaid portion on closing. If they paid all their taxes by April, expect a large adjustment cost on closing! Interest Adjustment (IA) If you arrange to make your mortgage payments monthly on the first day of the month, and your transaction closes after the first day of the month, your lender will charge you interest on closing to the next interest date, called the Interest Adjustment Date (IAD), when your payment cycle will commence. This can be a sizeable amount, but it is the correct interest you should pay. For example, close on June 15th, pay 15 days interest on closing and start payments on August 1st. Use your RRSP First Time Home Buyer? Don't forget about the RRSP Home Buyers' Plan. It can be all or part of your down payment. The rules have changed in recent years, so if you think you know them, double check here!
What is the Home Buyers' Plan The Home Buyers' Plan ("HBP") is a federally instituted government program designed to assist "qualified" buyers in the purchase of a new home. Until 1999, the program was available only once and you had to buy or build the qualifying home for yourself, however, the rules have changed. In order to qualify you have to complete Form T1036 which is available at your tax services office. Keep reading to learn more!! And remember, whether you have RRSP savings or no RRSP savings, the HBP can be applied to you!! Who can participate in the HBP? and How many times? You can participate in the HBP more than once in your lifetime if:
How does it work? — No penalties Under the "HBP", Revenue Canada permits you to use your RRSP funds towards the purchase of a new home. The default insurance companies support this program (when your down payment is less than 25%) in allotting the RRSP funds as a source of down payment.
Summary of conditions for participating in the HBP. Conditions for participating in the HBP. Situation 1 -
Situation 2 - Situation 3 - Situation 4 -
** NB. You are not considered to be a first time homebuyer if, at any time during the period beginning January 1 of the fourth year before the year of withdrawal and ending 31 days before your withdrawal, you or your spouse owned a home that you occupied as your principal place of residence. Benefits from using the Home Buyers' Plan. The utilization of your RRSP's within the guidelines of the HBP results in benefits that are quantifiable immediately and extend over the long-term:
Establishing an RRSP with borrowed funds for a tax refund. The "HBP" permits an individual to establish an RRSP with borrowed funds, and then use the resultant tax refund for a down payment. In this scenario:
Managing Tax Refunds The government does not monitor the funds that are withdrawn from RRSP's for the purposes of the HBP. Therefore, providing that an individual has qualified as a buyer and has purchased a qualifying home, they may do whatever they desire with the money. Furthermore, the income tax refund received may be used in whatever manner decided, such as:
What else should you know? The Home Buyers' Plan enables you to borrow money to top up your RRSP plan using accumulated RRSP eligibility limits. If your tax assessment notice indicates you are eligible for $18,000 in contributions in the current year, and you already have $4,000 in a self-directed plan, you are allowed to borrow — subject to credit approval — the $16,000 to buy the RRSP required to bring you up to the $20,000 Home Buyers' Plan limit. Then you can claim the eligible deduction against your current year's income in order to get a large tax rebate. You can use the rebate to pay down the loan or apply it to the cost of buying the home. Here, of course, the amount of tax you're paying each year is an important factor. If the $16,000 deduction in this example results in a $5,000 tax rebate, it can be used as you see fit. If, on the other hand two partners each earning $80,000 per year take their maximum RRSP of $20,000 each in the current year, they could net a total of $15,000 or more in a tax rebate. You are then allowed to withdraw up to the $20,000 maximum from the RRSP 90 days after topping up or creating the plan, subject to the re-deposit requirements described above. Be Careful — If you're planning to borrow the money for the maximum RRSP, you could end up disqualifying yourself for a mortgage because your monthly payments will be too high. Your "total debt servicing ratio" — the proportion of your gross income required to service both the home related costs and other monthly obligations — may exceed the usually acceptable monthly maximum of 42%. Another $600 per month could well make the difference in whether or not you'll qualify for a mortgage. As your mortgage consultant, I am the best person to advise you on this process.
What is it? A pre-approved mortgage puts your financing in place before you make an offer on a home. Usually, the sale of a home is contingent upon the buyer securing the required financing within an agreed-upon time frame. If you are unable to do so, the sale could fall through. With a pre-approved mortgage you'll be able to make a firm offer for the home of your choice. And as most Realtors will tell you, a firm offer adds an awful lot of leverage to price negotiations! Who is eligible? Any qualified borrower. How it works Click the Apply Online link at the top of this page for a pre-approved INVIS mortgage now and start enjoying the convenience and negotiating leverage that INVIS provides. All information you supply is completely secure and will be held in the strictest confidence. Once you have received your pre-qualification from me, I'll help you find a lender with the most competitive rates who will issue your prequalification certificate. After a brief telephone contact from the mortgage lender discussing options, and requesting you to send proof of income and employment, you can be "pre-qualified" — quickly and easily. After you purchase your home, simply contact me to provide property and offer details, along with any other information requested, and your actual mortgage can be approved within hours. What type of mortgage should you choose? Today, more than ever, there are numerous mortgage options available. Don't be confused Here at INVIS, I can help you find the best product for your needs and negotiate you the best rate. I do the research for you, enabling you to avoid the frustration and confusion of having to do it yourself, and explain the available options.
Mortgage Categories
What terms and payment options should you choose? It all depends on what you want. I can assess your personal situation and needs to find the best mortgage for you at the best rate. Short-term risk and variable If rates are low and stable, and/ or you are prepared to take a risk, you can generally pay a lower rate with a short-term mortgage. You simply roll over your term every 6 months, or float your rate against prime, with the option of locking in to a longer term at a later date. This is not for everyone, however, as sudden upward rate movements can have a significant impact on your payments. Long-term Any term 3 years or longer is considered "long term" in today's economy. Because long-term rates are usually higher than short-term rates, you may not want to choose this option. On the other hand, by locking in you will avoid exposure to rate increases. You'll have the comfort of knowing exactly what you payments will be and you'll be able to manage your budget accordingly. Split-term A mortgage which allows you to minimize — or hedge — your interest rate risk by splitting your mortgage into 5 parts. For example: A $150,000 mortgage could be split into five $30,000 segments with terms of 6 months, 1, 2, 3 and 5 year terms negotiated at today's best rates. The average rate would rise or fall much more slowly than changes in the market, however, as only the shorter terms are affected by even the most volatile rate movements over the first few years. Prepayment Options Many lenders allow you to make a lump sum payment — usually 10% to 20% of the original principal balance. In addition, many mortgage products now include a "double-up and skip-a-payment" feature. This lets you "bank" extra mortgage payments for a rainy day, at which time you can "skip" them if you need to. Ask me to advise you on your options today! Payment Changes Most mortgages now allow the amortization to be adjusted by increasing the payment on closed terms by 10% — 20% per year, once annually. Payment Frequency Most mortgages now come with the option to pay your mortgage at a frequency that matches your cash flow — weekly, bi-weekly or semi-monthly. The added benefit of the "accelerated" weekly and bi-weekly payments is that by dividing a regular monthly payment into two or four respectively, and deducting it at the new interval, an extra payment a year is made directly against principal. The surprising effect of this one extra payment a year is to reduce the amortization of the average mortgage by approximately 5 years, with cash savings at the end of the mortgage term. |
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