Buyers

Buying your new home is a serious venture. It can be an absolute pleasure or a massive headache. Your house is not just your home, it is a serious investment in the dwelling, the area and your future.

When buying a home – you’re bound to have many questions. For example, “In what area can I find a home that suits my needs?”, “How much money will I need to afford the monthly payments?” and “How long will the home buying process take?”

Below are some articles that you might find useful in the home buying process. Please feel free to click on one of the links below to read more.

 

Buyer Articles

Advice for First-Time Buyers

  • Pre-Qualification: Meet with a mortgage broker and find out how much you can afford to pay for a home.
  • Pre-Approval: While knowing how much you can afford is the first step, sellers will be much more receptive to potential buyers who have been pre-approved. You’ll also avoid being disappointed when going after homes that are out of your price range. With Pre-Approval, the buyer actually applies for a mortgage and receives a commitment in writing from a lender. This way, assuming the home you’re interested in is at or under the amount you are pre-qualified for, the seller knows immediately that you are a serious buyer for that property. Costs for pre-approval are generally nominal and lenders will usually permit you to pay them when you close your loan.
  • List of Needs & Wants: Make 2 lists. The first should include items you must have (i.e., the number of bedrooms you need for the size of your family, a one-story house if accessibility is a factor, etc.). The second list is your wishes, things you would like to have (pool, den, etc.) but that are not absolutely necessary. Realistically for first-time buyers, you probably will not get everything on your wish list, but it will keep you on track for what you are looking for.
  • Representation by a Professional: Consider hiring your own real estate agent, one who is working for you, the buyer, not the seller.
  • Focus & Organization: In a convenient location, keep handy the items that will assist you in maximizing your home search efforts. Such items may include:
    1. One or more detailed maps with your areas of interest highlighted. ;
    2. A file of the properties that your agent has shown to you, along with ads you have cut out from the newspaper. ;
    3. Paper and pen, for taking notes as you search.
    4. Instant or video camera to help refresh your memory on individual properties, especially if you are attending a series of showings. ;
    5. Location: Look at a potential property as if you are the seller. Would a prospective buyer find it attractive based on school district, crime rate, proximity to positive (shopping, parks, freeway access) and negative (abandoned properties, garbage dump, source of noise) features of the area?

     

  • Visualize the house empty & with your decor: Are the rooms laid out to fit your needs? Is there enough light?
  • Be Objective: Instead of thinking with your heart when you find a home, think with your head. Does this home really meet your needs? There are many houses on the market, so don’t make a hurried decision that you may regret later.
  • Be Thorough: A few extra dollars well spent now may save you big expenses in the long run. Don’t forget such essentials as: ;
    1. Include inspection & mortgage contingencies in your written offer.
    2. Have the property inspected by a professional inspector. ;
    3. Request a second walk-through to take place within 24 hours of closing.
    4. You want to check to see that no changes have been made that were not agreed on (i.e., a nice chandelier that you assumed came with the sale having been replaced by a cheap ceiling light).

     

  • All the above may seem rather overwhelming. That is why having a professional represent you and keep track of all the details for you is highly recommended. Please email me or call me directly to discuss any of these matters in further detail.

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How to Negotiate with Sellers

Buying a home is one of the most important purchases most people will make. In order to make the right decision the first time, potential buyers need to be prepared. Consider the following before starting negotiations:

  • Be prepared Research the housing market in the target area. Once you have information about the general area, focus on the particular property and seller. Look for answers to questions such as:
    1. Why is the homeowner selling? (If they’re moving because they find the area undesirable, you might want to consider this issue.)
    2. How long has the home been on the market? (If it has been on the market for a long time, perhaps there are negative facts about the property that you need to know.)
    3. How much did the seller pay for the home compared to the current asking price? (If the seller paid more, find out why. Was it a general real estate trend, or did property values in that particular neighborhood go down?)
    4. What is the seller’s time frame for selling and moving? Does it fit within your needs?
    5. Are there any defects in the home or problems with the surrounding neighborhood? (For example, is the roof so old that it will likely leak during the next storm? Is there a new construction project in the area that will lead to major traffic congestion?)

