WHAT CAN YOU AFFORD?
Before you begin shopping for a home, it’s important to know how much you can afford to spend on homeownership. You will want to plan ahead for the various expenses related to homeownership. In addition to purchasing the home, other main expenses will include heating, property taxes, home maintenance and renovation as required. Lenders and mortgage brokers are homebuying financial specialists who can work with you to establish how much you can afford.
THE RIGHT HOME FOR YOU
Before you start shopping, know what you’re looking for in a home. Consider what you want now, and what you might want in the future.
- Size requirements: Do you need several bedrooms,more than one bathroom, or a garage?
- Special features: Do you want air conditioning, storageor hobby space, a fireplace or a swimming pool? Do you have family members with special needs?
- Lifestyles and stages: Do you plan to have children? Do you have teenagers who will be moving away soon? Are you close to retirement?
- Setting: Do you want to live in a city, the suburbs or a rural environment?
- Work: Are you willing to take on a long commute every morning?
- School: Where will your children go to school and how will they get there?
- Hobbies: Do you need a neighbourhood where you can walk? Take the kids to a park or indoor recreation facilities?
- Family and friends: How important is it to live close to them?
- Cultural: Do you want to be close a place of worship or cultural community centres?
TYPES OF HOMES
Canadian homes come in a variety of shapes, sizes and costs.
Condominiums (also called “condos”) are a type of ownership rather than a type of home. Most commonly, condos exist in multi-unit buildings. These buildings might consist of only a handful of units or they could be high-rise towers. The idea is that you own the condo unit, but not the rest of the building or the land. You pay monthly fees to a condo corporation that handles maintenance and repairs as required. Condominiums are attractive to first-time homebuyers because they are usually one of the less expensive options.
A townhouse is a home attached side by side to a series of other homes. Each unit has its own outside entrance but shares a common wall.
Semi-detached homes have separate land and separate entrances but share a common wall and sometimes common parking. Owners are responsible for their side of the property.
A single/detached home is free-standing. You own the land and the home. Because you are responsible for all related costs yourself, it tends to be the most expensive type of housing. The benefit is that you have more space and
A duplex/triplex looks like a single home but has been reconfigured into multiple units. One individual typically owns the property and the additional units are rented out. Many buyers see this as an opportunity to earn immediate
income from the house they own
MAKING THE OFFER
So you’ve found the home that fits your budget, your lifestyle and your family. Now it’s time to make it official by making an “Offer to Purchase”. As your real estate agent, I will prepare the Offer to Purchase on your behalf. Your lawyer will research the title (property ownership) and prepare all final documentation. You’ll also need legal assistance for a property transfer if your Offer to Purchase is accepted.
Your Offer to Purchase is likely to include:
- The purchase price offered.
- The amount of the deposit.
- Extra items such as window coverings, refrigerator, stove, washer and dryer that you might want to negotiate into the purchase price (also called chattels).
- The closing day (date you take possession of the home) – usually 30 to 60 days from the date of agreement.
- A request for a current land survey of the property.
- The date when the offer becomes null and void.
- Any other conditions that go with the offer, including approval of “mortgage financing” and a “home inspection”.
FINANCING YOUR HOME
Most homebuyers rely on lenders (banks, credit unions, caisses populaires, pension funds and insurance companies) to lend them money to finance the purchase of their home. This loan, called a mortgage, is repaid by you through regular payments over a period of time, typically 25 years
Lenders will charge interest to lend you this money. Interest is the cost of borrowing money. It will be added to your regular payments.
GETTING PRE-APPROVED BEFORE SHOPPING
It’s a good idea to sit down with your lender or mortgage broker to discuss your needs and get mortgage pre-approval. Pre-approval means that your lender commits to giving you a mortgage up to a specified amount, at certain terms and conditions, including the interest rate. This commitment will be valid for a specific period, usually up to 90 days. Preapproval doesn’t lock you into the mortgage. You are still free to pursue other arrangements. That way, you know exactly how much you can spend on your new home.
MAKE YOUR MORTGAGE WORK FOR YOU
Your lender or broker will offer you several choices to help find you the mortgage that best matches your needs. Here are some of the most common.
Amortization refers to the length of time you choose to pay off your mortgage. Mortgages typically come in 25 year amortization periods. However, they can be as short as 15 years. Usually, the longer the amortization, the smaller the monthly payments. However, the longer the amortization, the higher the interest costs. Total interest costs can be reduced by making additional (lump sum) payments when possible.
You have the option of repaying your mortgage every month, twice a month, every two weeks or every week. You can also choose to accelerate your payments. This usually means one extra monthly payment per year.
Interest Rate Type
You will have to choose between “fixed”, “variable” or “protected (or capped) variable”.
A fixed rate will not change for the term of the mortgage. This type carries a slightly higher rate but provides the peace of mind associated with knowing that interest costs will remain the same.
With a variable rate, the interest rate you pay will fluctuate with the rate of the market. Usually, this will not modify the overall amount of your mortgage payment, but rather change the portion of your monthly payment that goes towards interest costs or paying your mortgage (principal repayment). If interest rates go down, you end up repaying your mortgage faster. If they go up, more of the payment will go towards the interest and less towards repaying the mortgage. This option means you may have to be prepared to accept some risk and uncertainty.
A protected (or capped) variable rate is a mortgage with a variable interest rate that has a maximum rate determined in advance. Even if the market rate goes above the determined maximum rate, you will only have to pay up to that maximum.
The term of a mortgage is the length of time for which options are chosen and agreed upon, such as the interest rate. It can be as little as six months or as long as five years or more. When the term is up, you have the ability to renegotiate your mortgage at the interest rate of that time and choose the same or different options. “Open” or “Closed” Mortgage.
An open mortgage allows you to pay off your mortgage in part or in full at any time without any penalties. You may also choose, at any time, to renegotiate the mortgage. This option provides more flexibility but comes with a higher interest rate. An open mortgage can be a good choice if you plan to sell your home in the near future or to make large additional payments.
A closed mortgage usually carries a lower interest rate but doesn’t offer the flexibility of an open mortgage. However, most lenders allow homeowners to make additional payments of a determined maximum amount without penalty. Typically, most people will select a closed mortgage.
Your offer has been accepted and your financing is in place! It’s wise to make your purchase conditional on the home passing a professional home inspection. For a fee ($300 and up), an inspector will make a detailed inspection of the property. When you receive the home inspection report, you and your real estate agent will have to discuss how required repairs, if any, may affect the sale price that was agreed upon.
This is the day that you get your keys and start to settle into your new life as a homeowner. Typically, you will meet in the lawyer’s office to sign final documents. The real estate agent and/or the seller of the home may be present. Your lawyer will ensure that money is transferred to the seller, along with any additional money the seller has prepaid on the home, such as heating expenses or property taxes. Usually, you pay the lawyer at this time. Make sure to include in your initial home purchase budget all costs associated with closing the sale. These costs, which include lawyer fees and land transfer taxes, may be from 1.5% to 4% of the home’s selling price.