How To Buy The Home You Always Wanted!
Provided by Rick Burfoot
of RE/MAX Little Oak Realty, 33119 First Avenue, Mission, BC V2V 1G5
Contact: Ph.(604)820-0555 or 1-800-820-7577, Fx.(604)820-0150
email: rick@rickburfoot.com
See Rick's Home Page at www.rickburfoot.com
Table of Contents
Introduction.....1
Step One : Establish Your Needs and Wants.....2
Step Two: Determine How Much You Can Afford.....2
Step Three: Get Pre-Approved By A Lender.....4
Step Four: Find A Good Real Estate Agent To Help You.....4
Step Five: Find A Home That Meets Your Needs.....6
Step Six: Make An Offer To Buy A Home.....6
Step Seven: Save As Much As You Can On The Purchase.....8
Why Do You Need A Lawyer When You Purchase A Home.....9
Conclusions.....9
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Introduction
Buying a home can seem like a frightening prospect. Whether it's your first home or your fifth, so much is at stake - your savings, your credit rating, your financial freedom - it's difficult to find the courage to sign on the dotted line even if you want that home very, very badly.
How do you determine whether or not the purchase of a home makes sense ?
What's the easiest way to examine the whole picture from emotions to economics ?
It has never been easier to own your own home. Interest rates are the lowest they have been in decades, the banks and financial institutions are more flexible then they were in the past and the government offers several programs to help first time buyers achieve the dream of owning their first home.
I suggest that you read this entire report before you go house hunting. You'll learn how to separate whims from true needs . You'll discover how to prepare a game plan for your real estate venture, how to research effectively, choose wisely, finance appropriately and survive the whole procedure with your smile intact.
By the time you've done your homework and completed the suggestions in this report, you will have an excellent overview of how to find and buy your dream home. And you'll have plenty of confidence to back up your decision to buy that special home, too.
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Step One: Establish Your Needs And Wants
Begin your search for a perfect home by making a careful assessment of the kind of home you need and want. I recommend that you do this in writing. So take time, right now, to be as specific as you can about your requirements.
Step Two: Determine How Much You Can Afford
Set up a budget for yourself. Decide how much you can really afford to invest monthly for your house payment. Be realistic. Here is a simple qualification guide:
To Calculate your Gross Debt Service Ratio (GDS)
Most lenders say that your monthly housing expenses (principal, interest, and taxes) should not exceed 30% of your family income (before personal income taxes)
To calculate your Gross Debt Service Ratio (GDS):
Take your total monthly gross (before tax) income. $ _____________
Multiply it by the maximum GDS Ratio (30%). x.30 _____________ = _____________
This is the maximum amount available for your mortgage payment (principal and interest), property taxes, and 50% of condo fees (if applicable).
To Calculate Your Total Debt Service Ratio (TDS) " Your TDS takes into account monthly housing expenses plus other debts and loans you may have."
To calculate your Total Debt Service Ratio (TDS):
Take your monthly gross (before tax) income. _____________
Multiply it by the maximum TDS Ratio (40%). x .40 _____________
Subtract your regular monthly expenses
(e.g. credit cards, car payments, personal loans). - _____________ = _____________
This is the maximum amount available for your mortgage payment, property taxes, and 50% of condo fees ( if applicable).
Your lender will probably take the lower of the two figures.
There are three types of Mortgages:
Conventional: No insurance
Hi-Ratio: Requires insurance 5%-25% Equity
Investor: 33% Equity (down)
Eligible first time buyers need only 5% down and must be able to prove an extra 1.5% of the purchase price for closing costs. Government owned CMHC (Canadian Mortgage and Housing Corporation) will insure hi-ratio mortgages for eligible borrowers, and these are:
Anyone buying or building a home in Canada as a principal residence.
If there is more than one buyer involved, only one must satisfy both of these requirements.
If the initial down payment is a gift it must be held in the buyers bank account for 30 days before an offer can be made.
Maximum House Prices
With 10% down there is no limit. With a 5% downpayment, in most of the Fraser Valley the maximum price is $300,000 .
