Tips for Buyers
1. Getting Started
Find a REALTOR®
Home buying is an exciting but sometimes complex process. If you’re thinking of buying a home, a real estate sales representative – a REALTOR® – can help guide you through the process. A REALTOR® is a professional who can save you time and trouble. And possibly even a lot of money. You see, REALTORS® have the home buying experience needed for what may well be the most important purchase of your life. They know all of the steps and they are good negotiators who will work on your behalf.
A REALTOR® will:
- Fine-tune your wants/needs list
- Get special computer access to listing information
- Answer questions about the markets you’re interested in
- Help you compare homes and offer helpful advice about the neighbourhood
- Screen houses so as not to waste your time
- Arrange appointments
- Advise you of reporting requirements by FINTRAC
- Introduce you to trusted contacts who should be on your team, such as mortgage brokers, lawyers, and home inspectors.
Decide What You Want
Whether you’re new or native to a neighbourhood, a REALTOR® can help you navigate homes in the areas that best suit your needs and lifestyle, whether urban, suburban or rural. A REALTOR® can also help you narrow down a type of home to meet your needs and understand the pros and cons of buying a single-family detached, a duplex, a condo, a semi-detached or town house.
Sell Your Current Home
If you’re not planning on owning two homes at the same time, you’ll need to sell the one you have now. Many people are able to time their sale and purchase to happen on the same “closing date,” making their purchase offer “conditional” on the sale of their current home or by extending the “closing period” to give more time to find the perfect home.
Alternatively, you may wish to arrange Bridge Financing. A bridge loan is a temporary financing option designed to help homeowners “bridge” the gap between the time your existing home is sold and your new property is purchased. It enables you to use the equity in your current home to pay the down payment on your next home, while you wait for your existing home to sell. Speak with a professional financial advisor for more information.
A REALTOR® can help you decide the best time to enter the market, analyze local market trends to set an agreeable and appropriate price and help promote your home to potential buyers. For more information about selling your home, check out our Tips for Sellers.
2. Plan Your Finances
Few joys can match the pride of owning a home, but the responsibility can also come with financial sacrifices. Is your bank account ready?
How Much Can You Afford?
Buying a home is a big deal; it’s probably the largest purchase you’ll ever make. Do it right with the help of a REALTOR® and avoid regretting taking on more than you should. Being prepared also means understanding that expenses go beyond purchase price.
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In a couple steps, you can determine how much you can afford.
If You Need to Arrange a Mortgage
Since you may not have hundreds of thousands of dollars at your immediate disposal, a mortgage is a loan that can help you cover the cost of buying a home. There are hundreds of banks, credit unions and other lenders out there who would love your monthly mortgage payments. So talk to everybody and don’t be money-shy!
Mortgage brokers are another great resource. Their job is to find low lending rates and they usually don’t get paid unless you sign a mortgage through them – meaning they’re highly motivated to get you the best deal.
Additionally, a mortgage takeover may be a possibility. This means assuming the seller’s mortgage. This is a great option if the seller is locked into a lower interest rate than you can get right now. Your REALTOR® may have additional information.
The Nitty-Gritty and Lingo of Home Buying Costs
Down Payment
Refers to the initial up-front portion you pay against your home purchase. A larger down payment means a smaller mortgage (and less debt).
If you’re a first-time homebuyer with money in a Registered Retirement Savings Plan (RRSP), you can withdraw up to $25,000 without paying income tax through the Home Buyers’ Plan. If your spouse or partner is also eligible, that’s a possible $50,000 you can use towards your down payment.
Legal fees
You’ll pay your lawyer for time and “disbursements” which are the costs involved in title searches, drawing up the title deed and preparing your mortgage.
Land survey fee
Lenders may require a survey of your property, even if there’s an existing survey. In lieu of a survey, you may purchase “Title Insurance”. Ask your lawyer for more details.
Title insurance
Title insurance protects you from fraud and potential errors surrounding the title to your land.
Home inspection fee
While not mandatory, a home inspection helps avoid surprises and protects you and your investment.
Land transfer tax
Provincial rates for land transfer tax are:
- 0.5% for amounts up to and including $55,000
- 1.0% for amounts exceeding $55,000, up to and including $250,000
- 1.5% for amounts exceeding $250,000, up to and including $400,000
- 2.0% for amounts exceeding $400,000, up to and including $2,000,000
- 2.5%. for amounts exceeding $2,000,000, where the land contains one or two single family residences.
First-time homebuyers may be eligible for a refund of $4,000.
CMHC Insurance
Canada Mortgage and Housing Corporation (CMHC) insurance is required on any mortgage with a down payment of less than 20%., This type of high-ratio mortgage can cost an additional 2.8% to 4.0% of the mortgage amount.
Gross Debt Service Ratio (GDSR)
This lending principle states that your monthly housing costs should not exceed 32% of your gross (before taxes) monthly family income.
Total Debt Service Ratio (TDSR)
This lending principle summarizes that your monthly housing cost and payments on all other debts (like loans, credit cards and lease payments) should not exceed 40% of your gross monthly income.
Mortgage term
Refers to how long the bank has agreed to lend you the money – typically from six months to five years. At the end of the term, you usually renegotiate a new term.
Amortization
Amortization refers to the length of time it will take to pay off the whole mortgage, often as long as 25 years. The longer your amortization, the lower your monthly payments, but the more you pay in interest over time.
