Frequently Asked Questions
Find answers to some of the most common questions facing buyers and sellers.
If you buy a home you will have a sense of personal satisfaction of owning your own property – fulfilling one of life’s fundamental drives. You’ll be able to create your own environment, and environment that is an expression and extension of who you are. When you own, you can do it all your way!
And of course the financial advantage of owning a home is the very real possibility of the home increasing in value over time. If you rent, you write your monthly check and it is gone forever. At the end of your lease, you have nothing other than the possibility of increasing rental rates.
Deciding to buy a home is very exciting and somewhat scary when you consider it’s likely one of the largest purchases you'll make – it’s also a long-term investment - so it's important that you get it right. This means doing your homework and making sure that the property you will eventually buy is the right one for you in terms of price, location, value, size and lifestyle.
Good city services, good schools, convenient shopping and transportation, nice parks and playground facilities, a track record of sound development and good planning--these are just a few considerations that are important to many people when they choose a community in which to live.
Home ownership brings related financial responsibilities:
Related home ownership costs, like taxes, may not be billed monthly, so do the calculations to break them down into monthly costs. Below you will find a list of these expenses.
The Mortgage Payment
For most home owners, mortgage repayment is the largest monthly expense. The actual amount of the mortgage payment can vary widely since it is based on a number of variables, such as mortgage term or amortization.
Property tax can be paid in two ways - remitted directly to the municipality by you, in which case you may be required to periodically show proof of payment to your financial institution; or paid as part of your monthly mortgage payment.
To establish 'affordability' you need to determine your taxable income together with the amount of any debt outstanding and the monthly payments. Assuming you are purchasing a principal residence, calculate 32% of your income for use toward a mortgage payment, property taxes, and heating costs. If applicable, half of the estimated monthly condominium maintenance fees should be included in this calculation also.
Next, calculate 40% of your taxable income and deduct all of your monthly debt payments, including car loans, credit cards and lines of credit. The lesser of the first or second calculation will be used to help determine how much of your income may be used towards housing related payments, including your mortgage payment. These calculations are based on lenders' usual guidelines.
This is where working with a professional really makes a difference. Knowing the market and providing answers to questions like: Is the asking price in line with prices of similar homes in the area? How long has the home been on the market? If it's been for sale for a while, the seller may be more eager to accept a lower offer.
Is the home in good condition or will you have to spend a substantial amount of money making it the way you want it?
Once you have the answers to these questions and you decide to proceed - you should get a professional home inspection before you make your offer. Again, I can help you with this.
Once you've found a house you like and have the financial resources to buy, you must determine how much to offer. A professional real estate agent has access to current data regarding sales of similar properties in the area and can assist you make an informed decision as to the value of the property and what would be an appropriate figure to offer. When making an offer to purchase, consider the following factors: Is the house “Hot” will it attract multiple offers? Has it been on the market for long – if so why?
Remember the Advertised Price Of The House – is frequently a guide to what the seller would like to receive, and recognize that sellers price houses very differently - Some deliberately overprice, others ask pretty close to what they hope to get and a few (often the smartest) under-price their houses with the intent to generate buyer excitement, competing buyers and multiple offers to increase the selling price.
A home inspection is a visual examination of the property to determine the overall condition of the home. In the process, the inspector will checki all major components (roofs, ceilings, walls, floors, foundations, crawl spaces, attics, retaining walls, etc.) and systems (electrical, heating, plumbing, drainage, exterior weather proofing, etc.). The results of the inspection should be provided to the purchaser in a detailed written report, generally within 12 hours of the inspection.
A pre-purchase home inspection can add peace of mind and make a difficult decision much easier. It may indicate that the home needs major structural repairs, which may result in a decision to pass on the property or factored into your buying decision as a point for negotiation. A home inspection helps remove a number of unknowns and increases the likelihood of a successful purchase.
Pick yourself up – dust yourself off and get right back into the game! So your initial offer was rejected for some reason. No problem! - you now start negotiating - remembering not to exceed your predetermined level of financial comfort. If that sounds daunting, don't fret; I’m here to help you.
You may have to offer more money, but you may ask the seller to cover some or all of your closing costs or to make repairs that would not normally be expected. Often, negotiations on price go back and forth several times before a deal is made. Just remember, do not get so caught up in negotiations that you lose sight of what you really want and can afford! I will you keep on track.