The maximum loan amount is 95% of the lending value of the house. The minimum mortgage term you must qualify for is 5 years but you may take a 3 year term. An insurance premium is charged just like car insurance. The size of the premium ranges from 2.50 % of the loan to 3.75% of the loan depending on the percentage put down. This premium can be paid up front or is commonly blended in with the mortgage.
There is an underwriting fee for Application for CMHC insurance. With existing housing it is a basic $75 when an approved Lender provides an appraisal acceptable to CMHC. An appraisal is not necessary when the loan to sales price ratio is less than 80% and borrowers equity is $10,000 or more. It is $235 when the approved Lender does not provide an appraisal and progress advance examinations. Your Lender applies to CMHC on your behalf.
If you are a first time buyer, you can use your RRSP's as a tax free down payment . This down payment can be up to $20,000 dollars per spouse. All you do is go to the financial institution and file a RRSP withdrawal form. You must pay back into the RRSP at least 1/15 of the amount once a year for 15 years. If you are short on the minimum amount you are supposed to pay back into RRSP, you will have to pay tax on the amount that you are short. To take advantage of this program you can't have owned a primary residence any where in the world on which you have used RRSP's for the down payment.
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Step Three: Get Pre-Approved By A Lender
You can save yourself a lot of time and heartache by meeting with a lender before you start your search for a home.
A lender can let you know what specific loan programs would be best for you. They can also help you understand what it takes to qualify for the loan you want. By taking a look at your financial situation and looking at your credit history, a lender can usually give you a good idea if you can qualify for the loan you want.
A buyer can pre-qualify for a mortgage for a period of 60-90 days. The buyer will be locked in for the current rate for this period. If rates go down you will get the lower rate but you are protected if rates go up. This benefits the buyer for the following reasons: Your limits are known, you will be negotiating from a position of strength and there is no obligation to the lender on the buyers part.
Pre-qualification can be done over the phone with a mortgage broker or at your bank. The broker will ask you information on your financial situation and help determine which financing and terms are right for you. You can pre-qualify with any number of banks or financial institutions.
Finalizing Your Mortgage
Once you have found the home you want to buy you will be asked to provide the following documents:
· A copy of the real estate listing of the property.
· A copy of the offer of Purchase and Sale.
· A confirmation of employment if it was not provided at pre-approval.
The financial institution will get the property appraised. It must approve both the property and the buyer. Often the appraisal figure will fall below the purchase price. Keep in mind that the appraiser knows the purchase price prior to appraisal. Appraisal is a long term conservative estimate of value and the appraiser is employed by the lender to value security used for the loan. Your Lender will then send the documentation along for CMHC approval. When you require CMHC approval always leave 5 working days in your offer for approval of financing as sometimes CMHC is very busy.
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Step Four : Find A Good Real Estate Agent To Help You
You can learn a lot about an agent by just letting them talk to you about how they help buyers. Within a few minutes, you will probably be able to determine if their style is compatible with yours.
Questions For Agents:
1. Are you knowledgeable about the area of town and price range that we are interested in? ( Some agents specialize in only one area or one price range.)
2. Do you have the time to work with us? (This is especially important if you're on a tight deadline.) What procedure will the agent follow in working with you? How often will they update you with new property listings?
3. Can you represent me as my buyers agent?
4. Do you offer any additional services beyond the real estate transaction such as discounts on home improvements ?
Ask as many questions as you can up front. By finding a good agent, you will save yourself huge amounts of time and effort.
In British Columbia we now have Buyer Agency. Realtors work within a legal relationship called agency. The agency relationship exists between you - the principal, and your agent - the company under which the individual salesperson who is representing you is licensed. The essence of the agency is that the agent has the authority to represent you in dealings with others.
Specifically the agent has the following duties:
· Undivided loyalty
· To obey all lawful instructions
· An obligation to keep all confidences of the principal
· The duty to account for all money and property placed in the agent’s hands while acting for the principal
· The exercise of reasonable care and skill in performing all assigned duties
Both buyer and seller can be represented by their own agents in a single transaction.
In the past, before agency came into law in November 1994 all agents were sub-agents to the listing agent. This gave the seller an advantage. Now you have the following choices:
SUB AGENCY: Realtors duty is to the SELLER. The Realtor must disclose known property defects. The Realtor must draft an enforceable contract.
