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Buying

NINE REASONS TO BUYSIX MISTAKES HOME BUYERS MAKEFIRST TIME BUYERSCONDO VS HOUSEMORTGAGE TERMINOLOGYPURCHASING COSTS

Nine Reasons to Buy

There are many reasons why you should consider jumping into the real estate market and buying a home. Below is a list of 9 reasons why you should seriously consider it.

1. To Quit Renting
Why contribute to someones mortgage payments when you could be paying off your own? With the current market increase in rent it can sometimes be cheaper to own than it is to rent and there is no fear of your mortgage payments suddenly increasing.

2. Security
You don’t have to worry about your house being sold out from under you to out-of-province investors. If renting and faced with this scenario, you could find yourself faced with an unreasonable increase to your rent, thereby leaving you potentially homeless or too poor to eat. These increases could continue indefinitely so the investors can make more money or so that you will feel forced to leave and they can turn your building into a condominium.

3. Investment
The price of real estate continues to increase every year, therefore purchasing real estate is one of the safest long-term investments a person can make. If you had the choice between putting money towards a new car or a new house, a house should win every time as it will appreciate in value over the years whereas a car does the opposite. Once you own one house and build some equity you may also be in a financial position to buy another and rent one out.

4. Low Interest Rates
Right now we have some great interest rates which will help you get your foot on the first rung of home ownership. It is a great time to get into the market and lock into a really good interest rate and build equity.

5. Pride of Ownership
One of the biggest reasons people buy properties is the pride of saying they own something. Even if it is a little starter home or apartment style condo, it is yours and you can do with it as you please, and for that, a person should be proud, as ownership is an accomplishment.

6. Privacy
If you own your own house, you don’t ever have to worry about the owners checking up on you, since you are the owner! You will gain much more independence and privacy when you have your own property.

7. Equity
One of the best things about owning a home is that you are building equity, which gives you more freedom financially as you can access a home equity loan. You may then borrow against the equity you have built in your home for a wide variety of reasons including home improvements, paying for school for your children, medical reasons, or even starting your own business. Check with your lender, as these vary from one to the next.

8. Freedom
You are free to do what you want in your own home, whether you want to paint the walls in pink and black zebra or put carpet on the ceiling (not recommended of course!) You have the freedom to express yourself and your personal tastes and change the house to suit your needs. You can hang as many pictures as you want and do renovations as you please. Just keep in mind that when you are ready to sell your home, not everyone may like what you do.

9. Sense of Community
Owning a house gives you a feeling of belonging in that neighborhood and gives you the sense of putting down roots and getting established. There are also many neighbourhood groups that you can become involved in, and if you have children it may be of benefit for schools and friends.

Six Mistakes Home Buyers Make

There are six common mistakes homebuyers make especially when buying their first home or condo. These common home buying mistakes are:

  1. Not getting pre-qualified for a mortgage.
  2. Not shopping around for the best mortgage terms.
  3. Not getting a home/ condo professionally inspected.
  4. Not using a professional agent.
  5. First buying a new home and then trying to sell your old home.
  6. Not knowing the full cost of buying a home.

First Time Buyers

It is essential as a first time home buyer in the real estate market that you work with someone who is experienced with first time buyers. First time buyers will usually have more questions than people who have purchased real estate previously. Buying a home is not a simple process, especially when you are not familiar with it. You may not know what price range of properties you can look at, what mortgage payments you can afford, or how the general home buying process works. For a first time buyer, we generally recommend getting to a bank or seeing a mobile mortgage specialist as soon as possible to determine what you can afford and what you are comfortable with paying each month. You can then be ‘pre-approved’, which is the first step to getting you into an affordable home and getting you started in the market.
We can provide the answers to your questions and walk you through the entire process, from viewing potential homes, to making an offer, to setting up mortgage financing. Although buying your first home can be overwhelming, you can be confident that we will be available to help you every step of the way. We enjoy the process as much as you do, and find it very exciting! We still remember buying our first homes and all of the questions that we had. Having a real estate agent that was willing to be available and answer my questions made the process so much easier and calming. This is the same commitment we make to all of our first time buyers, and anyone that we work with.

There are many reasons a person should buy a home, but the most common are:

It is a great investment. With the steady increase in real estate and the limited amount of rental properties in our cities, it is important to get into the market as soon as you can. It is smart to get your foot on the first rung of the property ladder. Chances are you will not be able to start out by buying your dream home, but it is the first step in advancing to that dream and to build some equity to put towards your next home.

Two out of three Canadian families own a home – one of the highest rates of home ownership in the world.

