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Buying a home can be a fascinating experience. It is also an important investment where time and money are concerned. In order to ensure your future quality of life and financial security, it is vital that you choose a home that suits your budget and particular requirements. First and foremost, you must be willing to make some compromises. For example, searching for a $100,000 five-bedroom detached home in the downtown area might prove useless. Figure out what you want and make a list of your needs. You do not enjoy
commuting? Why not look for a home close to your workplace? You have a
family of seven with two pets? The suburbs might be your answer, where
properties are larger at a lower cost. You prefer the peace and quiet
of the country? You want to be near schools, stores and restaurants? Use
the following list to narrow down your choices.
Before settling on a neighbourhood, it is important to walk or drive down its streets at night or during the day, weekends and weekdays. Calculate the time you will need to travel to work during peak hours. Certain factors will positively or negatively affect the future value of your property. Find out if the municipality plans to build major projects in the neighbourhood, like main roads or housing complexes. It may also be useful to know the zoning bylaws, for example if you plan to set up an office in your home. The municipal tax rate may also influence your decision on where to live. Find out if it includes a garbage removal tax and if each home is equipped with its own water meter. You can also talk to residents about access to services or any noises (planes, trucks, industries) which may disturb you at certain hours of the day. It is always preferable to buy a modest home in a high-class neighbourhood
than a costly home in a low-class neighbourhood. The former will have
a higher resale value.
If you plan to search for a home on our site, you must know the different types of dwellings on the market. Here is a brief list:
Despite their many advantages (choice of layout and finishes, warranties), newly built homes cost more to purchase than existing homes. For starters, existing homes are not subject to the 7% Goods and Services Tax (unless major renovations were made). They are usually fully landscaped (trees, lawn, paving stones, fences) and may also include a pool or a finished basement. Also with existing homes, neighbourhoods are usually fully developed, which lessens the risks of unfortunate surprises. Existing homes have also settled, making it easier to check the quality of the construction. Have an expert inspect any home you are thinking of buying. Family and
friends can also advise you on your choice of homes, from a more personal
standpoint.
Knowing market trends makes it easier to determine when to buy a home. Because markets change, however, your market analysis must be updated regularly. Contact the Canada Mortgage and Housing Corporation (CMHC) office near you. The CMHC provides public information reports on real estate market trends. Is this a buyer or a seller's market? In a buyer's market, there are more homes for sale than potential buyers. Prices are steady and tend to drop. The buyer has a better hand at negotiating because his options are greater. Also, try to find out about mortgage rate trends. Are mortgage rates
expected to drop or to increase? Consult the CMHC reports.
Most future homeowners require a mortgage to finance their new home. How much should you borrow? And how much capital should you invest (down payment)? Ideally, we recommend investing 25% of the purchase price. This allows you to minimize your monthly mortgage payments and reimburse the bank quickly. If you invest less than 25%, you will need mortgage insurance. This insurance can be obtained at a fee from the CMHC or Ge Capital Mortgage Insurance Canada, a private company. Your financial institution will, on your behalf, handle all the details concerning this insurance. Usually, home payments should not exceed 30% of the household's net income.
This way, the family has enough financial leeway to cover unexpected expenses.
With payments totalling more than 30% of your income, you risk finding
yourself in financial difficulties should anything happen.
The following table will help you calculate the maximum amount you can afford for your new home. (To simplify matters, we have settled on a 25-year mortgage amortization period. The X factor represents the applicable interest rate.)
Can you borrow from a Registered Retirement Savings Plan (RRSP) to finance your investment? Of course you can. If you are a first-time buyer, the government's Home Buyers' Plan (HBP) allows you to withdraw up to $20,000 (per spouse) from your RRSP, tax-free. You can thus use your RRSP savings while building your retirement fund. If you have never had a RRSP, you can still take advantage of the HBP if you are eligible for RRSP contributions. RRSP entitlements carried forward since 1991 can easily be used to invest and then withdraw from a RRSP. How does it work? By getting a temporary 90-day loan from your financial institution to purchase a RRSP. After the 90-day period, you can legally reimburse your loan with the money from your RRSP and still receive your tax deduction. You will have 15 years to re-inject money into your RRSP without incurring interest. Certain qualifying conditions apply:
Recognizing the importance of financial planning, you should prepare for the many costs associated with buying a home. Expenses payable prior to signing the deed of sale :
Expenses payable upon signing the deed of sale at the notary's office:
Expenses payable after signing the deed of sale:
Before buying a home, you would be well advised to calculate your expenses based on your income. Your budget should include all your revenues and expenses during a set period, ideally over one year. You may prepare an individual or a household budget, depending on your situation. An individual budget may prove more appropriate if you and your spouse cover your expenses separately. For a clearer picture of your saving capacity, complete the following table.
