FIRST-TIME HOMEBUYERS' GUIDE

COMPLIMENTS OF MARGARET UZNANSKA, B.A., M.A.

 THE KEY TO YOUR REAL ESTATE NEEDS! 

Dear Future Homeowner,

Congratulations! You have decided to purchase or are thinking about buying your first home. I understand that buying a home, especially your first home, can be an exciting but a somewhat daunting prospect. You are probably completely unfamiliar with the home buying experience but don’t panic because I am writing this to help you feel comfortable with the process.

 BUYERS GET FREE SERVICE

Did you know that you don't pay a thing for the service of a Realtor when you are buying a home? Commission structure is set up in such a way that the seller of the home pays your Realtor's fees.

BENEFITS OF OWNING YOUR OWN HOME

• Mortgage payments can be cheaper than rent
• Pride of ownership
• Feeling of control over which improvements are made
• Sound financial and lifestyle investment
• Security for retirement -after a mortgage is paid off, homeowners will no longer make monthly payments while renters will continue to bear the burden
• Exempted from paying capital gains tax when your principal residence increases in value
• Increase in the value of homes is relatively steady
• Payback on improvements when you sell your home
• More space
• Purchasing a ‘starter home’ is the first step to achieving your dream home

WHAT ARE YOU LOOKING FOR?

Like everything else in life, homes come in all shapes, sizes and prices. Therefore, it is important to create a “wish list” which includes the location, style and cost of your future home.

LOCATION

• Choosing the location of your home depends on where you work. You must decide whether or not you are willing to commute and ask whether your future home is near public transport and/or major highways.
• Your lifestyle is also very important. Do you want to live close to amenities such as restaurants, stores and theatres? Do you want to live near schools, recreation facilities and parks?
• It is always a good idea to explore the neighbourhood to evaluate the condition that it is in. Are there any signs of neglect? Or do people in the area take care of their homes?
• Have property values risen or fallen in the neighbourhood? Will the home increase in value over time.

I will be able to provide you with helpful statistics about property locations.

STYLE

I can help you decide which features are important to you and suggest ones you have overlooked. Together we will compile a list with all the features that you want your home to have and I will use this list to help pre-screen houses that you will look at. We will consider questions such as:

• What type of house are you looking for?
  • Single family detached 
  • Semi-detached
  • Duplex
  • Townhouse
  • Link or carriage
  • Highrise Condominium
  • Mobile
  • Do you want a new or resale home?
  • Are you starting a family or having more children?
  • How many bedrooms will you need?

COST

Buying a home involves many financial considerations. I can inform you about the onetime costs as well as the ongoing costs.

Balancing location, style and cost is a difficult task. I will work to find prospective homes that best suit your needs, saving you a great deal of time and stress. I will help you stay within an affordable budget and find a home that meets as many of your needs as possible.

DETERMINING WHAT YOU CAN AFFORD

Before you start house hunting, you should determine what you can afford by getting a pre-approved mortgage from a lender. By doing this, you will know how much you can afford and therefore avoid possible disappointments down the road if you fall in love with a place, then find out you cannot afford it. It also demonstrates to sellers that you are a serious buyer.

Lenders follow two rules to determine how much you can afford.

   1.  Gross Debt Service atio (GDS)

• GDS ratio refers to the relationship between a borrower’s income and the sum of principal, interest, and property tax payments during the year. The acceptable ratio is between 27% and 32%.
•  GDS = (Principal & Interest + Taxes) ÷ Gross Income

  2.   Total Debt Service ratio (TDS)

• TDS ratio refers to the ratio of annual or monthly mortgage charges for principle, interest, and taxes, plus payments on various other debts (for example, car loans and credit card payments), compared with gross income of the borrower. The acceptable ratio is between 35% and 40%.
• TDS = (Principal & Interest + Taxes + Loan Payments) ÷ Income

 Based on the GDS and TDS ratio, lenders will advise you of the maximum home price they think you can afford. Lenders will also look at your overall credit rating, employment record, and other factors in assessing you as a loan risk.