You don’t have to worry about getting kicked out or having your monthly payments increased suddenly and permanently. You lock in your monthly payments for several years and your house will generally get more valuable over that time.

Don’t forget pride and comfort in owning your own home. You can customize it however you want and can do what you want inside your own home! If you are someone that is interested in getting into the real estate market and buying your first home I would be happy to work with you and make the process as simple as possible. For additional information on buying a home, please contact me anytime.

Home Buying Process

Moving can be very exciting but it can also be very stressful as there are so many things to remember to do! Don’t despair; whether you are doing it on your own, asking friends for some help, or hiring professionals, here is a quick guide to help you get through the buying process.

Avoid 9 critical mistakes that could cost you thousands of dollars when buying your home!

Don’t “low-ball” your initial offer
Vendors tend to give less of a counter offer (closer to list price), if they feel insulted. Understand the current market value of the home and comparable SOLDS.

Get Pre-approved
A pre-approved mortgage can be done for 90 days for FREE. You can usually negotiate your mortgage rate between 1/2-1% off the posted rates with your lender.

Have your agent arrange a home inspection
A home inspection with a qualified engineer costs about $300.00 (approx). It could very well be your best money spent. You want to know exactly what you are bidding on.

Avoid buying the most expensive home on the street
The most advantageous situation is to purchase the worst home in a good area, rather than the best house in the worst area. “Location, Location, Location” is true!

Prepare a down payment of at least 25%.
When you have a down payment that is almost 25%, it is usually less expensive to arrange a first and second mortgage and save on CMHC insurance fees.

Arrange an accelerated Bi-weekly payment plan on your mortgage.
On your mortgage, you will save the most money if you opt for an accelerated Bi-weekly payment plan, or if you double up one payment per year. This will shorten your amortization periods by over 6 years!

Take advantage of tax credits.
Place up to $20,000.00 per person of your down payment in a short term RRSP to be held for at least 90 days, or until closing.

Try and stretch to the maximum you can afford.

Be sure to check into your lawyer’s fees ahead of time.
These are separate from disbursements. Ask your agent, who will be able to refer you to reliable professionals.

Condos vs Houses

Many people assume the difference between a condo and a house is that one has a yard and one typically does not. There is much more to it than just that, and it is important to know all of the factors when deciding on which one to buy. Another area people can get confused about is the difference between a townhouse style and apartment style. Both of these fall under “condominium” as that is a TYPE of ownership. Townhouse and apartment refer to the style of the home.

What is best for you?

This is a question that only you can answer, but one that some people don’t think about long enough before answering. The answer really comes down to your lifestyle, and your wants and needs. If you have a large family and want a yard with space for them to use freely, then a condo probably isn’t for you. If you really enjoy your space, privacy, and having absolute control over all the decisions that affect your home, a condo probably isn’t for you. If you live a busy life and would like to simplify your living arrangements by having virtually no yard work or snow removal, then a condo may be what you’re looking for. If you’re looking to down size after owning a large home, but aren’t quite ready to give up the comforts a home provides, a bungalow style condo may be what you are after. If you are a first time home buyer and owning a house and all that goes with it seems intimidating, a condo is probably a good step to get into the market. You can always move into a house when you and your lifestyle demand it.

Both houses and condominiums afford tons of different styles and options. Traditionally the real estate market was primarily driven by houses. Over the past few years we are starting to see this change. The demand for condos has risen, and as a result, new condo developments are abundant. Even within the last year, there has been a huge growth in condo conversion projects happening across the country. There are a variety of different styles of condos, each with their own benefits. Apartment style condos are for those who generally need less space and don’t mind the atmosphere of an apartment-style living situation. They generally either have underground, secure parking or outdoor parking available to the owners. Townhouses are geared towards people who need a bit more space with a bit more privacy. There are quite a few townhouses available with single car garages but just as many without. The next step up is a bungalow style condo which gives people in most cases as much room as a home but with less exterior maintenance.

 

Both types of ownership are great investments, as long as you are aware of what types of repairs may be needed in the near future for both types of ownerships. If you are looking at a condo it is important to familiarize yourself with the condo board and how they operate. Find out what you as a home owner are responsible for. As our real estate market continues to grow, so does the need for affordable housing and condos are a great first step.