As the potential buyer, you want the advantage. While you want answers to all your questions to the seller, reveal very little about your circumstances. Do not give the seller personal information such as your income, the maximum you are able to pay for a down payment or the home, or when you want to move. Make sure that your agent knows not to reveal any such information to the seller or his/her agent.

Also, do not let the seller see how much you want the property. If you appear desperate or overly enthusiastic, the seller then has the stronger bargaining position. When meeting with the seller or listing agent, keep your emotions in check.

  • Establish a Timeline Find out if the seller needs to have the sale closed sooner rather than later. If the seller is feeling pressured to sell, use that to your advantage in negotiating. Even if you, the buyer, are the one with the deadline for purchasing a home, don’t let yourself be rushed into making concessions or a purchase you may regret later.

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Types of Mortgages

 

TYPES OF MORTGAGES AVAILABLE

This section consists of two parts. The first part deals with the difference between a conventional mortgage and a high-ratio mortgage.

Part two deals with the different types of mortgages available. However, these are fairly generic explanations – just as there are many different lending institutions, so there are almost as many different varieties of mortgages available. This is another good reason to consult a mortgage broker. Depending on your situation, one type of mortgage may be better for your circumstance than another.

CONVENTIONAL MORTGAGE

If you have at least 25% of the purchase price (or appraised value if this is lower than the purchase price) as a downpayment, you can apply for a conventional mortgage.

Some lenders will require CMHC insurance because of the property’s location or type, even though you have 20% or more equity.

HIGH-RATIO MORTGAGE

If you have between 5% and 20% of the purchase price as your downpayment, you can apply for a high-ratio mortgage. Usually these have to be insured through CMHC (Canada Mortgage and Housing Corporation) or GE (GE Capital). These are mortgage insurance companies. Purchasing insurance is a common way of qualifying for a mortgage when you have less than 25% equity. The insurance premium is charged only once (per mortgage), when the mortgage funds are advanced. You can pay the premium yourself, but most people choose to add the funds on top of the mortgage.

Please note: Insurance premiums are higher when there is more than one advance. This usually happens if you are building your house or having it built for you. Check with your mortgage broker to learn what the applicable premiums will be.

The insurance premium is calculated by multiplying the mortgage amount needed by the applicable percentage.

For example:

If the purchase price is $112,000 and the required mortgage is $100,000. You divide 100,000 by 112,000. This equals 89.29%.

Looking at the above chart – the premium is 2.50% when the lending ratio is 89.29%.

The next step is to multiply the mortgage amount by the insurance premium. Using our example this means $100,000 X 2.50% = $2,500. Your actual mortgage loan will therefore be $102,500.
CMHC’s 5% DOWNPAYMENT PROGRAM was originally for first-time homeowners, but was expanded in May 1998 and is now available to all purchasers (principal residence only) who meet the normal requirements.

Mortgage brokers and lenders must verify that the borrower has the 5% downpayment and 1.5% of the purchase price to cover closing costs. The only exception to the 1.5% is when the purchaser qualifies for an exemption of the Land Transfer Tax (Ont.) or Property Transfer Tax(B.C.), or similar provincial tax exemption. In these cases the mortgage broker or lender must ensure that there are sufficient funds available to cover all remaining closing costs. It is also possible to finance the closing costs over 12 months as long as the payments fit inside the 40%TDS ratio.

OPEN MORTGAGES

An open mortgage allows you to pay off part or the entire mortgage at any time without penalties. Open mortgages usually have short terms of six months or one year. The interest rates are higher than those for closed mortgages with similar terms.

VARIABLE RATE MORTGAGES / ARM (ADJUSTABLE RATE MORTGAGES)

At the start of a variable rate mortgage, the lender will calculate a mortgage payment that includes principal & interest. For the term of the mortgage your payments usually do not change. However, as the prime rate changes so will your mortgage rate.

If interest rates are dropping, less of each payment will go toward interest and more will go toward principal. If interest rates rise, more of your payment will be interest and less money will be reducing your principal.Some of these mortgages are completely open (you can pay off all or part of your mortgage at any time without penalties). Others that offer a ‘prime minus’ interest rate (e.g. prime – 0.375%) may charge a penalty.

The interest rate on most variable rate mortgages is compounded monthly.

