THE ADVANTAGES OF HOME OWNERSHIP
You may be wondering whether home ownership is right for you. Consider the many advantages of owning your own home. There are several practical and financially sound reasons for buying your first home, whether you start with a condo, a townhouse, or even a single family home:
- Home ownership is an excellent way to build equity. That's an important consideration if you're trying to build some financial stability - especially if you happen to be single and are doing it on just one income.
- There's the security that comes with making an investment for the future. When you own your home, you have a resource to fall back on.
- Paying a mortgage off is usually better than "throwing money away" on rent. You could be paying high rents for years, adding up to many thousands of dollars, yet never end up with anything that is your own.
- Your rental expenses can often get out of control. However, if you lock in a long term mortgage, you'll know exactly how much your payments will be for years to come.
- Owning your own home gives you the option of earning extra income either by renting out the entire property or by taking in a tenant or boarder.
- Home ownership affords an asset to borrow against if you ever need to. Even if your mortgage isn't paid off, you can still borrow against the equity of your home - and at far better interest rates than you'd normally get for almost any other type of personal loan.
- Property values generally appreciate over time, so over the long run, your investment earns a good return while you enjoy it.
- You'll enjoy a feeling of satisfaction and accomplishment and gain independence and pride of ownership.
11 THINGS YOU SHOULD DO NOW IF YOU PLAN ON BUYING A HOME THIS YEAR
The decision of whether to buy a home this year may seem daunting. Will prices increase? Will interest rates rise? How will the economy fare this year?
The process may seem overwhelming, especially if you are buying for the first time. But many industry experts say the general outlook appears promising.If a new house is in your plans, there are things you can do and information you should be armed with to put yourself in the best position possible when the time comes to buy, including:
1. Check out your credit report. You don’t want to be shocked if there are inaccuracies or mistakes in your credit report – or that bad debt you had in university is still on your record. Potential lenders will view your credit history – how much debt you’ve accrued, how many accounts you have open, whether your payments are made on time, etc. to determine whether they’ll give you a loan. You should at least get a report from the main credit reporting company by ordering your credit report online at www.Equifax.com. Or call Equifax at 1-800-465-7166. There is a fee for this service.
2. Get a full mortgage pre-approval before starting your home search. By providing your lender up front with proof of income and proof of down payment, you’ll find out exactly how much you can spend on a property. It also puts you in a stronger position when you ultimately make an offer on a house.
3. Be realistic and look at your big financial picture. Just because a bank approves you for a certain amount, it doesn’t automatically mean you should find a home for that amount. Do a budget for yourself. Factor in other debts and expenses and long and short-term savings goals like college for the kids and retirement for you. Lenders generally say your mortgage payment should be about 32 percent of your gross monthly income. Problem is we don’t take home gross…we take home “net”. Run your numbers carefully.
4. Determine how much cash you’ll have available for a down payment and closing costs (legal fees and disbursements, land transfer and sales taxes, title insurance and financing costs). The higher your down payment, the lower your monthly mortgage payment.
5. Figure out how much your new bills – utilities (heat, hydro, water), realty taxes, home insurance, maintenance and repairs will cost you each month.
6. Avoid making any major purchases, especially a new vehicle within 6 months of your buy date. If you do, you may have a harder time getting a mortgage – or it could potentially lower the amount you’ll be approved for.
7. Keep an eye on interest rates. If they start to creep upward, you may want to make your move sooner. Rates can be locked in for as much as 120 days, giving you ample time to find and close on a home.
8. Make a budget now as if you have a mortgage payment and the monthly expenses that come with owning a home. Put the money (or the difference between it and your current living expenses) into a savings account. After 6-12 months you’ll know whether you can swing the extra payments – and you’ll have extra money for your down payment.
9. Gather your paperwork – get a current employment letter showing how long you’ve been there, how much you’re earning and how much they love you; put together your most recent paystubs, tax assessment documents for the past two years, bank account statements, RRSP statements, etc.
10. Begin thinking about homeowners’ insurance now. You should get a copy of your loss history report. This is a record of home insurance claims you have filed. If you have not filed any insurance claims in the past five years, you won’t have a loss history report. The better your report, the better chance you’ll have of obtaining reasonably priced insurance on the house you buy. And if you’re renting, make sure you have renter’s insurance – it’s helpful to have an insurance history when you obtain insurance for your new house.
11. The most important step now is to get educated. Learn as much as you can about the home buying process. Call us for a free consultation.
WORKING WITH AN AGENT
You want to find the right home, in the right location, at the right price. The best way to do that is to work with a professional realtor who understands your wants and needs, your time frame and your financial boundaries.
What are the benefits of working with an Agent?
- You'll save time. Let your agent do the searching for you.
- You benefit from an experienced negotiator. Your agent will manage your offers and counter-offers professionally to keep all parties focussed.
- You'll get the right information. Your agent can provide you with accurate information on local reat estate values, taxes, utility costs, services and amenities.
- You can count on good advice. Because your agent is familiar with the entire home purchasing process, he or she can advise you of your legal and financial options, and recommend appraisal, home inspection and contracting services.