It is wise to ensure that you have your financing in order prior to your home search. It allows you to know exactly what mortgage amount you qualify for based on your own specific situation and provides you with specifics with respect to the affordability of your monthly payments. There is nothing worse than finding your dream home and then realizing that you do not qualify for it or that the payments do not fit into your budget. Having your financing in order also allows you to move ahead quickly in the event that you find your dream home and want to proceed with placing an offer.
A conventional mortgage is a loan for no more than 80% of the appraised value or purchase price of the property. To qualify for a conventional mortgage, your down payment, or the cash you provide for the purchase price, must be at least 20% of the purchase price. A mortgage in which more than 80% of the fair market value of the property, also called the lending value, is referred to as a high-ratio mortgage. The “ratio” is the percentage of money borrowed in comparison to the value of the property.
The interest rate on a fixed-rate mortgage is set for a pre-determined term - usually between 6 months to 25 years. This offers the security of knowing what you will be paying for the term selected.
A variable rate mortgage is a mortgage which essentially floats with the banks prime rate (which is in turn tied to the Bank of Canada’s overnight lending rate). The term for a variable rate mortgage is usually a 5 yr term, for which your discount from the banks’ prime rate would be guaranteed. As the bank’s prime rate increases or decreases (the bank of Canada meets 8 set times a year so you have 8 possible changes to rate a year) your interest rate and the amount you pay every month will also adjust. Studies have shown that more than 75% of the time over the last 20 yrs it has made sense to take a variable rate vs taking a 5 yr fixed rate over the same time frame.
Mortgage loan insurance is insurance provided by Canada Mortgage and Housing Corporation (CMHC), a crown corporation, and GE Capital Mortgage Insurance Company, an approved private corporation. This insurance is required by law to insure lenders against default on mortgages with a loan to value ratio greater than 80%. The insurance premiums, ranging from .50% to 3.75%, are paid by the borrower and can be added directly onto the mortgage amount. This is not the same as mortgage life insurance. The Canada Mortgage and Housing Corporation provides mortgage loan insurance to lenders for home buyers with a down payment of less than 20%, to as low as 5%. However, this is not to protect the buyer, it is used to protect the lender. CMHC insurance guarantees the bank or credit union that it will not lose money on this high ratio mortgage. It is the lender that technically pays this insurance premium, though they will pass the cost on to you.
A pre-approved mortgage provides an interest rate guarantee from a lender for a specified period of time (The rate hold period is 120 days and in some circumstances when a new home/condo is being purchased a rate hold of up to 12 months can be secured (at a slightly higher interest rate) and for a set amount of money. The pre-approval is calculated based on information provided by you and is generally subject to certain conditions being met before the mortgage is finalized. Conditions would usually be things like 'written employment and income confirmation,' and 'down payment from your own resources,' for example.
Most real estate professionals will want to ensure you have a pre-approved mortgage in place before they take you out looking for a home. This is to ensure that they’re showing you property within your affordable price range. Arranging a pre-approved mortgage is one of the first steps a home buyer should take before beginning the buying process.
Pre-qualification is the first step in obtaining the mortgage you need to purchase a home. It's very straight forward - an institution of your choice will examine your financial situation - income and liabilities in order to establish your borrowing potential in terms of GDS and TDS. It involves a simple application process that includes the pertinent information. It is important to note that this is not the same as a pre-approval, as credit has not been reviewed and income has not been verified and funds for closing are not verified.
Subject to qualification, yes. Purchasers with a minimum of just 5% down may qualify to buy a home and make improvements to it. For high-ratio financing, both Canada Mortgage and Housing Corporation and GE Capital insured mortgages are available to cover the purchase price of a home as well as an amount to pay for immediate major renovations or improvements that the purchaser may wish to make to the property. This option eliminates the need to finance the renovations or improvements separately. Some conditions apply.
Where the improvements are cosmetic, the mortgage loan insurance premium is unchanged from the standard schedule. For information on mortgage loan insurance premiums see high-ratio home mortgage financing.
Affordability is probably the single biggest concern of first-time homebuyers. Given the media coverage devoted to the issue, it's not surprising that many young families wonder how long it will take them to afford their first home.