Courtesy of Canada Mortgage and Housing Corporation.

Buying a home also involves the initial purchasing costs as well as other ongoing costs.

* Land Transfer Tax in Ontario
Up to $55,000 X 0.5% of total property value
From $55,000 to $250,000 X 1% of total property value
From $250,000 to $400,000 X 1.5% of total property value
From $400,000 up X 2% of total property value

First-time buyers of new homes may qualify for a full or partial rebate of the Land Transfer Tax.

HELP FROM THE GOVERNMENT OF CANADA AND ONTARIO

Both the government of Canada and the government of Ontario have established programs to assist first time home buyers.

The Federal Budget 2009 announced several incentives to get Canadians spending by buying a first time home, or renovating the one they are already in. Some of the budget highlights include: 

• Providing first-time home buyers with additional access to their Registered Retirement Savings Plan savings to purchase or build a home by increasing the Home Buyers’ Plan withdrawal limit to $25,000 from $20,000.

• Assisting first-time home buyers by providing up to $750 in tax relief to help with the purchase of a first home.

• Implementing a temporary Home Renovation Tax Credit that will provide up to $1,350 in tax relief, reduce the cost of renovations for an estimated 4.6 million Canadian families, and provide needed stimulus to the economy.

• Providing an additional $300 million over two years to the ecoENERGY Retrofit program to support an estimated 200,000 additional home retrofits.

The government of Ontario also introduced the Land Transfer Tax Refund Program to help first-time home buyers of newly constructed and resale homes. Read more. 

The government has also introduced a GST/HST New Housing Rebate for purchases of new or substantially renovated homes. You are eligible for a rebate if:

• You buy a new or substantially renovated home (including the land) from a builder;
• You buy a new or substantially renovated home, and you lease the land from the builder;
• You buy a new mobile home (including a modular home) or a new floating home from a builder or vendor;
• You buy a share of the capital stock of a cooperative housing corporation;
• You construct or substantially renovate your own home, or carry out a major addition (or hire another person to do so);
• Your home is destroyed in a fire and is subsequently rebuilt

For more information about the rebate, visit the Canada Revenue Agency website at http://www.cra-arc.gc.ca/tax/individuals/topics/gst-hst-rebate/substantially-e.html

To obtain a copy of the GST/HST New Housing Rebate Guide visit http://www.cra-arc.gc.ca/E/pub/gp/rc4028/rc4028-01e.html

INTRODUCTION TO MORTGAGES

A mortgage is security for a loan on the property you own. The two parties to a mortgage transaction are referred to as the mortgagor (borrower) and the mortgagee (lender). The lender lends the money and registers the mortgage against the property. In return, the borrower gives the mortgage as security for the loan, receives the funds, makes the required payments, and maintains possession of the property.

Mortgage Sources

• Direct lenders (chartered banks, life insurance companies, trust and loan companies, credit unions etc)
• Mortgage brokers
• Private investors

Types of Mortgages

• Pre-approved Mortgage – With this type of mortgage, you as a buyer, have qualified in advance for a mortgage of X dollars, contingent upon the lender approving the property.
• Conventional Mortgage – With this type of mortgage, your down payment is a minimum 25% of the purchase price.
• High-ratio Mortgage - With this type of mortgage, you contribute less than 25% of the cost of the home as a down payment and as little as 5%.
• Second Mortgage – this type of mortgage usually has a higher interest rate and shorter amortization than a first mortgage. It is often used to make renovations to a home.
• Vendor Take-Back Mortgage – With this type of mortgage, the seller underwrites part of the purchase, as a loan to be repaid by the buyer. These are often used as second mortgages, to bridge any gaps or to make the property more attractive to the buyer.
• Open and Closed Mortgages - Open mortgages allow you to make extra payments on the principal, reducing your borrowing costs. Closed mortgages have no flexibility; you must wait until the term is up to pay your mortgage.

What options do I need to consider when arranging a mortgage?

