Buying a Home
Before you begin the search for your new home, determine your needs and implement this step-by-step plan to make this process less stressful before you hit the streets. From choosing the type of home best suited to your needs up to the day of moving, this Buyer's Guide ensures an enjoyable experience.
Arranging a Mortgage
Types of Mortgages
Conventional and High Ratio Mortgages
To qualify for a conventional mortgage, you simply have to have a 25% down payment of the purchase price, with the mortgage not exceeding 75% of the appraised value.
If your down payment is less than 25%, then you qualify for a high-ratio mortgage. This type of mortgage requires loan insurance, which can cost an additional 0.5% to 3.75% of the mortgage amount. With this type of mortgage you could also be limited to a maximum house price.
Of course, if you cannot add on to your mortgage, you may consider a second mortgage. Each mortgage uses your home as security and gives the mortgagee the right to take your home if you default on your loan. The first mortgagee gets paid first in cases of default and has the best chance of recovering all of its money. So it only goes to figure that subsequent mortgages usually come with a higher interest rate.
Here are some mortgage options you should know about:
Every lending institution is different, and each will have their own customizable mortgage options. When you're hunting for a lender and a home, see how the following features could be beneficial to you.
This is a wonderful option if you receive regular bonuses or if your income fluctuates throughout the year. With a pre-payment privilege, you have the right to make payments toward the principal portion of your mortgage over and above the monthly payments. A mortgage with a pre-payment option is closed. An open mortgage means you can pay the entire principal sum without notice of bonus.
If you still have time remaining on that fantastic loan you negotiated, portability is one option you'll want to discuss with your lender. Quite simply, it means transferring the balance of your current mortgage at the existing rates and with the existing terms and conditions, to your new home.
Let's say that the vendor has negotiated a dynamite mortgage. With an assumable mortgage you, the purchaser, simply assume the obligations of the mortgage. This is a wonderful feature especially if the terms are more favourable than the existing market conditions would allow. Remember, when it is time for you to sell, you may still be liable for any mortgage you allow the buyer to assume. This means if the buyer stops making payments, you could be accountable for the payments. Be sure to have the subsequent buyer approved for the assumption of the payments, thereby avoiding this potential land mine.
If you need additional funds down the road, will your mortgage terms allow you to increase the principal amount? Usually, your new rate will be a blended amount of the initial mortgage rate and the prevailing rates. It's a great option to discuss with your lender if you foresee large expenses in your future like renovation or education costs.
For some, this is a stressful experience. After all, you and the seller may not be able to come to an agreement and you won't get your dream home. There are eight basic elements to an offer and there are various offer strategies that you may want to use during your negotiations.
When you've found your home, you will make a formal, written offer to purchase. This is a legally binding contract outlining what you will give (a combination of price and terms) in exchange for the home. Your associate will probably use a pre-printed form covering all of the legalities and will modify it to cover what you want to offer.
Remember, everything is negotiable. You should ask for what you want, but keep in mind what you're willing to give up. Your Royal LePage Benchmark associate will put everything in writing. Of course, the more contingencies in your offer, the less attractive it will be to the vendor. In a buyers' market, that's OK.
The vendor may counter your contingency with an escape clause. For example, the vendor may wish to continue showing the house and if they receive another offer, you'll have the option of backing out or removing your contingency.
The Offer Can be Firm or Conditional
A firm offer means that you are prepared to purchase the home without any conditions. If the offer is accepted, the home is yours. Although a firm offer to purchase is usually preferable to the seller, if you are unable to close you will lose your deposit and may get sued. Take time to confirm your financing and to think twice about the investment.
A conditional offer to purchase means that you have placed one or more conditions on the purchase, such as subject to home inspection, financing or sale of your existing home. The home is not sold until all the conditions have been met.
Acceptance of the Offer
Your offer to purchase will be presented as soon as possible. After the seller has reviewed the offer, it may be accepted as is, rejected, or returned with a counter offer.
The counter-offer may be in reference to the price, the closing date or any number of variables. The offers can go back and forth until both parties have agreed or one ends the negotiations.
It is best to know your absolute upper limit before you begin negotiations, so that in the heat of the moment you don't end up with a home you really can't afford.
It's a day filled with nervous anticipation. This is the day on which all of the legal and financial promises in the offer are met. It's the day when you get the keys and begin a new phase in your life. Your Royal LePage Benchmark agent and your lawyer will give you all of the details on steps and timings. All of the small details will be taken care of ahead of time, so in most cases it will be just a day of waiting by the phone.