CAPPED RATE MORTGAGES

These are variable rate mortgages that the lending institution has rate ‘capped’. In other words, the rate will fluctuate with prime, but the institution guarantees that you will not pay more than a certain interest rate, set by them.

These mortgages often have a penalty for early ‘payment in full’ and are often not portable.

CLOSED MORTGAGES / FIXED RATE MORTGAGES

The expression ‘closed mortgage’ originates from the 1980′s when this type of mortgage was literally ‘closed’. You contracted to the lender to make your payments for the term chosen, you could not pay anything additional, nor could you pay off the entire amount for any reason except the sale of your property.

These days, there are many ways to pay down your mortgage principalquicker, though the name ‘closed’ mortgage still remains. See pre-payment options for ways to pay off your mortgage quicker.

Fixed rate mortgages are the most popular type of mortgage. You benefit from the security of locking in your mortgage interest rate, for lengths of time ranging from 3 months up to 25 years. The rates are slightly lower than for an open mortgage for the same term.

If you think interest rates could rise, you may want to choose a longer term, such as a 5 or 10 year term. If you think that rates are going lower, you may want to gamble on a shorter length of time. Discuss this with your mortgage broker.

The major lending institutions have different pre-payment options allowed under their contracts. These options allow you to pay off your mortgage faster. It is also possible to pay off most closed mortgages prior to the end of the term or pay down a portion of the balance owing. However, lenders charge penalties for doing so.

Please note that some lending institutions will not give any pre-payment options. It is wise to find out what options are available before entering into any mortgage contract.

 

CONVERTIBLE MORTGAGE

These are fixed rate mortgages for terms of 6 months or 1 year. Not all lending institutions offer convertible mortgages. With a convertible rate mortgage you can lock into a longer term during the current term of your mortgage without penalty – but only with the same lender. For example, if after a couple of months you hear that interest rates are going to increase, you may change to a longer term mortgage such as the 5 year term.

 

REVERSE MORTGAGE – For Those 62 and Older

CHIP – Canadian Home Income Plan is the name of the company providing reverse mortgages in Canada.

A reverse mortgage allows homeowners to convert equity in their homes into cash, without selling the property or having to make monthly payments.

To qualify, homeowners must be at least 62 years old, have significant equity in their property and live in B.C. or Ontario. The amount that can be borrowed depends on the homeowner’s age. Reverse mortgages are for between 10% and 40% of the appraised value of the home. The older the homeowners, the more they can borrow.

The homeowner retains ownership and possession of the house. The lending company registers a reverse mortgage against the property. At death, or when the house is sold, the loan and the accrued interest must be repaid.

The biggest disadvantage to reverse mortgages, is that the interest keeps building on the amount of money borrowed (hence the maximum 40% loan). This means that if you borrow $50,000 this year and your interest bill is $5,000, next year your interest will be charged on $55,000 and so on. The longer the loan is in place, the greater the interest bill that has to be paid.

It is possible that when the house is sold, 100% of the proceeds from the sale may be required to pay off a loan.
If the homeowner dies the estate will have to pay off the loan and the accrued interest. This may wipe out any inheritance for the homeowner’s heirs.

An alternative is to establish an equity credit line. This allows you to take funds only as you need them, thereby owing the least interest possible, with no surprises. Consult with a financial advisor for more alternatives.

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Getting the Best Rates for Your Mortgage

Naturally, you want to get the best deal for the least amount of money. This holds true for mortgage rates as well.

A lower interest rate means a lower monthly mortgage payment, which can save you money in the long run. Also, it is easier to qualify for a lower payment than a higher one.

You basically have two routes to finding the best rate. The first is to do all the research on your own. The second is to use a mortgage broker.

Do-It-Yourself

With the advent of the Internet, much of this information is readily available online. Once you have educated yourself sufficiently about real estate loans, all it takes is the time and energy to sift through online resources to find the information you need.

Rates change quickly. That great rate you find today might not be there tomorrow. Once you find the rate you are looking for, submit a loan application and lock in that rate.

When comparing loans, make sure that you’re comparing loans of the same type. For example, you find that “Loan A” for a 30-year loan has a much lower interest rate than “Loan B” (also for 30 years). Upon further inspection, you find that “Loan A” is technically an adjustable rate mortgage. Its payment is based on a 30-year amortization, but becomes due through either payment or refinancing at the end of 5 or 7 years. These are frequently referred to as a 5-year or 7-year fixed-rate mortgage. While both said “30-year”, they are not the same type of loan.