The "term" of the mortgage should not be confused with the "amortization". The amortization of the mortgage refers to the entire length of time that it will take for the mortgage to be paid and the house to be "free and clear". The term is the period for which your current payment obligations are valid. In other words, you may choose a five-year term and a 25-year amortization. This would mean that your interest rate, your payments, and your pre-payment options would be the same for the next five years. At the end of these five years you would re-negotiate the term, and the amortization would now be 20 years. Fixed rate Mortgages can be "closed" or "open".
Allow one to pre-pay some or all the outstanding mortgage obligation at any time, without penalty. Generally, open mortgages have a six-month and a one-year term option with higher interest rates than closed mortgages of the same term length.
Historically speaking, over the last 20 yrs it has made sense more than 75% of the time to go variable or short term vs. longer term fixed products.
A longer-term mortgage is worth considering if you have a busy life and don't have time to watch mortgage rates. 4, 5 and 7-year mortgages let you take advantage of today's rates, while enjoying long-term security knowing the rate you sign up for is a sure thing.
If you want to keep your mortgage flexible, you can explore a shorter-term mortgage that usually allows you to take advantage of lower rates and save.
If you pay child support and alimony to an ex-spouse, the amount paid is generally deducted from your total income before determining the size of mortgage you will qualify for. When child support and alimony is received by you, the amount received may be added to your total income before determining the size of mortgage you qualify for, provided proof of regular receipt is available for a period of time determined by the lender.
A mortgage agent is an independent real estate financing professional who specializes in the origination of residential and/or commercial mortgages. Typically they do not fund or service the loan itself, but instead, they act as an agent or manager for capital sources who act as loan wholesalers.
A mortgage agent is also an independent contractor working, on average, with many wholesale lenders at any one time. By combining professional expertise with direct access to a wide variety of loan products, an agent provides an efficient and cost-effective method of obtaining suitable financing options tailored to a consumer's specific financial goals.
Don't accept it. You have no obligation to accept an offer made to you a lender.
The down payment is the portion of the purchase price you furnish yourself. The amount of the down payment (which represents your financial stake, or the equity in your new home) should be determined well before you start house hunting. The larger the down payment, the less your home costs in the long run. With a smaller mortgage, interest costs will be lower and over time this will add up to significant savings.
According to the guidelines of the Canadian Mortgage and Housing Corporation (CMHC), one must have a minimum down payment of at least 5% of the total cost of the prospective property. With a down payment between 5 - 19.99%, one's mortgage is deemed "high-ratio". A high ratio mortgage is subject to a CMHC premium in accordance with the following schedule:
With a down payment of 20% or greater, the mortgage is deemed "conventional". A conventional mortgage is not subject to any CMHC fees. Thus, a larger down payment represents a two-fold advantage to the prospective homebuyer. First, the prospective homebuyer will avoid CMHC premiums with 20% down payment. Secondly, a larger down payment will relate into smaller monthly payments, or a shorter amortization; both of which lead to interest savings over the life of the mortgage.
The minimum downpayment required to purchase a home in Canada is 5% - regardless of the purchase price. Any mortgage with less than 20% downpayment is subject to approval through CMHC and a premium is paid on the loan requested. Part of the approval process will require that you provide the lender with proof as to where the funds for the downpayment came from. Generally you will need to provide them with proof by way of bank statements, investment statements and/or a gift letter and proof you have received the funds. If you are receiving a gift for the downpayment it is required that the gift is from an immediate family member only. Lenders will also require that you provide them with proof that you have enough money to cover the closing costs associated with the purchase (i.e. land transfer taxes, lawyers fees, etc). For further explanation of the CMHC premium and details please see point below.
You can purchase a home with as little as 5% down payment provided you qualify:
Most lenders now offer insured mortgages for both new and resale homes with lower down payment requirements than conventional mortgages - as low as 5%. Low down payment mortgages must be insured to cover potential default of payment, and their carrying costs are therefore higher than a conventional mortgage because they include the insurance premium.
With all low down payment insured mortgages, you are responsible for:
- • Appraisal and legal fees
- • An application fee for the insurance
- • Paying the mortgage default insurance premium, although the amount of the premium may be added to the mortgage amount
Most lenders will accept down payment funds that are a gift from family as an acceptable down payment. A gift letter signed by the donor is usually required to confirm that the funds are a true gift and not a loan. Where the mortgage requires mortgage loan insurance, Canada mortgage and housing corporation requires the gift money to be in the purchaser's possession before the application is sent in to them for approval. Where mortgage loan insurance is provided by GE Capital this is not a requirement. See 'what is mortgage loan insurance?' for further information.