Also, remember that this is a hectic day for the seller, too! Very often it's moving day and they're trying to gather all of their belongings to leave as the purchaser is trying to move in.
In brief, here's what takes place before the actual closing day:
- A copy of the offer will have been forwarded to the office of your lawyer. Your lawyer will have reviewed the conditions of the sale. You will have made your lawyer aware of how you, and any co-buyers, will be registered on the title of the property.
- All of the conditions in the offer to purchase must be satisfied by the closing date. If one of the conditions in your offer was a house inspection, it should have been completed by the closing date, and you should be satisfied with the report.
- All of your financing details will have been finalized and ready to fall into place on the closing date.
- If the vendor did not have an up-to-date land survey, you'll have had one done. Your lender will insist on it.
- Your lawyer will search the title of the property to ensure that you can purchase the home without any legal problems. Your lawyer will also make sure that tax payments have all been made and there are no liens on the home or the personal property the vendor has agreed to sell you as part of the deal.
- You'll want to make sure that you've contacted all of the utility, cable, and phone companies to ensure an easy transition of service and billing.
- Your lawyer will prepare a statement of adjustment. This confirms the selling price, adjustments, and the balance (less the deposit you provided with the offer). Your lending institution will draw up a certified cheque for your lawyer to hold in trust.
- Additional settlement charges will have to be paid:
- Your lawyer's fee and disbursements
- Condo and co-op fees (Remember to ensure there is an adequate Reserve fund in place and that the condominium has a proper Technical Audit and Reserve Fund Study completed by competent professionals.)
- Tax and utility adjustments; if they have been pre-paid, you'll have to pay the vendor for the portion of the service you assume
- Land transfer tax; based on the price of the home, this fee ranges from 0.5% to 4% of the selling price
- You'll want to make sure your homeowner's insurance policy will be in place to cover your new home and property once the deal is closed. Your lawyer will need a copy of the policy before closing.
What to Expect on Moving Day
Saying good-bye to one neighbourhood and discovering a new one is an exciting adventure. But let's face it, at the end of your home-buying process you may find yourself exhausted. After all, the other obligations in your life have not paused.
What's more, now there's another cost -- moving. Whether you hire professionals or strong-arm friends into helping, be prepared for the cost of the move. Here are some suggestions on how to reduce the cost of your move, but let's first look at how to prepare for the big day.
You will have noticed that your possessions expand to fill the space allotted. Guess what, if you're moving into a larger home, you'll be gathering more stuff, so start out right.
- Don't take it all. Before you pack it all into boxes and cart it to a new location, take a good look at everything and find out what you can live without. This is a great time to have a garage sale and what doesn't sell, you can give away to charity.
- Have all of your change of address cards filled out months in advance. You'll want to notify friends, family, businesses, organizations you're a member of, etc. Have the cards ready to mail once the deal is closed. Redecorate before the move. Sometimes it isn't possible, but if you have the chance to work without the obstructions of furniture, you'll find that you can get twice the work done in half the time.
- Put the utilities in your name. Hydro, water, gas are the first companies to call. But don't forget to coordinate your telephone and cable service. Of course, you'll want to let the companies servicing your old home know when to disconnect service there.
You'll want to ensure that each item you own is well packed to minimize damage during travel. Whether you're moving around the corner, across town or across the country, the moving process is always the same.
To Hire Movers or Not to Hire Movers?
If you hire movers to pack for you, they'll descend on your home with a crew of experienced packers who will seal, pad and itemize everything you own in a day or two.
During the move, you'll want to make sure you're insured while your belongings are in transition. Many moving companies also offer additional insurance.
On moving day, go through the house with the crew supervisor and have him take note of any special instructions. If there are items you will need first in your new home (like a crib) make sure they put it in the moving van last. The movers will also make note of the condition of your goods on a master list. It is your responsibility to make sure it's accurate.
After the van is unloaded and your goods are unpacked, inspect everything and make note of any damage. While movers do unpack, they don't put dishes or linens away.
If you are undertaking the packing process by yourself, it will take time. Pack well in advance, and take note of what you can really live without. You'll have items that need special attention and other items that need to be disassembled. Label each box in detail and, if you know where it will go in your new home, put the destination on the box.
- Pack what you need most last!
- Label each box carefully!
- Designate a destination!
You'll also want to pack a box of essentials. These are items you're likely to use once you arrive in your new home. Include items like:
- toilet paper
- toothbrushes and toothpaste
- paper towels
- garbage bags (a lot of them!)
- paper plates, cups and plastic utensils
- can opener
- hammer, screwdrivers, pliers
- a flashlight
- some light bulbs
- snacks and drinks
- a radio