Houses

  • Private yard.
  • Maintenance outside is always required.
  • Not required to ask anyone if you want to paint your outside door or put on a new light or a new mailbox.
  • No condo fees.
  • You are responsible for all insurance costs.
  • You have total control (within the law) of what you can do to your property

Condos

  • Generally freedom to do what you wish inside (within the law and your condo agreement), but outside you normally need permission from the condo board for many changes and/or improvements.
  • Monthly condo fees that usually include water and sewage, and generally in the case of apartment style condos heat is also included (if it is hot water heat, watch out for electrical heat).
  • Exterior maintenance including snow removal and landscaping is taken care of by the condo association (from your monthly condo fees).
  • Insurance that covers the exterior and the building structure itself are part of your condo fees (but you will need your own personal insurance for the interior and personal affects, much like renters insurance).
  • Shared Common Spaces

Condos can often have restrictions put in place when the condo board was first setup or that have been voted on by everyone in the condo association.

Things to watch for are:

  • Pet restrictions,
  • Age restrictions,
  • Rental permission, etc.

Other key things to consider when looking at condos are:

  • Do they have enough money in the reserve fund to cover maintenance and other issues?
  • How do they pay for major improvements? (From reserves collected from monthly fees or from special individual/group assessments for small or large sums of money to put towards these improvements)
  • Are there any plans for future improvements?

More and more people are considering condos, and as a result, there has been a huge rise in the development of condos in the real estate market. It is important, though, that when deciding to buy a home, you determine the type that you want. Feel free to contact me at any time to learn more about the condo and house market, and I would be more than happy to provide additional information on the benefits of both.

Mortgage Terminology

Below is a list of terms that are commonly used when working with mortgages.

Amenity
A feature of the home or property that serves as a benefit to the buyer but that is not necessary to its use; may be natural (like location, woods, water) or man-made (like a swimming pool or garden).

Amortization
Repayment of a mortgage loan through monthly installments of principal and interest; the monthly payment amount is based on a schedule that will allow you to own your home at the end of a specific time period (for example, 15 or 30 years.

Annual Percentage Rate (APR)
Calculated by using a standard formula, the APR shows the cost of a loan; expressed as a yearly interest rate, it includes the interest, points, mortgage insurance, and other fees associated with the loan.

Application
The first step in the official loan approval process; this form is used to record important information about the potential borrower necessary to the underwriting process.

Appraisal
A document that gives an estimate of a property’s fair market value; an appraisal is generally required by a lender before loan approval to ensure that the mortgage loan amount is not more than the value of the property.

Appraiser
A qualified individual who uses his or her experience and knowledge to prepare the appraisal estimate.

ARM
Adjustable Rate Mortgage; a mortgage loan subject to changes in interest rates; when rates change, ARM monthly payments increase or decrease at intervals determined by the lender; the Change in monthly-payment amount, however, is usually subject to a Cap.

Assumable Mortgage
A mortgage that can be transferred from a seller to a buyer; once the loan is assumed by the buyer the seller is no longer responsible for repaying it; there may be a fee and/or a credit package involved in the transfer of an assumable mortgage.

Balloon Mortgage
A mortgage that typically offers low rates for an initial period of time (usually 5, 7, or 10) years; after that time period elapses, the balance is due or is refinanced by the borrower.

Borrower
A person who has been approved to receive a loan and is then obligated to repay it and any additional fees according to the loan terms.

Building Code
Based on agreed upon safety standards within a specific area, a building code is a regulation that determines the design, construction, and materials used in building.

Budget
A detailed record of all income earned and spent during a specific period of time.

Cap
A limit, such as that placed on an adjustable rate mortgage, on how much a monthly payment or interest rate can increase or decrease.

Cash Reserves
A cash amount sometimes required to be held in reserve in addition to the down payment and closing costs; the amount is determined by the lender.

Certificate of Title
A document provided by a qualified source (such as a title company) that shows the property legally belongs to the current owner; before the title is transferred at closing, it should be clear and free of all liens or other claims.

Closing
Also known as settlement, this is the time at which the property is formally sold and transferred from the seller to the buyer; it is at this time that the borrower takes on the loan obligation, pays all closing costs, and receives title from the seller.

Closing Costs
Customary costs above and beyond the sale price of the property that must be paid to cover the transfer of ownership at closing; these costs generally vary by geographic location and are typically detailed to the borrower after submission of a loan application.

Commission
An amount, usually a percentage of the property sales price that is collected by a real estate professional as a fee for negotiating the transaction.

Condominium
A form of ownership in which individuals purchase and own a unit of housing in a multi-unit complex; the owner also shares financial responsibility for common areas.

Conventional Loan
A private sector loan, one that is not guaranteed or insured by the U.S. government.

Credit History
History of an individual’s debt payment; lenders use this information to gauge a potential borrower’s ability to repay a loan.