NO AGENCY: Realtors duty is to the SELLER. Realtor has no obligations to the BUYER.
SINGLE AGENCY: Each Realtor is obligated to respective principal and has 3 basic obligations to the principal: confidentiality, price strategy , and negotiation
LIMITED DUAL AGENCY: A single Realtor is obligated to both parties but makes written disclosure of obligations before business . The Realtor must have already earned the trust of both parties and must disclose known defects and draft an enforceable contract.
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Step Five: Find a Home That Meets Your Needs
You will save a lot of time and trouble when you engage a licensed real estate practitioner who knows the area in which you want to live, who is familiar with market factors in that area, and who has all the facilities of the computerized Multiple Listing Service to provide you with instantaneous information.
Give your agent full details of your needs and financial capabilities and let this experienced person do the sorting, searching and selecting on the basis of your requirements.
Many alternatives can be found in every price range and a Realtor who is familiar with your situation will be able to recognize or eliminate properties with characteristics or financial aspects that are suitable or unsuitable to your capabilities.
Your agent will set up a tour of properties of interest to you.
Five Tips For Successful House Hunting:
1. Keep an organized record of all your research data. Write down comments about the home that you see. Keep track of your likes and dislikes.
2. Make sure that your agent is aware of your time schedule and expectations . Do you like to look at one or two homes in a session? Four ? Eight? Discuss this with your agent.
3. Tell your agent about any homes you saw that interest you and that you'd like to know more about. This includes homes you've "discovered" as you have explored the area your self, or those advertised in the newspaper.
4. If you want to spend time driving around by yourself looking at homes, ask your agent for a list of drive-by- homes to consider first from the outside. Your agent can make appointments later to show you the interior of those that appeal to you.
5. Express your likes and dislikes to your agent after you look at a home. Honest communication is essential. Many buyers are shy and afraid to tell an agent what they think of a house. They think the agent might take it personally. Remember, the homes don't belong to the agent! You must be straight forward about your likes and dislike in order for the agent to do the best job for you.
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Step Six: Make An Offer To Buy A Home
Your real estate agent can help you make an offer to buy the home that you want. It is important to know before hand who your agent represents.
Some agents work only for the seller. In this case the agent may not be able to advise you what is a fair offer.
Make sure you are an educated buyer !!! By looking at what homes are selling for in the area and how long they are taking to sell, you should be able to get a good idea of market value.
Your Realtor will write up the offer for you. Make sure it contains everything you want the seller to agree to.
Making an offer to purchase is the first step in a legal contract to buy and should contain clearly all you can or intend to do and exactly what you expect to receive. If there is anything you are unsure of such as getting financing, make the offer conditional on arranging financing. When buying a condo it is also advisable to make your offer subject to reviewing the bylaws and financial statements of the Strata corporation as well as the last 12 months of minutes of the strata council meetings and the annual general meeting for the building.
The offer will also include your ideal completion, possession and adjustment dates.
The completion date (when the money changes hands) is typically one to two days before the possession and adjustment dates (when the insurance, taxes maintenance fees etc. change over).
You must give a deposit with your offer . At minimum the deposit is usually 5% of the purchase price. Your initial deposit may be smaller and can be increased after you have a firm contract in other words, when you the buyer have removed all of your subject clauses. The deposit is held in the trust by RE/MAX North Fraser Realty.
Give yourself plenty of time for the contract negotiation. It is your offer and will become your obligation if accepted. Be sure to perform everything you say you will - when you say you will. Do not take the negotiation as a personal matter. Remember: no two people have identical lifestyles. Do not allow other personalities (agent / seller) to cloud your thinking through emotional intimidation. Be prepared for psychological pressure; do not jump to conclusions but, at the same time do not ponder a decision too long.
You have three choices for an offer: acceptance, rejection or to counter the offer. Price is not only important thing. Completion and possession dates as well as the condition precedents written into the contract are also important points to consider.
The Importance of Having a Building Inspection
When you make an offer to purchase on a condo or a house it is prudent to make the offer subject to inspection by a qualified building inspector. In the Lower Mainland because of our wet climate it is critical that a property inspection is performed before a firm contract is reached. As well as potential water problems, the two greatest expenses in a condominium are replacing the plumbing and redoing the roof.