At Coldwell Banker we are pleased to be partnered with RBC. I encourage you to contact their Mobile Mortgage Specialist to start your process. But of course, look around at all banks and ensure you are getting the best overall package (there’s more to it than just the rate!).

Mortgage Broker

If you do not have the time or experience to “do it yourself,” look for a qualified mortgage broker that can assist in finding the right mortgage for you. Ask friends and associates who have refinanced or purchased recently if they have a broker they can recommend. You’ll want to find a broker who is energetic, flexible and knowledgeable about finance and loans and someone who has your best interests in mind.

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How Much Can I Afford

Click on the link to go to the Mortgage Calculator. It will give you a good start as to what monthly amounts are in your range. Mortgage Calculator

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8 Mistakes First Time Home Buyers Make

 
Becoming a homebuyer and applying for a mortgage can seem overwhelming, especially if it’s your first time. With the help of one of our expert and dedicated mobile mortgage specialists, it can be easy. They’ll meet with you any time to guide you through the process and help you find the best mortgage for your specific needs.

To help you feel more confident and prepared for becoming a first-time homeowner, we’ve put together a list of eight of the most common pitfalls, which our mobile mortgage specialists can help you avoid. 1. Thinking you won’t qualify for a mortgage. Dreaming of owning your own home but not sure if you qualify for a mortgage? Even if your credit history is less than perfect, we can help you find a solution.

2. Not knowing all the down payment choices. You’ll be glad to know that there are different options available depending on how much of a down payment you can afford:

  • Conventional mortgage or RBC Homeline Plan®(20% down payment)
  • Low down payment mortgage (minimum 5% down) Low down payment mortgages require mortgage default insurance. The premium can either be paid up front or added to the amount you borrow. Under the federal government’s Home Buyer’s Plan, first-time homebuyers are eligible to use up to $25,000 in RRSP savings per person ($50,000 for couples) for a down payment on a home. The withdrawal is not taxable as long as you repay it within a 15-year period. To qualify, the RRSP funds you plan to use must have been in your RRSP for at least 90 days.

3. Focusing too much on the interest rate, rather than the overall solution. All too often, first-time homebuyers give more thought to interest rates than the mortgage solution itself. While rates are a valid consideration, the different types of mortgages, their payment structures, terms and flexibility will have a much greater bearing on the overall cost of homeownership. Fixed rate mortgage. Fixed rate mortgages offer the security of locking in your interest rate for the term of your mortgage, and your payment amount stays the same, providing ease of budgeting. The main advantage is that the interest rate stays the same during the term of the mortgage and that you know exactly how much of your payment is applied to principal and interest. Variable rate mortgageWith a variable rate mortgage, your payments remain the same, regardless of fluctuating interest rates. When rates go down, more of your payment goes to pay the principal and less to interest, enabling you to pay off your mortgage sooner. When rates go up, the reverse happens: less of your payment goes toward the principal and more to interest, extending the amortization period.Many experts believe variable rate mortgages offer the greatest potential for long-term savings on interest costs. Combined fixed and variable rate mortgage With the RBC Homeline Plan, you can enjoy the advantages of both variable and fixed rates by diversifying your mortgage. That means the variable portion allows you to take advantage of potential longterm savings, while the fixed rate portion protects you if rates rise.Your mobile mortgage specialist can help you decide which mortgage solution works for you, based not only on your budget but also on your future plans.
4. Being unrealistic about how much you can afford to pay for your home. You may be under- or over-estimating how much you can afford to pay for your home. Our online mortgage calculators make it easy for you — all you need to do is log in to www.rbcroyalbank.com/mortgages and click on the “How much home can I afford?” link. Enter your income and expense information, and the calculator will tell you the maximum mortgage payment amount you can afford each month.Or you can click on “Mortgage Calculators” to quickly figure out monthly payments for different mortgage amounts and rates. You may find out you can comfortably afford more than you originally thought. For a more personal touch, contact one of our mobile mortgage specialists. They can quickly help you determine how much you can afford and answer any questions you might have.
5. Not considering a mortgage pre-approval. Knowing the amount you will be approved for gives you the confidence to begin looking at homes within your price range. Real estate agents will serve you better because they know you’re a serious buyer. You can easily make an offer to purchase as soon as you find the right home.At RBC®, your pre-approved mortgage rate will be guaranteed for 120 days. If rates go up during the period, you’re protected. If they go down, you will automatically get the lowest rate for the term selected.
6. Not choosing your own mortgage payments schedule. Customize your amortization period depending on how much you can afford. Paying off your mortgage sooner saves you interest costs, while a longer amortization period reduces your regular payment amount and gives you more room to manage your cash flow.Because extended amortization means increased interest costs and paying down a mortgage more slowly, this option isn’t for everyone. A 25 year amortization is a good starting point for you to consider as stretching your amortization further will increase your interest costs over the life of your mortgage. If you decide a longer amortization is appropriate, consider a strategy to reduce amortization over the life of the mortgage. RBC’s moneysaving options, such as Double-Up®, accelerated payment, 10% anniversary payment and annual 10% increase in payment amount, can get you back on track to a 25-year — or even shorter — amortization period.Regardless of the mortgage option you choose, buying and owning a home is likely to be one of the biggest financial investments of your life. Creditor insurance can help protect that investment from life’s uncertainties and help give you the confidence that comes with knowing your investment is well protected.HomeProtector® life and disability insurance can pay your outstanding mortgage balance up to $500,000 in the event of your death, or can make your regular mortgage payment — up to $3,000 per month for up to 24 months — if you become disabled.See www.rbcroyalbank.com/products/mortgages/home_protector_insurance.html for details of coverage.
7. Forgetting about closing costs. By this time, you’ve selected a house, picked your mortgage options and are getting ready to finalize everything and make an offer. This means getting down to certain details and their associated costs. It helps to know what these are up front so you can minimize any last minute complications. When calculating closing costs, it’s fairly safe to assume you’ll need an additional 1.5% of the purchase price to cover such things as:

