1.   5 Stages of Buying your Home
2.   Quick Guide to Buying a Home
3.   Understanding Mortgages

5 Stages of Buying your Home

1) Explain who I am, what RE/MAX offers, and why together we are an excellent choice.

2) Discuss your needs, your budget, our relationship and your current plans.

3) Go over provided material and the nature of agency relationships. We’ll go over it together first, then after a few inspections of homes together, once you’re confident in me, enter into our written agency agreement: this is required by law. All sale contracts in Ontario must be preceded by a signed agency agreement.  This legally protects us both.

4) Inspect more homes, both on my own, in order to narrow our search to the best ones for you, and also together. Adjustments to the wish list are normal at this stage: reality often intrudes on original wish lists or budgets.

5) Form our strategy together that should lead to the best results, and get you your home. Sometimes buying a home takes more than one offer attempt, but in the end, I’ll be working hard for you, and be certain to find you a great new home that’s a wise investment to build great memories in.

Quick Guide to Buying a Home

A home is both tax-free shelter, and a great long term investment.  At the beginning of this adventure of purchasing a home, it can seem very daunting to both experienced and novice purchasers.  Whether you are interested in purchasing the equivalent of Casa Loma or a smart pied-a-terre, you will appreciate having professional help.

Getting Ready:  How much money do you have set aside for your down payment? All buyers may now borrow up to 107% of the purchase price now, but then must apply an insurance premium to their payments. Ask to see the CMHC insurance premium charts to determine how much down payment makes sense for you: anything over 25% down payment attracts no insurance cost. How much money will the banks lend you in mortgage funds? Would a second mortgage help out?  It’s essential to go to your bank or mortgage broker ahead of your house search: once you find the home you’d like to live in you’ll only be held up and very likely lose the chance to buy it by not being pre-approved for your mortgage before hand. Arranging to have a bank agree to lend you a set amount in mortgage funds takes a few days. The interest rate they quote you will be assured for a period of up to 6 months, so you’ve plenty of time then to find the right home. And how do you know which houses to look at if you don’t know how much money you’ll be allowed to spend?
 
Financing Options:  First-time buyers or those not owning a home in the last  5 years may borrow up to $20,000 each from their registered retirement savings plan to help pay for a home purchase.  The money must be repaid in annual installments within 15 years or there is a tax penalty applied. And what amortization period (the number of years it takes to pay it all off) do you want to have on your mortgage? What payment frequency? You could save thousands in the long run by paying every week or every two weeks instead of once a month.

Wish List: Which neighbourhood would you like to live in?  Can you afford to?  What features would you like your home to have – or can you afford to have for your home?  What about proximity to transportation, schools, parks, or work? Write it all down. The chances are you’ll eventually need to compromise on a few things, and some of your wishes will have to come off the list and others will serve as anchors for your ultimate choice.

Life with Your Agent:  As your representative I’ll explain agency relationships and how I get paid (not by you directly). You should choose to have me work for you and not the seller, because then you are assured that you’re looked after with professional dedication to your interests alone.  After all, the cost of such service is included in the purchase price of the home you buy.  Remember, no agent may work for you without a signed Purchaser Agency Agreement: it’s part of our licensing and trade requirement as a Realtor.  And no, I won’t agree to have you work with more than one agent at a time. That would contravene the agency agreement, and have legal ramifications for you when the time comes for commissions to be disbursed.

The Hunt:  As your agent, in order to get a certainty of what properties will be best for you, I’ll review with you your wish list, financial priorities, the benefits and concerns of individual properties and of various prices and neighbourhoods. Take notes during the hunt and make special reference to the things that you value most like property tax levels, interior details, or neighbourhood amenities. The number of homes you visit will be wide open, but be aware that no matter what your budget – you can’t likely get everything you want. As your agent, I will be working under the assumption that you are ready to make an offer when you are shown the right home. A real one, not a fantasy one.  Who knows, you may find the right place the first time out! Preparing an Offer:  I’ll help you set a value to the home you’ve chosen by analyzing sales of similar homes in the area.  As a rule of thumb, most well-priced houses in a strong market sell for 95-100% of the asking price.  Beyond price, there’s a closing date to consider as well as the question of whether you want a condition to allow for home inspection, financing, and whether you want any appliances or furnishings to be included in the deal.  Offers are the tense part of the process. Listen to the professional – your agent – and note any changes you or the seller have made to the offer or counteroffer. You may be asked to stretch your budget. This is a time during which you’ll have to make hard and fast decisions.  Offers often go back and forth between buyers and sellers unless this is a multiple and competing offer situation. In those situations your first offer is often the only chance you’re going to get - so you should make it the very best offer you can. Remember, I’m there to negotiate on your behalf whenever I can, and to make suggestions and to offer support.

Tips for a Hot Market: Committing yourself to spend hundreds of thousands of dollars on a home is best done after a long and vigorous discussion of the pros and cons and then, ideally, a night to sleep on your decision. Too bad you won’t have time for this in a roaring real estate market.  If you find a home that you just have to have in a hot market, and there are other offers being made along with yours, you should try to secure a quick sale by offering over the asking price. Set a ceiling on your own financial position together with recent market developments while remembering that this is in fact an investment and must ultimately make financial sense. Be aware that the seller may reject all bids and ask for additional money from the top two or more. Or they may simply accept the top bid with no discussion.