• Rate of Interest (fixed rate or variable rate)

• Term (length of time that certain factors, such as the interest rate you pay, are set at a negotiated level)
• Amortization (amount of time over which the entire debt will be repaid)
• Schedule of Payments (either monthly, biweekly or weekly)
• Open Mortgage (repay the loan, in part or in full, at any time without penalty)
• Closed Mortgage (penalties or restrictive conditions are attached to prepayments or additional lump sum payments)
• Portable Mortgage (can transfer your mortgage from one property to another, if you sell your home and buy another, without having to pay any penalties or legal fees for a mortgage discharge and renewal)

THE MAJOR ELEMENTS OF MAKING AN OFFER

When you have found the right home, the one that satisfies your needs and fits your pocketbook, I will assist you in drafting your offer. I will present the offer to purchase the home, referred to as an Agreement of Purchase and Sale, to the seller or the seller’s representative, on your behalf. The offer will set out the terms and conditions between you and the seller. 

The Agreement of Purchase and Sale will include:

• Your legal name
• The Seller’s name
• The address or legal description of the property
• The purchase price
• The chattel or items in the home which will be included in the purchase price (example: window coverings)
• Financial details (example: amount of deposit*)
• Closing date
• Expiration date and time
• Specific terms or conditions that must be met as part of the purchase**
• A time limit for meeting these conditions

*Your offer must be made with a deposit. An appropriate deposit will show your good faith to the seller. The deposit will go toward the purchase price on the closing date.

**  Some common types of conditions are:

• You getting a suitable mortgage
• The seller providing a current survey, or a "real property report," showing the location of the house on the property owned by the seller and that there are no encroachments
• The seller having title to the property (your lawyer will check this out when he or she conducts a title search to see if there are any liens on the property, easements, rights of way or height restrictions)
• If there is a septic system, the seller should have a health inspection certificate, stating the system meets local standards
• If you still have any doubts about the home's safety and construction, you may wish to make the purchase conditional on an inspection by a qualified engineer

The seller can accept your offer, make changes to the offer and present you with a counter-offer, or reject the offer. The offers can go back and forth until both parties have agreed or one of you ends the negotiations.

The Agreement of Purchase and Sale becomes legally binding, the moment it is accepted. If you decide to cancel an offer that has already been accepted, you could lose your deposit and the person selling the home could sue you for damages. If the seller does not accept your offer, your deposit will be returned.

Presenting an offer may seem like a bit of a roller coaster ride but do not worry because I will be by your side every step of the way.

GETTING A HOME INSPECTION BEFORE BUYING

Why get a home inspection?

• can bring peace of mind
• help you make an informed decision about the value of the home
• help avoid any unpleasant surprises after the sale
• inform you of what your future upkeep obligations will be

What are the goals of a home inspection?

• determines the condition of the house, its structural soundness, and the condition of the its mechanical systems
• brings any problems to the seller's attention at a time when they can be resolved before closing a sale

What does an inspection include?

• a visual examination of the structure from top to bottom, including the 
  • air conditioning systems    
  • heating          
  • interior plumbing  
  • electrical systems              
  • roof
  • visible insulation
  • walls
  • ceilings  
  • windows and doors
  • floors
  • foundation
  • basement
  • visible structure

How much does it cost?

• the fee will vary depending on the features of the home such as:
  • size
  • age
  • special structures

How long will it take?

• A home inspection usually lasts about three hours.

How will the inspector inform the buyer about the condition of the property?

• the home inspector should provide you a report in narrative form, not just a checklist of items inspected
• the home inspector should issue a written report with accurate cost estimates for any major defects discovered during the inspection

CLOSING DAY

Closing day is the day the seller transfers ownership of the property to you. You will meet with your lawyer to review and sign documents relating to the property you are buying, the mortgage, and the conditions of the purchase. You will have to bring a certified cheque to cover the closing costs and any other outstanding costs. After the lawyers for both parties exchange documents, cheques, keys and register the deed and mortgage, your lawyer will call you to pick up the keys to your new home.

 * Remember to pack breakable items carefully, wrapped in newspaper or towels to give them extra protection.

ARE YOU READY TO GO HOUSE HUNTING?

