Finding and purchasing the right home
When you're about to make one of the largest purchases of
your life, be sure to shop around.
Consider such things as transportation, distance to work, and proximity to
schools, daycare, recreational facilities, shopping, healthcare, and so on. If
the listing realtor claims "10 minutes to downtown," find out if that's during
rush-hour in a minivan or at 3:00 a.m. in a Porsche Boxster!
Next, find a real estate agent whose attitude and availability inspire your
trust. Start by seeing who's most active in your neighbourhood. An agent who
makes regular sales calls and keeps you informed of listings and sales in your
area probably pursues business aggressively.
Set up appointments with a few agents from different companies and assess
their presentations. Are they prepared? Have they done some homework in advance?
Do they have any special affiliations or packaged discount programs with other
corporations that can save you money on your mortgage, on moving costs or on
purchases for your new home? Work with someone you relate to, with whom you have
some chemistry, and who offers excellent service and value. Be sure to ask if
the realtor is acting for a vendor or for you.
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Making house hunting fun
There's no shortage of information available to help you
make an informed purchase decision. Lenders, as well as CMHC, the Canadian
Bankers' Association, the Ontario Real Estate Association and the Home Builders'
Association all have brochures (even videos) to make house-hunting stress-free
and fun.
To take the guesswork out of shopping for a home, take advantage of all the
professional resources available to guide you through the many choices available
when purchasing your first home.
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Affordability and financing
Thoroughly review your current income and expenses. How
much will your new mortgage add to your monthly expenses? Before you embark on
your housing search, get a pre-approved mortgage, especially if you're a first
time buyer. A pre-approved mortgage lets you know how much money you qualify
for, so you can shop in comfort.
Lenders determine affordability by looking at your Gross Debt Service ratio
(GDS) and your Total Debt Service ratio (TDS). The GDS ratio is based on what
you can afford to pay each month; it includes mortgage payments, taxes and
heating. Maximum GDS ratio is 32%. The TDS ratio includes everything covered
under GDS plus all your other financing obligations. Maximum TDS ratio is 37%
(40% if it's CMHC).
A Mortgage Specialist from The Mortgage Centre can help you do a complete
analysis based on net income and projected budgets to determine what you can
afford.
This pre-qualifying stage is also the time to find out about the differences
between conventional mortgages and high-ratio insured mortgages. Ask about
assistance for first-time homebuyers such as the 5% down payment allowed under
the "First Home Loan Insurance Program" sponsored by CMHC and the federal
government's "RRSP Homebuyer's Plan", which lets you use funds from your RRSP to
purchase a home.
A Mortgage Centre Specialist will also go over closing costs with you, like
land transfer taxes, legal fees and other disbursements. A good rule of thumb is
to budget about 3% of the purchase price for closing costs. And don't forget: if
you buy a new home from a builder, you'll pay 7% GST on the total purchase
price.
Before you're pre-qualified, your Mortgage Specialist will run a credit
bureau report on you and ask for written confirmation of income and how much you
plan to put down on your purchase.
Once you're pre-qualified, the interest rate is guaranteed for 60 to 90 days
from the time of your application. If rates drop, you'll get the lower rate; if
they rise, you're covered. And just because you pre-qualified by a certain
financial institution, you're by no means committed to that lender. We'll shop
the market to get you the best possible deal!
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Selecting the right mortgage
Your basic choices in selecting a mortgage include:
- Conventional vs. high-ratio mortgages. A conventional mortgage equals no
more than 75% of the appraised value or purchase price of the property,
whichever is less. A high-ratio mortgage is usually for more than 75% of the
appraised value or purchase price. It's often referred to as an NHA mortgage
because it is granted under the provisions of the National Housing Act and must,
by law, be insured through CMHC for which the borrower pays the insurance
premium as well as application, legal and property appraisal fees.
- Closed vs. open mortgages. Closed mortgages usually offer lower interest
rates than open mortgages of the same term, but open mortgages let you pay off
as much as you want, any time, without penalty.
- Short term vs. long term. The term you select is important, too. Short term
mortgages are appropriate if you believe interest rates will be lower at renewal
time. Long term mortgages are suitable if you feel current rates are reasonable
and you want the security of budgeting for the future. This is especially
important for first time homebuyers.