What your inspector will look at:
The electrical system/wiring
The condition of the roof
Plumbing
Check for water Damage
Heating system/furnace
Check if there is any Asbestos or Urea Formaldehyde insulation
The drainage system, ease trough and down spouts
Foundation
Hot water tank
Exterior/ Interior Walls
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Step Seven: Save As Much As you Can On The Purchase
There are only two major investments to consider when buying a home. These are the initial investment, which includes the down payment and closing costs and the monthly payment, which includes principle, interest, taxes and insurance.
Closing Costs
When you have reached the completion phase of a purchase, you’ll be faced with closing costs these are :
SELLER’S adjustments. The purchaser must pay back the seller for things that are prepaid for the entire year such as property tax , insurance, equipment rental, water rates, oil in fuel tank etc.
MORTGAGE costs, appraisal fees, mortgage fees, interest adjustments and legal fees,
are sometimes added to the mortgage but sometimes not. Ask first.
GST is payable on new homes or substantially remodeled homes. There is an ongoing rebate for new housing priced under $450,000 which is used as a primary place of residence for you or your relative. Purchasers of such homes priced up to $350,000 will qualify for the maximum rebate of $8750 or 36% of the GST paid on the purchase price, whichever is less.
PROPERTY TRANSFER TAX is payable by the transferee of property. This must be paid at the time the application is made to the Land Title office to register a fee simple estate, lease agreement for sale or any court order by which land is transferred. It is computed at 1% on value up to $200,000 and 2% on any remaining balance. The tax is waived for first time buyers who meet the requirements.
LEGAL FEES the amount of legal fees will range and it is not necessarily the case that a notary will charge less than a lawyer. A buyer should realize that there are significant differences between the services that a lawyer will offer as compared to a notary. If it becomes necessary, a notary cannot represent you in a court action. Therefore, in choosing between a lawyer and a notary , the buyer should consider the competence of a lawyer or a notary , the degree of risk one is prepared to assume, and the level of service required.
DISBURSEMENTS these include your lawyer’s services and expenses for registration fees, transfer fees or taxes, title search , tax Searches, courier costs , photocopies, postage, filing agent fees etc.
Why Do You Need A Lawyer When You Purchase a Home?
For most people the purchase of a home is their largest single investment. A lawyer will ensure that you obtain title (ownership) of your home free and clear of all financial encumbrances (liens, mortgages, judgments etc.). Initially your lawyer confirms that there is a binding contract of Purchase and Sale. From this point on until the house purchase is completed your lawyer is are there to advise you of your duties pursuant to the contract and to enforce the contract against any potential breaches by the seller. The lawyer also protects you from any potential Income Tax or Goods and Services Tax liability of the Seller.
Prior to completion, the lawyer will advise you on how to be registered on title, arrange fire insurance, and how to fulfill any further bank requirements. The law firm will also adjust the property taxes and calculate applicable federal and provincial taxes, or confirm your exemption from them. After all the necessary conveyancing and mortgage documentation has been prepared, you will attend at the lawyers office to execute all the documents. At this time the lawyer will explain all the documentation and answer any questions.
In selecting a lawyer to handle securing your largest investment, it is wise to choose one who specializes in Real Estate and has a good working relationship with your bank. Remember that although a notary is qualified to prepare and attend to the execution of the documentation, if a legal issue arises, the notary must tell the buyer to seek the advice of a lawyer. By the time you engage a lawyer your legal position may have already been prejudiced. Even if the lawyer can still enforce your legal rights, addition costs, worry and inconvenience may be incurred.
Conclusions
Now that you have finished this report, it is time to go out and find the home of your dreams.
Make sure you cover all the steps in this report in the proper order.
See a lender first. They will help you decide how much of a loan that you will qualify for.
Secondly find a good agent to work with.
Some Books which may be helpful:
Making Money in Real Estate - Douglas A. Gray
Steiner’s Complete How -To -Move Handbook - Shari and Clyde Steiner
If you have any questions, feel free to contact Rick Burfoot at our office (604)820-0555, or by email.
Check out special properties Rick is marketing!
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