Credit Report
A federal law whereby a person’s assets are turned over to a trustee and used to pay off outstanding debts; this usually occurs when someone owes more than they have the ability to repay.

Credit Bureau Score
A number representing the possibility a borrower may default; it is based upon credit history and is used to determine ability to qualify for a mortgage loan.

Debt-to-Income Ratio
A comparison of gross income to housing and non-housing expenses; With the FHA, the monthly mortgage payment should be no more than 29% of monthly gross income (before taxes) and the mortgage payment combined with non-housing debts should not exceed 41% of income.

Deed
The document that transfers ownership of a property.

Default
The inability to pay monthly mortgage payments in a timely manner or to otherwise meet the mortgage terms.

Delinquency
Failure of a borrower to make timely mortgage payments under a loan agreement.

Discount Point
Normally paid at closing and generally calculated to be equivalent to1% of the total loan amount, discount points are paid to reduce the interest rate on a loan.

Down Payment
The portion of a home’s purchase price that is paid in cash and is not part of the mortgage loan.

Earnest Money
Money put down by a potential buyer to show that he or she is serious about purchasing the home; it becomes part of the down payment if the offer is accepted, is returned if the offer is rejected, or is forfeited if the buyer pulls out of the deal.

Equity
An owner’s financial interest in a property; calculated by subtracting the amount still owed on the mortgage loan(s) from the fair market value of the property.

Escrow Account
A separate account into which the lender puts a portion of each monthly mortgage payment; an escrow account provides the funds needed for such expenses as property taxes, homeowners insurance, mortgage insurance,etc.

Fair Market Value
The hypothetical price that a willing buyer and seller will agree upon when they are acting freely, carefully, and with complete knowledge of the situation.

Fixed-Rate Mortgage
A mortgage with payments that remain the same throughout the life of the loan because the interest rate and other terms are fixed and do not change.

Foreclosure
A legal process in which mortgaged property is sold to pay the loan of the defaulting borrower.

Good Faith Estimate
An estimate of all closing fees including pre-paid and escrow items as well as lender charges; must be given to the borrower within three days after submission of a loan application.

Home Inspection
An examination of the structure and mechanical systems to determine a home’s safety; makes the potential home buyer aware of any repairs that may be needed.

Homeowner’s Insurance
An insurance policy that combines protection against damage to a dwelling and its contents with protection against claims of negligence, inappropriate action that result in someone’s injury, or property damage.

Index
A measurement used by lenders to determine changes to the Interest rate charged on an adjustable rate mortgage.

Interest
A fee charged for the use of money.

Interest Rate
The amount of interest charged on a monthly loan payment; usually expressed as a percentage.

Insurance
Protection against a specific loss over a period of time that is secured by the payment of a regularly scheduled premium.

Rent to Own
Assists low- to moderate-income home buyers in purchasing a home by allowing them to lease a home with an option to buy; the rent payment is made up of the monthly rental payment plus an additional amount that is credited to an account for use as a down payment.

Lien
A legal claim against property that must be satisfied when the property is sold

Loan
Money borrowed that is usually repaid with interest.

Loan Fraud
Purposely giving incorrect information on a loan application in order to better qualify for a loan; may result in civil liability or criminal penalties.

Loan-to-Value (LTV) Ratio
A percentage calculated by dividing the amount borrowed by the price or appraised value of the home to be purchased; the higher the LTV, the less cash a borrower is required to pay as down payment.

Lock-in
Since interest rates can change frequently, many lenders offer an interest rate lock-in that guarantees a specific interest rate if the loan is closed within a specific time.

Loss Mitigation
A process to avoid foreclosure; the lender tries to help a borrower who has been unable to make loan payments and is in danger of defaulting on his or her loan.

Margin
An amount the lender adds to an index to determine the interest rate on an adjustable rate mortgage.

Mortgage
A lien on the property that secures the Promise to repay a loan.

Mortgage Banker
A company that originates loans and resells them to secondary mortgage lenders.

Mortgage Broker
A firm that originates and processes loans for a number of lenders.

Mortgage Insurance
A policy that protects lenders against some or most of the losses that can occur when a borrower defaults on a mortgage loan; mortgage insurance is required primarily for borrowers with a down payment of less than 25% of the home’s purchase price.

Mortgage Modification
A loss mitigation option that allows a borrower to refinance and/or extend the term of the mortgage loan and thus reduce the monthly payments.

Offer to Purchase
Indication by a potential buyer of a willingness to purchase a home at a specific price; generally put forth in writing.

Origination
The process of preparing, submitting, and evaluating a loan application; generally includes a credit check, verification of employment, and a property appraisal.