“Clean” offers, or those with no conditions, are most attractive to sellers. And why not? Who wouldn’t want to sell to someone who doesn’t need to check with bank or housing inspector before signing the firm contract? So having a pre-approved mortgage can eliminate the need for a financing condition on your offer and a home inspection may be done by you prior to putting in your offer. But make it a good offer – why spend the money on a home inspection if you’re not serious about winning the bid for the home?

Tips for a Tepid Market:  Size up the seller and then decide how aggressive you want to be with your offer.  Try to find out whether the seller is motivated to compromise on their price due to time or other constraints. What have comparable properties sold for?  Remember, hard bargaining is one thing, insultingly low bids usually punish only the person trying to buy the home.

The Deposit:  Five per cent of the purchase price is usually sufficient as a sign of good faith.  If you have a long closing, you may wish to ask that the deposit be placed in a term deposit  so that it earns interest until it’s needed to close the deal.

Home Inspectors:  Having your home inspected allows you to move in with your eyes open to its physical strengths and weaknesses.  Recommendations from friends, agents and lawyers are a good way to find a good home inspector.  Inspections should last two to three hours and cost between $250 and $450.  Make sure your inspector has insurance to cover any errors or omissions he might make.  Ensure an impartial opinion on your home by rejecting inspectors who offer to repair the problems they find.

The Deal:  So you’ve made a deal, which includes agreement on the price, the down payment, the deposit, closing date, the chattels and possibly mortgage details.  Once the Agreement of Purchase and Sale is signed, it’s delivered to your lawyer.  The lawyer will then search title and determine that it is free and clear of all encumbrances including encroachments on your lot, work orders on the property or liens.  You do not want to buy any problems.  On the closing day you give the lawyer the rest of your down payment, the property is registered in your name and you are handed the key.

Closing Costs:  An ironic term because there seems to be no end to them.  In addition to the cost of your home, there are lawyer’s fees and related expenses, the home inspection, land transfer taxes, a home appraisal fee for the bank and mortgage, and adjustments to cover property taxes paid in advance by the seller.  You may also have to pay for a survey if the seller can’t supply one.  Estimate about 2 per cent of the price of your home to cover the closing costs.

Pride of Ownership:  Finally!  This is something you’ll get from the first moment you step through the door of your new home.  You’ll realize that it has all been worth it.  Congratulations!  Now it could be time to show your appreciation for a job well done by referring lots of business to your agent – me!

Understanding Mortgages

First Mortgage: the portion of the total debt registered against your property that is secured by first call on the property should you default in payment.

Second Mortgage: a mortgage that has been registered in second position. The interest rate is usually higher to reflect this increased risk to the lender.

Four Payment Frequencies: monthly; bi-weekly (on the 1st & 15th of each month); accelerated bi-weekly (every 14 days); & weekly.  Accelerated bi-weekly payments result in 26 rather than 24 payments a year, which reduces the interest and shortens the mortgage from 25 to 20.87 years.  Weekly payments and pre-payment options (see below) also shortens the mortgage life-span.

Open Mortgage: one that allows the borrower to repay the loan more quickly than agreed, either on anniversary dates or regular monthly payment dates, with or without pre-payment charges. An open mortgage can be classified two ways:
1) Fully Open: allows the borrower to repay all or part of the outstanding
balance on any date or payment date with no penalty
2) Open with interest penalties or prepayment options allows the borrower to make prepayments to the principal balance upon agreed terms.  This also allows the borrower to prepay all or part of the outstanding balance with a penalty
Open mortgages always come with a higher interest rate for this privilege

Fixed Rate Mortgage: has a rate of interest that is set for a specific period of time (the term of the mortgage). The monthly payment of principal and interest remains the same throughout the term.

Closed Mortgage:  the borrower can only pay the predetermined set payments, and no extra payments during the term of the mortgage. It also means the mortgage cannot be paid in full until the maturity date.  If there are no prepayment privileges indicated in the mortgage document, the mortgage is closed.

Variable Rate Mortgage: has a rate of interest that changes from time to time as money market conditions change, but usually no more often than once a month. This mortgage was developed to provide maximum flexibility to borrowers in times of volatile or fluctuating interest rates.  With a variable rate mortgage, the amount of the monthly payment does not change. The difference lies in the way the monthly payment is applied.
If interest rates go up, more of the monthly payment must be applied towards interest. But if interest rates go down, more of the monthly payment will be applied towards the principal.  If interest rates rise dramatically, the monthly payment may not cover all of the interest.  In this case, the interest still owing will be added to the principal still owing.  This can result in eroding your equity in the house.

Prepayment Options:  This is one of the most important aspects of a mortgage in terms of saving money during the life of a mortgage.  You should find out what your mortgage has to offer you!  How much will it allow you to pre-pay each year (usually 10%-15% of the original principal amount).  Can it be paid at any time during the year, or just on the anniversary date?  Can you increase your payments?  Can you make random “double up” payments?  Can you pay weekly or bi-weekly if you so choose?  You may never have the extra funds to use these options, but it is nice to have them should you want to take advantage of them.  Each little bit helps to bring down the principal balance.

Privileges:  Before locking into a long-term mortgage you should find out where you stand if in a few years you decide to move and you are in the middle of your term.  Can the purchaser assume your mortgage?  Can you take this mortgage with you to another property (is it portable)?  Ask yourself “What penalties would I have to pay if I had to get out of this mortgage?”