As many as 50% of first-time home buyers use their RRSP savings to help finance a down payment. The federal government's Home Buyers' Plan, permits using up to $25,000 in RRSP savings ($40,000 for a couple) to contribute towards a down payment on a first home. You will have to repay your RRSP account over a total of 20 years.
To qualify, the RRSP funds being used must be on deposit for at least 90 days. You'll also need a signed agreement to buy a qualifying home.
Even if you have already saved a down payment, it can make good financial sense to access your savings through the Home Buyers' Plan. For example, if you have saved $20,000 for a down payment - and assuming you still have enough "contribution room" in your RRSP for a contribution of that amount you could move your savings into a registered investment at least 90 days before your closing date. Then, simply withdraw the money through the Home Buyers' Plan.
First and foremost, you have to make sure you have enough money for a down payment - the portion of the purchase price that you pay yourself.
To qualify for a conventional mortgage you will need a down payment of 20% or more. However, you can qualify for a low down payment insured mortgage with a down payment as low as 5%.
Second, you will require money for closing costs (approximately 2.5% of the basic purchase price). Plus, provision must be made for the Toronto/Provincial land transfer taxes. Ask your mortgage broker what grants are available to first time buyers erasing the first $2000 of Provincial LTT and the first $3725 of the Toronto land transfer taxes.
The length of mortgage terms varies widely - from six months right up to 25 years. Generally, the shorter the term, the lower the interest rate. The longer the term, the higher the rate. While four or five year mortgages are what most home buyers typically choose, you may consider a short-term mortgage if you have a higher tolerance for risk, if you have time to watch rates or are not prepared to make a long-term commitment right now.
Before selecting your mortgage term, answer the following questions:
Lenders will often guarantee an interest rate as much as 90 days before your mortgage matures. And, if you are not increasing your mortgage, they will also cover the costs of transferring your mortgage. Securing a rate in advance of the maturity date eliminates anxiety over possible increased rates. If rates drop before the actual maturity date, the new lender will usually adjust the interest rate down.
Most lenders send mortgage renewal notices offering existing clients their posted interest rates. The rate being offered is usually not the best one. Investigate the possibility of a lower interest rate with the lender or another lender. If you don't, you may pay a higher interest rate on the renewed mortgage than you need to.
There are numerous ways to reduce the number of years to pay down your mortgage. You'll enjoy significant savings by:
- • Increase the frequency with which you make your mortgage payments to bi weekly or even weekly. Just by going from monthly to bi-weekly knocks 3+ year off of the life of the mortgage
- • Making principal prepayments
- • Making double-up payments
- • Selecting a shorter amortization at renewal
On the day one actually purchases their new home they are required to pay certain costs associated with this endeavour. In addition to one's down payment, the prepaid property tax and homeowner's insurance premiums there will be other fees to consider:
- • Survey charges
- • Land transfer taxes
- • Attorney fees and Disbursements
- • Garbage disposal fees
- • Title insurance
- • Fire insurance
- • New construction will most likely be subject to the HST Tax.
Protecting purchasers against loss is accomplished by title insurance. A Title Insurance Policy states that if the status of the title to a parcel of real property is other than as represented, and if the insured suffers a loss as a result of title defect, the insurer will reimburse the insured for that loss and any related legal expenses, up to the face amount of the policy.
A real estate appraiser is an impartial, independent third party, who provides an objective estimate of value of the subject property. The appraisal is supported by the collection and analysis of data. Most licensed appraisers will provide an advance estimate of the cost to perform the appraisal, and many will commit to a fixed fee for an appraisal. It is always wise to obtain a written contract for services that includes a description of what you will receive for the fee charged – for example: A detailed written report.
Table of Insurance Premiums
An element of the marketing process, the open house attract prospective buyers (and nosey neighbours) and provides them with the opportunity to view the home at leisure. Open houses don’t generally generate a sales, at least not directly. What you should look for is traffic, and calls for private showings in the days following an open house. Open houses serve a purpose, even if very few people show up the attending agent can generally illicit “feed-back” on the impressions people have about the house, including price. Such a situation can indicate that the price is too high; it may also lead you to look for ways to improve curb appeal.