I will gladly help you find the ideal home that matches your wish list and pocketbook. I will provide you with information detailing the home buying process, financing options, current market conditions, homes available for sale and much much more. Please feel free to contact me by phone or e-mail so we can work together to help you to escape the “rent trap”.

TAKING IT STEP BY STEP

Step 1: Contact Margaret. I will offer you stress free, friendly advice and educate you about the entire home purchasing process.

Step 2: Together we will compile a list of your wants, needs, likes, dislikes that match your budget.

Step 3: I will help you get pre-approved for a mortgage

Step 4: Together we will look at many homes that match your criteria. I will ask you to list the positives and the negatives of each property so that I can better understand your likes and dislikes.

Step 5: Once we located the perfect property, I will assist you in drafting an offer to purchase and we will present it to the seller

Step 6: Once the offer gets accepted, provide the lender with all the documents they require in order to approve you for a mortgage.

Step 7: We will contact your lawyer and forward a copy of your transaction to their office

Step 8: Obtain home insurance and forward that information to your lawyer

Step 9: Review the closing process and monies required to cover the closing costs

Step 10: Contact the local utility companies, post office, family, friends, personal business institutions to inform them of your new address.

Step 11: Hire a mover

Step 12: You meet with your lawyer to review and sign closing documents

Step 13: Lawyers for both parties meet on the date of closing to exchange documents, funds and keys and register all documents on title

Step 14: Move in and enjoy your new home

BUYING/SELLING HOMES: GLOSSARY OF TERMS

Amortization: Paying off a debt, such as a mortgage, by instalments. The conventional amortization period for a mortgage is anywhere between 15 and 25 years. The shorter the amortization period, the less interest you have to pay.

Appraisal: An estimate of a property's value.

Asking (list) price: The price placed on the property for sale by the seller.

Blended payments: Payments consisting of principal and interest components, paid during the amortization period of a mortgage.

Broker: A person licensed by the provincial or territorial government to trade in real estate. Real estate brokers may form companies or offices, which appoint sales representatives to provide services to the seller or buyer, or they may provide the same services themselves. In parts of Canada, brokers are referred to as agents.

Buyer's Agent (also known as "Buyer's Broker" or "Purchaser's Agent"): A person or firm representing the buyer. A Buyer's Agent's primary allegiance is to the buyer. The buyer is the Buyer Agent's client.

Buyer Brokerage Agreement: A written agreement between the buyer and the buyer's agent, outlining the agency relationship between the two parties and the manner in which the buyer's agent will be compensated. In some provinces, a buyer agency relationship arises automatically, without a written agreement establishing the relationship.

Client: The person being represented by an agent. The agent owes the client the duties of utmost care, integrity, confidentiality and loyalty.

Closing: The day the legal title to the property changes hands.

CMHC: Canada Mortgage and Housing Corporation. A Crown corporation providing information services and mortgage loan insurance.

Commission: An amount agreed to by the seller and the real estate broker/agent and stated in the listing agreement. It is payable to the broker/agent on closing and shared, if applicable, among those salespeople involved in the sale.

CREA: The Canadian Real Estate Association. A national association representing the real estate industry on federal public policy matters, providing member services and education. CREA promotes adherence to a strict Code of Ethics and Standards of Business Practice.

Customer: A person who receives valuable information and assistance from a real estate broker or salesperson, but is not represented by that individual.

Debt-Service Ratio: The measurement of debt payments to gross household income which may include, in addition to the main wage earner's salary, salaries of other wage earners, commissions, bonuses, overtime, etc.

Dual Agent: A real estate broker or salesperson who acts as agent for both the seller and the buyer in the same transaction. Both buyer and seller are the agent's clients.

Equity: The difference between the value of the property and the amount owing (if any) on the mortgage.

Financial Institutions: Banks, credit unions, insurance or trust companies.

GE Capital Mortgage Insurance Company: GE Capital Mortgage Insurance Company is the only private sector source of mortgage insurance to lenders in Canada.