Interest rate
Interest is the cost of borrowing money, and the interest rate tells you exactly how much. Using the mortgage calculator, check out the difference between borrowing $100,000 at 2% versus 5% at the same amortization.
Keep in mind you can also choose between a fixed or variable rate. A fixed rate will remain unchanged for the entire term whereas a variable rate will fluctuate as rates increase or decrease throughout your term.
Application fee
While often waived, some lenders charge a fee to process your mortgage application. Be sure to ask whether it can be waived.
Appraisal fee
Your mortgage lender may ask to have your new home appraised by a professional and they often pass the bill on to you. Sometimes your lender will waive this fee.
Maintenance and utility costs
Remember, you’ll now have more regular monthly payments in the form of property tax and utilities.
Home insurance
Mortgage lenders require you to carry fire and extended-coverage insurance because your home is the security deposit on the mortgage. Often you can have these payments added to your monthly mortgage payments.
Property Tax
Take note of this tax for it can vary significantly by geographic area and the zoned use of a property. Special assessments for local infrastructure projects can also be levied on property owners.
Condominium Fees
When buying a condo, a Status Certificate is one of the most important documents you will encounter. It is a document designed to disclose the financial status of a condominium unit and corporation. The consequences of ignoring this document could be catastrophic. While a Status Certificate must be given to a prospective buyer within 10 business days of the request, the Condominium Act allows for a $100 fee to be charged for the certificate. This fee may be paid by the seller if agreed to in the Offer to Purchase.
If you’re moving into a condominium, you will also be required to pay monthly condominium fees. These fees cover expenses, such as grounds keeping , security personnel and health club maintenance, and they vary from complex to complex.
Adjustments
The previous owner may have paid property tax or utilities in advance and they will want to be credited for those payments. Ask your lawyer or REALTOR® about what might come up on the closing date.
HST and new homes
While HST doesn’t apply to resale homes, it does apply to new homes. However, if you intend to live in your new home (instead of renting it out), there is some relief.
A portion of the 13% HST (8% PST and 5% GST) is returned to buyers. The provincial part is easy to calculate. The rebate is always 75% of the PST amount to a maximum of $24,000. The GST rebate, on the other hand, is 36% if the home costs $350,000 or less. If the home costs between $350,000 and $450,000, the rebate shrinks according to a sliding scale. At $450,000 the GST rebate ends.
3. Make an Offer
You’ve found the perfect home! Congratulations!
Offer to Purchase
Now, if you actually want to make it yours, you have to make an offer, one the seller will accept. A REALTOR® can provide current market information which will aid you in presenting your offer and will communicate your 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 REALTOR® will guide you through this process as smoothly and effortlessly as possible.
Conditions
You may want to add conditions to your offer that are important to you, such as the conducting of a home inspection, arranging mortgage financing or the sale of your current home. While a seller may prefer a Firm Offer without any conditions, a Conditional Offer can benefit a buyer. A Conditional Offer is not complete until all the conditions have been met. If they are not met within a specified timeframe, the offer is considered void and the deposit is returned.
Negotiations
Once your Offer to Purchase is presented, the seller may accept the offer, reject it, or submit a counter-offer. A counter-offer could be in reference to any number of factors, including the closing date and/or the purchase price. These offers and counter-offers may sometimes go back and forth until both parties have agreed upon an offer or until one or the other ends the negotiations.
If the seller accepts your offer, the home is yours.
4. Close the Purchase
Your offer has been accepted and you can’t wait to move in … but don’t break out the bubbly just yet. You still have to close the deal. Your REALTOR® and lawyer will do most of the closing work, but there’s plenty for you to do also.
Your Closing Checklist:
- Issue a cheque for the agreed deposit (usually in the form of a Certified Cheque or Bank Draft) to the seller or the seller’s broker. The deposit is normally due within 24 hours of an Agreement of Purchase and Sale being accepted.
- Immediately begin satisfying any conditions of the agreement that require action on your part. Your REALTOR® can fill out the documents confirming the conditions have been satisfied.
- Contact your Lawyer. Buying a home involves piles of legal documents. You need someone to translate the ”legalese” and ensure your best interests are protected. If you don’t have a lawyer, ask your friends, family and co-workers for their recommendations. Your REALTOR® can also give you the name(s) of experienced real estate lawyers in your area. Ask your lawyer to begin searching title to the property. This can take a while, so make sure you allow ample time.
- Well before closing, arrange your homeowner’s insurance to kick in on your closing date. Your insurance broker will give you a “binder letter” certifying that you’re covered. You can’t get a mortgage without this letter.
- Contact your lender and have them finalize your mortgage documents. Make sure your lawyer reviews them before you sign.
- Your lawyer will transfer essential utilities like hydro and water but you’ll have to make sure telephone and cable companies switch their services to your new address.
- If you rent, be sure to give the required notice to your landlord.
- Begin planning your big move. Where are those cardboard boxes?
- Send out your change of address information and fill out a card at the post office. Contact the appropriate provincial agencies about changing your other identification cards.
- Walk through your new home one more time with your REALTOR®. Don’t forget the measuring tape to start planning your furniture arrangement.
- A day or two before closing, you’ll meet with your lawyer to sign the closing documents. Your lawyer will tell you in advance what certified cheque(s) you’ll need to seal the deal.
On the closing date, it’s likely that you won’t get the keys to your new home until late in the day, so it might make more sense to schedule the actual move for a day or so after closing.
All Moved In!
Take a deep breath and enjoy what you have: Your New Home!