Note : A negative grand total means that your expenses exceed your total income. Your lifestyle or family obligations increase your debt level. Please review your priorities.
Preparing a personal balance sheet can help you keep abreast of your financial situation. By reviewing it regularly, you can see if your financial situation is improving or worsening. You may also need it to secure a loan. When you prepare a personal balance sheet, you make a list of your assets (goods you own) and assign them a realistic resale value. You then subtract your liabilities (loans, credit cards and other amounts owed). Use the following table to prepare an accurate personal balance sheet.
After determining your needs and approximate maximum allowable purchase price, you are ready for the most interesting part of buying a home : house hunting. clickhome2000.com is your best source of timely information on homes for sale by owner in the region or city you have selected. Each of the homes listed includes a photo and a detailed description, making it easier for you to select a home that best suits your criteria. Buying a home directly from the owner, without employing a real estate agent, has definite advantages, including :
You found a few homes you would like to visit? Make sure to compare similar properties (same number of rooms; same land size and living space). Take notes during your visits. You might forget certain details that would have made you pick a home over another. Make sure to visit twice the homes that really interest you. If the owner agrees, you might even take pictures during the second visit. Since you already know the aesthetic features of the home, pay greater attention to the quality of the construction during the second visit. Certain improvements or repairs may prove costly. For example, check the roof, gutters, brick or plaster. Is the home well insulated? Are the basement walls covered with mould? Are there cracks in the foundations? See if the floors are level: if not, the home may have structural problems. Turn on the faucets and check the water pressure. Make sure doors and windows open and shut properly. If you can handle a little dirt, check the attic: it may say a lot about the building's construction.
House hunting is over? You found your dream home? It is time to make a purchase offer. By definition, a purchase offer is a document that binds a buyer and a vendor to the purchase and sale of a home, under certain conditions. Once accepted, the terms of the purchase offer can no longer be modified. Consequently, it is imperative that you word the offer correctly, without omitting any detail. Purchase offers generally contain the following items:
Purchase offers may also include other provisions:
* In today's marketplace, the buyer is expected to secure financing and have the home inspected within a reasonable period of one to two weeks.
For different reasons (price, date of occupancy, conditions, etc.), the vendor may not accept your offer. He/she may modify it and present you with a counter-offer. Note : Before beginning negotiations, remember the budget limit you have set for yourself. Make sure to respect this limit or the home of your dreams may turn into a financial nightmare. The law does not limit the number of counter-offers between a buyer and a vendor. It is both parties' responsibility to find a common ground and reach a final agreement. If no common ground can be found, no promises were made and neither party is bound to the sale or purchase of the home. Once an agreement is reached and both parties sign the purchase offer,
the home is considered sold. A deed of sale will be drawn up to make matters
official. You must send the purchase offer to your notary so that he/she
may prepare the required transfer of ownership documentation.