- Fixed rate vs. variable rate. You can choose a fixed or variable interest
rate. A fixed rate mortgage allows you to budget precisely for whatever term you
select—from one to as many as 25 years. A variable rate mortgage fluctuates with
the market.
- Specialty mortgages that creatively combine the best of all worlds.
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Applying for your mortgage - A checklist
When you apply for a mortgage, you will need:
- A copy of the accepted Offer To Purchase and the land survey
- A salary letter from your employer (self-employed buyers need financial
statements for the past three years as well as personal income tax returns)
- Confirmation that your down payment came from your own resources (e.g. bank
statements or a gift letter)
- A list of all your assets and debts along with account numbers
- A copy of the Real Estate Listing if buying an existing home
- Condominium financial statements, if applicable
- If you are buying a home to be constructed, bring a picture of the property,
a copy of the building plans and specifications, the land survey, plus your
agreement with the builder.
Your Mortgage Specialist can help you determine how much you can afford, obtain
a pre-qualified approval, and select the mortgage that's right for you. This
allows you to act quickly when you find the home you want. After your real
estate agent draws up an Offer To Purchase between you and the vendor-an
agreement that sets the final price and all the conditions of sale-contact your
Mortgage Specialist. Your deal is almost complete!
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Before you sign the offer
Select a lawyer as you'd select a real estate agent: seek
competitive fees, excellent service, knowledge, approachability—in other words,
value.
Involve your lawyer before you sign the Offer, which becomes a legal
Agreement of Purchase and Sale once you and the seller sign it. Have your lawyer
read the document carefully and review it with you. Once it's signed and
accepted, your lawyer will order a series of searches from various municipal
offices to ensure that the vendors haven't been sued, that they've paid all of
their property taxes and water, electric and gas bills, and that there'll be no
outstanding mortgages or liens on the property once you become the owner.
Your lawyer will also draft a series of closing documents and review the
closing documents drafted by the vendor's lawyer.
Your lender and lawyer will co-ordinate and draft the appropriate documents.
Your lawyer will notify the property tax offices as well as the utility offices
that you will be the new owner as of the closing day.
A few days before closing, you'll visit your lawyer's office to sign the
closing documents. Bring a certified cheque for the balance of the closing
funds, because the lawyer pays the relevant parties on your behalf (land
transfer to the government, balance owing to the vendor, etc.). Part of that
amount covers the lawyer's fee and disbursement costs. The lawyer obtains the
mortgage funds directly from the institution that's funding your mortgage.
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On closing day
On closing day, your lawyer will meet a representative
from the vendor's law firm at the land registry office. There, your cheque will
be exchanged for the keys to your home and the two sides will trade closing
documents. Your legal representative will then register the new deed and
mortgage, so anyone doing a search will see that you're the new owner. Finally,
you pick up the keys and YOU'RE IN!
After closing, your lawyer will send you a reporting letter and copies of all
the documents you signed including the deed, the mortgage and the survey, and a
summary of the flow of funds.
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Mortgage life insurance
Seriously consider mortgage life insurance. The cost is
low and can be incorporated into your mortgage payments. In the event of death,
terminal illness, or permanent disability, your balance will be paid in full
(the maximum varies among financial institutions). Quotes are available with
each approved mortgage.
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Prepayment privileges
Financial institutions vary in their prepayment
privileges, which let you pay down your mortgage faster. Our best advice:
research your options! Also be aware that the longer the amortization period
(the time it takes to pay off a mortgage), the more interest you'll end up
paying. Amortization periods range from five to 25 years.
Weekly or biweekly instead of monthly payments could shave as much as eight
years and $38,000 off a $100,000 mortgage, depending on current interest rates.
Another option to consider is portability. If you decide to sell your home
and buy another, you should be able to take your mortgage with you or transfer
it to the buyer of your home without penalty. This can be a major advantage if
your mortgage rate is below current market rates.
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The material provided in the pages of
this website is for informational purposes only. Although the site owner and
creators assume the information to be correct, and attempt to keep information
in the pages of this website as current as possible, they do not warrant the
accuracy or completeness of any information included in or linked to this
page.
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