Gross Debt Service: The amount of money needed to pay principal, interest, taxes and sometimes, energy costs. If the dwelling unit is a condominium, all or a portion of common fees are included, depending on what expenses are covered.

Gross Debt Service Ratio: Gross debt service divided by household income. A rule of thumb is that GDS should not exceed 30%. It is also referred to as PIT (Principal, Interest and Taxes) over income. Sometimes energy costs are added to the formula, producing PITE, which moves the rule of thumb GDS to 32%.

Listing Agreement: The legal agreement between the listing broker and the seller, setting out the services to be rendered, describing the property for sale and stating the terms of payment. A commission is generally payable to the broker upon closing.

MLS®, Multiple Listing Service®: Trademarks owned by The Canadian Real Estate Association. They are used in conjunction with a real estate database service, operated by local real estate boards, under which properties may be listed, purchased or sold.

MLS®Online™: Carries MLS® property advertisements and consumer-related information supplied by individual real estate boards and associations across Canada.

Mortgage: A contract providing security for the repayment of a loan, registered against the property, with stated rights and remedies in the event of default. Lenders consider both the property (security) and the financial worth of the borrower (covenant) in deciding on a mortgage loan.

Mortgage Broker: A person or company having contacts with financial institutions or individuals wishing to invest in mortgages. The mortgagor pays the broker a fee for arranging the mortgage. Appraisal and legal services may or may not be included in the fee.

Mortgage Insurer: In Canada, high-ratio mortgages (those representing greater than 75% of the property value) must be insured against default by either CMHC or private insurers. The borrower must arrange and pay for the insurance, which protects the lender against default.

Mortgagee: The person or financial institution lending the money, secured by a mortgage.

Mortgagor: The property owner borrowing the money, secured by a mortgage.

Offer of Purchase and Sale: The document through which the prospective buyer sets out the price and conditions under which he or she will buy the property.

Real Estate Board: A non-profit organization representing local real estate brokers/agents, salespeople, which provides services to its members and maintains and operates a MLS® system in the community.

REALTOR: Trademark identifying real estate professionals in Canada who are members of The Canadian Real Estate Association, and as such, subscribe to a high standard of professional service and to a strict Code of Ethics.

Term: The actual life of a mortgage contract-- from six months to ten years -- at the end of which the mortgage becomes due and payable unless the lender renews the mortgage for another term (See Amortization).

Seller's Agent: The Seller's Agent represents the seller -- either as a Listing Agent under the listing agreement with the seller or by cooperating as a Sub-Agent, typically through the MLS® system. In dealing with prospective buyers -- customers-- the Seller's Agent can provide a variety of information and services to assist the buyer in his/her decision-making. The Seller's Agent does not represent the buyer.

Variable-rate Mortgage: A mortgage in which payments are fixed, but the interest rate moves in response to trends. If interest rates go up, a larger portion of your payment goes to the interest; if rates go down, more goes to cover the principal.

Courtesy of the Canadian Real Estate Association

UNDERSTANDING NEWSPAPER REAL ESTATE ADS

air conditioning - a/c
apartment - apt
appliances - appls
bachelor - bach
balcony - balc
basement - bsmt
bathroom - ba, bath, bth, bthrm
bedroom - br, bed, bdrm
building - bldg
bungalow - bung
cathedral ceiling - cath ceil
central air conditioning - c/a
central vacuum - cvac, c/vac, central vac
condominium - condo
detached - det
double - dbl
exposure - exp
exterior - ext
family room - fam rm
fenced - fncd
finished basement - fin bsmt
fireplace - fpl
floor - fl
garage - gar
hardwood floors - hrdwd flrs
included - incl
kitchen - kit, kitch
large - lrg, lge
luxury - lux
parking - prkg
penthouse - ph
piece - pc
private - priv
renovated - reno, reno'd
room - rm
separate entrance - sep entr
solarium - sol
spacious - spac
storey - stry
subdivision - subdiv
suite - st, ste
townhouse - twnhse
wall to wall - w/w
washer/dryer - w/d
w/o - walkout (generally refers to basement)
workshop - wkshp
yard - yd, yrd