Major home improvements should be made for your benefit and enjoyment while you’re living in the home – not at a time when you’re contemplating selling. Of course that enhance one’s lifestyle and that are useful to almost everyone add value and/or speed the sale of houses. These include central air conditioning to the heating system, building a deck or patio, basement finishing, kitchen remodeling (updating colors on cabinets, countertops, appliances, panels, etc.), and new floor and/or wall coverings, especially in bathrooms. Improvements that return less than they cost are generally items that appeal to personal tastes, like adding fireplaces, wet bars, and swimming pools, or converting the garage into an extra room.
The challenge that comes with any home improvement designed to help sell your house is recouping your investment. There is the risk of over-improving - putting more money into your house than neighbourhood prices will support.
First, make your house look as clean and spacious as possible. Remember that people may look behind your doors - closet and crawlspace doors as well as those to the bedrooms and bathrooms. So get rid of all the clutter; have that garage sale and dispose of the remnants.
After you've cleaned, try to correct any cosmetic flaws you've noticed. Paint rooms that need it, re-grout tile walls and floors, remove or replace worn carpets. Replace dated faucets, light fixtures, and the handles and knobs on your kitchen drawers and cabinets. Finally, as with the outside of your house, try to make it easy for prospective buyers to imagine your house as their home. Clear as much from your walls, shelves, and countertops as you can. You want prospective buyers to be mentally placing their furnishings in the uncluttered space you’ve provided.
"Curb appeal" is the common real estate term for everything prospective buyers can see from the street. It’s the “sizzle” that makes them want to take a look at a house. Curb appeal generates traffic. It does take time but needn't be expensive, provided you keep two key words in mind: neat and neutral.
Neatness sells. New paint, an immaculate lawn, picture-perfect shrubbery, a paved driveway, potted plants at the front door - put them all together, and drive-by shoppers will probably want to see the rest of the house.
Hand in hand with neatness is neutrality. If you're going to repaint, stick to light, neutral colors. Keep the yard free of gardening tools and kids' toys. Remember, when a family looks at a house, they're trying to paint a picture of what it would be like as their home. You want to give them as clean a canvas as possible.
After years of living in a home, it's easy to overlook regular home maintenance chores. If there's no urgency, many homeowners procrastinate. Often problems don't get fixed until an issue arises, like a roof leak in the middle of winter.
Unattended home maintenance may become a problem for a seller. We know from experience, the majority of buyers want to buy ‘turn-key’ homes they can move into without having to make a lot of repairs. Sellers need to decide before putting their home on the market whether to fix address needed repairs or leave the work for a future buyer.
A pre-sale home inspection – usually by a certified Home Inspector - is exactly what it sounds like, an inspection initiated by the seller prior to placing the property on the market. It entails an examination of the structure and systems: heating and air conditioning, plumbing and electrical, roof, attic, insulation, walls, floors, ceilings, windows, doors, foundation, and basement. If the inspector finds problems, it doesn't mean you can't sell your house, but you can be certain a buyer's inspector will find them too. Finding problems before you list your property can avoid accusations of misrepresentation, low offers, and even lawsuits. A home inspection can also help sellers comply with new, tougher disclosure laws.
You may or may not want to make the repairs and you can always adjust the selling price or contract terms if the problems are major. To a find home inspector speak with your real estate agent who can recommend several professionals in your area.
While this may be difficult, it’s a necessity! You must emotionally detach yourself from your home and start viewing it as a commodity you want to sell. For many, this is easier said than done, especially when one considers the many significant, happy events that have taken place during one’s tenure in the family home. Nevertheless, it's imperative to be detached and practical with yourself about how to present your home, so as to maximize your home’s potential when it goes on the market.
You need to “Sell the sizzle!” With all the TV home improvement show, and magazines that have materialized over the past decade, consumers have become far more educated and demanding when it comes to the appearance and condition of a home. Today's home-buyers are demanding with high expectations and are short of time - and they'll pay a premium for homes they can move right into.
Probably the most frequently asked question! Of course there are many factors that determine how much your property is actually worth in the prevailing market – However, the most important factor determining your house's value is the sale price of similar properties that have recently sold in your neighbourhood.
I analyze available, current, sales data in your neighbourhood and provide an informed, detailed report. Furthermore, taking into account all other pertinent contributing factors, provide a realistic estimate of what your house should sell for in the prevailing market.