The steps involved in buying a condominium are the same as with any other home, except that you must sign a declaration of co-ownership. This declaration divides the property among co-owners by detailing individual units, common areas and each owner's share in the common areas. Percentage determination is calculated based on the size of each owner's unit in relations to the building's total floor space. The term "building" may refer to a duplex, a triplex, row houses or an apartment complex. The declaration of co-ownership includes various other items such as a description of unit boundaries prepared by a surveyor, the value of each unit, condominium fees (maintenance), conditions of use, rules governing owners' meetings and corporation bylaws. The declaration must be signed by all co-owners and authenticated by the municipal registry office. Important note: Read the declaration of co-ownership carefully before making any purchase offer. Do not forget to include condominium fees in your purchase offer. These fees usually cover the cost of insuring and maintaining the common elements (heating, lighting, snow removal, lawn maintenance) as well as administrators' salaries, materials and equipment. They are payable on a monthly basis. Condominium fees do not cover the cost of maintaining individual units (i.e. heating, electricity, insurance and repairs, including electrical and plumbing repairs). Here are a few tips on condominium hunting :
First of all, what is a mortgage? A mortgage is a warranty required by a financial institution as security for the payment of a loan. A mortgage loan is therefore a cash loan supported by a mortgage. If you cease to meet your mortgage payments, your financial institution may seize and sell your property to recover part or all of its loss. To qualify for a mortgage, you must be solvent, 18 years of age or over and capable of managing your own assets. Several types of institutions offer mortgages: banks, trust companies, private and employee credit unions, finance companies and certain life insurance companies. Find out more about the mortgage plans they offer. Above all, shop around! You can also employ a mortgage broker whose mission it is to find you the most beneficial mortgage on the market. Mortgage brokers are independent; they do not work for any particular institution. Most of the time, they are paid by the lender. If you have a poor credit history, however, they might charge a 1% or 2% service fee. Choose a financial institution that offers a complete range of services and understands your needs fully. Question lenders. Do they charge mortgage application or closing fees? Appraisal fees? Fees for renewing your mortgage? Is there a penalty for prepaying your loan? When you apply for a mortgage loan, you must bring with you your purchase offer, an employment confirmation (T4 or letter from your employer) as well as a copy of current loans (car loan, furniture on credit, credit cards, etc.). It is also recommended that you bring a personal balance sheet. New : Most financial institutions now make it possible to apply for a mortgage on-line. This service enables users to instantly find out whether they are approved for a loan. If the information supplied is complete, pre-approval is immediate. If further examination of the information is required, applicants receive their answer within 24 hours.
Let us take a look at the various mortgages available on the market. Pre-approved mortgages :
Pre-approved mortgages are more popular than ever. Usually in effect
for a two- to three-month period, they let you know the exact amount you
are allowed to borrow. If interests rates vary, you are also guarantied
the lowest rate of the pre-approval period. Pre-approved mortgages will
give you peace of mind while you search for a new home.
High ratio mortgages :
If your down payment is between 5 % and 25 % of the purchase price, you will be offered this type of mortgage. The CMHC or a private company will be asked to insure against default of payment. An insurance premium may be added to your loan.
You can choose from several payment methods : monthly, bimonthly or weekly instalments. By accelerating your instalments, you will decrease your interest charges. By year-end, you will have saved a considerable amount of money.
The amortization period refers to the time required to completely repay your debt. Usually, you can choose a 10-, 15-, 20- or 25-year period. Individuals who can afford it are advised to choose a short amortization period. They will automatically save money.
The mortgage term refers to the length of time during which the interest rate is fixed. At the end of the term, the loan conditions must be renegotiated (amortization, rate, etc.). The term may range from three months to ten years. Generally, the interest rate is lower for a one-year term than a five-year term. A shorter term will translate into immediate savings while a longer term will shield you from potential rate increases, giving you unrivalled financial peace of mind.
Before signing any financial institution's mortgage agreement, please review it carefully. Make sure you understand each provision. Give particular attention to the following items :
The mortgage agreement may also provide for penalties in the event of accelerated mortgage repayment. Depending on the mortgage term, the penalty may be equal to three to six months of interest. Your mortgage agreement must also include a transfer provision, providing for the transfer of your mortgage to a new home should you decide to move.
Under the terms of your mortgage, you will be required to purchase homeowner's insurance in an amount equal or superior to that of your loan. Make sure to get a copy of your insurance policy from your broker or insurance company before meeting with your notary. He/she will ask for it.
Usually, the lender appraises the home to which the mortgage is to be applied. Exception is made if the home has been inspected prior to purchase negotiations. The appraisal includes a complete evaluation of the home's features, an analysis of recent similar transactions and a review of market conditions affecting price. The lending institution may demand an additional guaranty if the appraisal shows that the home's actual value is lower than the purchase price. It will request a guarantee bond from a third party to assume responsibility should you fail to meet your mortgage payments.