  • Professional home inspection:Always make an offer conditional upon a home inspection. As long as your offer is conditional upon the home inspection, you can have the purchase price reduced to offset the cost of needed repairs or cancel the agreement. You should also inspect the home before moving in to make sure its condition has not changed. A newly built home is usually covered by a builder warranty program.
  • Lawyer or notary fees: Make sure you work with an experienced real estate lawyer/notary so that all legal aspects of your house purchase are properly completed.
  • Land transfer tax: Most provinces levy a one-time tax, which is based on a percentage of the purchase price.
  • Property tax/utility bill adjustments:The purchase price of a resale home is always payable subject to the usual adjustments at closing. This means that any amount that the seller has already prepaid will be adjusted so you pay the excess amount back to the seller, and vice versa. The most common adjustments occur on property taxes and utility bills that have been paid ahead of time. The best way to take control of your property tax payments is to pay them directly to your municipality where applicable. You can pay your tax bill by a variety of methods: a cheque to your municipality, through online banking or (if your municipality allows) an automatic debit from your checking account.
  • Property insurance: Your home is probably the biggest investment you will ever make in your life. Property insurance is all about protecting the things you value: your home, your personal belongings and even your financial future. When choosing an insurance company, make sure they offer a range of choices allowing you to personalize your insurance to suit your needs.
  • Moving costs: Budget for a professional mover, decorating costs and fees for setting up your cable, telephone and other utilities.
  • Ongoing costs: Don’t forget to budget for the cost of maintaining a home, such as heating, electricity, water, repairs and taxes. A good suggestion is to budget at least 1% of the home’s value for yearly maintenance expenses.Owning your own home is a milestone as well as an exciting experience! How often do you get to live in and enjoy your investments? Your mortgage specialist is always available to guide you through the process.

8. Not knowing your credit rating. A credit rating is a record of your credit history and current financial situation, which typically translates into a credit rating score. Lenders can use your credit rating to verify your repayment history. A good credit rating can improve your ability to get loans and mortgages. If your credit rating needs improvement to help you qualify for a mortgage, you can improve your credit rating by always making at least the minimum payments on your credit cards, loans or utility bills on time. Checking your history is easy! Simply ask for a copy of your credit rating at either www.equifax.ca or www.tuc.ca.
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