Some Questions to ask when choosing your Agent:
- Will you be representing my interests?
- Will I be dealing with you personally?
- Do you have access to MLS information?
- Will you provide market evidence to support the price?
- Will you look after closing and possession details?
- Can you be contacted at any time?
Communication is the Key:
The best buys are not in the newspaper ads; most great opportunities are on "Daily Bulletins" that are available throughout the day to salespeople with access to MLS information.
As a homebuyer, you must work with your agent to find the home that is right for you. Communication is key - tell your agent what you would like and be as specific as possible.
- Give your agent a detailed description of your property needs (must haves) and wants, (like to have).
- Be specific about where you want to live.
- Tell your agent what you can afford. He or she can help you get a pre-approved mortgage so you know for sure what your price range will be.
- Communicate your likes and dislikes for each property you see. It will help your agent narrow down the possibilities.
- Commit to one salesperson.
- Keep an open mind.
ARRANGING YOUR MORTGAGE
While it may be a good place to start, you do not have to get your mortgage from the same place you have your savings or chequing accounts. However, getting pre-qualified is a very important step . Your agent can help you with the pre-qualification process if necessary before you start shopping for a home. This way you will avoid possible disappointments down the road should you fall in love with a place, then find out you can't afford it. Plus, once you do find the perfect home, it will mean you can make an offer immediately.
Here's how the mortgage approval works: the amount of money you qualify to borrow, plus the amount of cash you have to put down equals the amount you can afford to spend on a home. Most lending institutions won't allow more that about 30% of your gross annual income to support mortgage payments (principal, interest and property taxes). If you have other debts, they usually won't allow your debt payments and your mortgage payments to exceed 40% of your gross annual income.
When you go to negotiate your mortgage, in addition to the rate, term, amortization period and payment schedule, there are other key points to look out for:
- In case you decide to sell your home, make sure your mortgage can be taken over by any buyer who meets the lender's criteria
- Ask about a prepayment clause that allows you to pay off the mortgage in full or in part, without penalty, if funds become available
- Check out if your lender offers a portability feature that lets you take your mortgage with you when it is to your advantage to do so
- Check out the availability of life and disability insurance
- Check out the appraisal, legal and other costs of arranging the mortgage.
- A confirmation of employment - including salary, position and length of service
- A complete statement of assets and liabilities, including current statements of outstanding debts.
- Photocopies of the assets you intend to use as a down payment.
Finalizing your mortgage:
Once you have found the home you want to buy, you'll need to finalize your financing. Your lender will require a copy of the real estate listing of the property and a copy of the agreement of purchase and sale along with other related documents. If you already have a pre-approved mortgage, it is a simple matter of finalizing a few details with your mortgage specialist.
TYPICAL ONE-TIME EXPENSES:
- Mortgage application and appraisal fee (paid at time of application)
- Mortgage broker's fee (if applicable and not covered by lender)
- Status Certificate (Condos) (upon receipt)
- Property inspection (optional) (paid at inspection)
- Legal fees (paid at closing)
- Legal disbursements (paid at closing)
- Deed and/or mortgage registration (paid at closing)
- Property survey (if needed) (sometimes provided by seller) (paid upon receipt or at closing)
- Land Transfer Tax (paid at closing)
- Title Insurance (paid at closing)
- Mortgage interest adjustment and take over fee (if applicable) (paid at closing)
- Adjustments for fuel, taxes, etc. (paid at closing)
- Home and property insurance (paid at closing and on-going)
- Connection charges for utilities such as gas, water and electricity and phone and cable hook up (paid on connection, usually moving date)
- Moving expenses (paid on date of move)
- Other costs may include landscaping, decorating, furnishings, appliances and repairs. Typical monthly costs include mortgage payments, maintenance, insurance, condo fees, property taxes and utilities.
NEW VS RESALE HOMES
There are many advantages and disadvantages to both new and resale homes. Here are some of the characteristics of both that may help you make your choice:
New Home Advantages:
- You may be able to upgrade or choose certain items such as siding, finish materials, flooring, cabinets, plumbing and electrical fixtures
- The latest building code, electrical and energy-efficiency standards will apply
- Builder warranty is uaually available. This can be important if a major system, such as plumbing or heating, breaks down.
- Unless you are a builder, warranties do not apply to homes you build yourself.
New Home Disadvantages:
- Neighbourhood amenities, like schools or shopping, may not be complete if the house is in a new development
- There may be construction noise and traffic
- There may be little to no landscaping or trees
- GST applies to new housing. However there is a rebate available (generally the rebate is assigned to the builder who takes this into consideration when including GST on the purchase price of the home)
Resale Home Advantages:
- It will probably be in an established neighbourhood
- Landscaping is usually done and fencing installed
- It may have upgrades such as in-ground swimming pool or finished basement
- There is no GST unless the house has been renovated substantially, and then the tax is applied as if it were a new house
Resale Home Disadvantages:
- Maintenance costs will likely be higher than for a new house
- You may require a professional home inspector to check for structural or other problems, such as a leaky basement or faulty roof
- You may need to redecorate, or even renovate