Financial institutions under Canadian jurisdiction are forbidden to grant loans that exceed 75 % of the home's value. If the mortgage application exceeds that amount, your loan must be insured by the CMHC. If you fail to repay your loan, the CMHC will reimburse the bank. A CMHC-insured loan can extend to between 90 % and 95 % of the home's value. You can expect insurance premiums ranging from 0.5 % to 3.75 % of the total loan as well as a $75* underwriting fee. If the home has not yet been appraised, you will have to pay the lender $235* to appraise the property. These fees can be paid in a lump sum or added to your loan. To be eligible for CMHC insurance, you must meet the following criteria* :
Certain prices and conditions may vary. Find out more from the CMHC or your lending institution.
Written by a notary, the deed of sale is the official document transferring ownership of the property. In addition to reiterating the provisions of the purchase offer, it details the buyer's obligations regarding payment of the building, municipal and school taxes and deed of sale fees. The deed of sale also includes the date, the vendor's marital status and matrimonial regime, the legal provisions surrounding the transfer tax, as well as the signatures of all interested parties. Before signing the deed of sale, please read it carefully for errors. For example, your notary might have forgotten to add the dishwasher to the list of items included in the sale price. He/she must make all necessary corrections to the deed. Under Vendor Declarations and Obligations, the vendor must assure that there are no outstanding mortgages, servitudes or charges (right of ways, latent defects, etc.) against the property. Beware! Individuals wishing to sell property used as a family home must be given permission by their spouse even if the latter does not officially co-own the property. When the time comes to sign the deed of sale, your notary will calculate tax adjustments and heating and electricity costs, dividing up expenses between vendor and buyer. You will be informed of amounts owed to the vendor for items paid in full for the year. You will also be required to pay for your property in cash, by certified cheque or through mortgage financing. From this amount, the notary will pay the balance of the vendor's mortgage loan. The vendor will receive a discharge of mortgage and any money remaining from the sale of the home.
Congratulations! You now officially own your new home! After signing the deed of sale, your notary must register the transfer of property with your local registry office. It is an important and necessary step in securing your right of ownership. At this stage of the process, you can expect an invoice from your notary for professional services rendered. Fees will be based on time spent, complexity of the transaction, notary experience and services rendered, and can vary from one notary to another. Notaries seldom offer fixed rates, so shop around! Keep in mind that lawyers can also review property titles. Notaries, however, have become experts in real estate, which should make many vendors and buyers feel secure. To obtain a list of notaries in your vicinity, check with your municipality or call the Chambre des notaires du Québec.
Under the law, municipalities must charge a tax for the transfer of properties. This tax is called a transfer (or purchase) tax. Following the closing of the sale, the buyer must pay this tax whether or not he/she lived in the same city prior to purchasing the home. The transfer tax is based on the sale price and calculated using the following schedule:
In rare cases, the city may demand that the transfer tax be based on the municipal appraisal value if that amount is higher than the purchase price.
Finally, you are about to enter your new home. You would be wise to carefully plan your move to ensure that everything goes well. If you choose to hire movers, call them a few weeks in advance, especially during busy periods (July 1st for example). Ask for a written contract and references. Make sure the moving company has sufficient insurance to cover potential damages to your personal belongings. Generally, it will cost you between $50 and $100 per hour to hire three employees and a truck. Make sure to inform your telephone and cable companies that you are moving. Do not wait until the last minute or you risk being without service for a while. Use the following checklist to ensure that everybody knows your new address. Check boxes as you go.
On the day of the move, you must take certain precautions to leave your current home in satisfactory condition for the new occupants. Here are some usual last minute verifications :
Disclaimer
The information contained on this site is offered free of charge by clicmaison2000.com While it was found to be accurate at the time of its inclusion, this information does not have force of law and should not be interpreted as representing the norm. clicmaison2000.com cannot be held liable for any disagreement,
omission or erroneous interpretation resulting from the use of this site.
All legally binding documentation produced with the site's help must be
submitted to a lawyer or notary for review and approval.
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