PIT
Principal, Interest, and Taxes – the three elements of a monthly mortgage payment; payments of principal and interest go directly towards repaying the loan while the portion that covers taxes goes to the city for payment of property taxes.

Pre-Approve
Lender commits to lend to a potential borrower; commitment remains as long as the borrower still meets the qualification requirements at the time of purchase.

Pre-Foreclosure Sale
Allows a defaulting borrower to sell the mortgaged property to satisfy the loan and avoid foreclosure.

Pre-Qualify
A lender informally determines the maximum amount an individual is eligible to borrow.

Premium
An amount paid on a regular schedule by a policyholder that maintains insurance coverage.

Prepayment
Payment of the mortgage loan before the scheduled due date; may be subject to a prepayment penalty.

Principle
The amount borrowed from a lender; doesn’t include interest or additional fees.

Real Estate Agent
An individual who is licensed to negotiate and arrange real estate sales; works for a real estate broker.

REALTOR®
A real estate agent or broker who is a member of the Canadian Real Estate Association.

Refinancing
Paying off one loan by obtaining another; refinancing is generally done to secure better loan terms (like a lower interest rate).

Special Forbearance
A loss mitigation option where the lender arranges a revised repayment plan for the borrower that may include a temporary reduction or suspension of monthly loan payments

Surveyors Certificate
A property diagram that indicates legal boundaries, easements, encroachments, rights of way, improvement locations, etc.

Title Insurance
Insurance that protects the lender against any claims that arise from arguments about ownership of the property; also available for home buyers.

Title Search
A check of public records to be sure that the seller is the recognized owner of the real estate and that there are no unsettled liens or other claims against the property.

Underwriting
The process of analyzing a loan application to determine the amount of risk involved in making the loan; it includes a review of the potential borrower’s credit history and a judgment of the property value.

Purchasing Costs

It is important when you decide to buy a home that you have a full understanding of the costs associated with your purchase. People often assume the only cost of buying a home in our real estate market is the price of the home, and that is it.

There are a lot of additional costs that you must be prepared for when buying a home, and it is important that you are fully aware of them. You will need to have some additional money set aside to cover these costs unless you have already made arrangements with your bank to cover these costs and absorb them into your mortgage.

Your largest initial expense will be your deposit. As a first time buyer (or even a repeat buyer) this should generally be approximately 5% of the purchase price; however, it will be up to the seller to determine how much they want in order to feel confident that you won’t walk away from the deal without your deposit if you need to. You should also be prepared to pay:

  • Legal fees and disbursements
  • When buying a new home (newly built / never lived in) you are sometimes responsible for GST and/or PST if applicable
  • Property or land transfer tax
  • Adjustments (payable to the vendor, such as taxes)
  • Interest
  • Property Taxes
  • Utility Payments
  • If in a Condominium type of ownership, condo or strata fees
  • Home inspection fees or any other ancillary service fees requested by you as the buyer (furnace inspection, appraisal fee, water quality/quantity tests for acreages)
  • Mortgage broker’s fees (if applicable)
  • Mortgage loan insurance premium (if less than 25% down) plus application fee
  • Moving expenses
  • Renovations, repairs, paint, carpeting, and window coverings
  • Furniture
  • Property/Condominium Insurance

Additionally, once you have purchased your home you will incur regular expenses on a monthly, quarterly, or yearly basis such as:

  • Mortgage payments (you can do these weekly, bi-weekly, or monthly)
  • Water/sewer payments
  • Electricity and gas services
  • Cable/telephone/internet services
  • Property taxes
  • Strata or Condo fees
  • Repair/Maintenance expenses
  • Homeowners insurance

Don’t let this list of additional expenses worry you about buying a new home. All of these costs are part of purchasing a home and are well worth it. If you are interested in buying real estate, be sure to contact me. When working with you, I will sit down and go over a detailed list of expenses you will incur when buying a home. There are different expenses depending on the type of home you purchase. I can also put you in contact with many different vendors throughout the city that will be able to provide you competitive pricing on many of the associated costs. Be sure to contact me if you are looking to buy in the local real estate market.

ONGOING COSTS ASSOCIATED WITH OWNERSHIP

Sample annual expenses when owning a $500,000.00, single family residence.

Property Taxes: Conservatively budget 1% of value of house

UTILITIES

Hydro: $100.00/month

Gas: $2500.00

Water: $500.00

++ Monthly mortgage payments

Maintenance

Annual house & fire insurance $600/year

Monthly condo maintenance fees if applicable.