What price can I afford?
As a “rule of thumb” you can afford to buy a home equal in price to twice your gross annual income. More precisely, the price you can afford to pay for a home will depend on six factors:
- Your income
- The amount of cash you have available for the down payment, closing costs and cash reserves required by the lender.
- Your outstanding debts
- Your credit history
- The type of mortgage you select
- Current interest rates
Lenders will analyze your income in relation to your projected cost of the home and outstanding debts. This will determine the size loan you can borrow. Your housing expense-to-income ratio is determined by calculating your projected monthly housing expense, which consists of the principal and interest payment on your loan, and property taxes. The sum of these costs is referred to as “PIT.”
How do I find out about the condition of the home I'm considering?
First and foremost it is strongly recommended that you hire a professional home inspector. Many inspectors belong to the Canadian Association of Home and Property Inspectors (CAHPI). They attend seminars and stay abreast of the latest developments.
Secondly, some provinces require sellers to complete a Property Disclosure Statement (PDS) revealing everything known about their property. Home sellers are required to indicate any significant defects or malfunctions existing in the home’s major systems. A checklist specifies interior and exterior walls, ceilings, roof, insulation, windows, fences, driveway, sidewalks, floors, doors, foundation, as well as the electrical and plumbing systems.
The form also asks sellers to note the presence of environmental hazards, walls or fences shared with adjoining landowners, any encroachment of easements, room additions or repairs made without the necessary permits or not in compliance with building codes, zoning violations, citations against the property and lawsuits against the seller affecting the property.
Also look for settling, sliding or soil problems, flooding or drainage problems.
People buying a condominium must be told about covenants, codes and restrictions or other restrictions, if the homeowners association has any authority over the subject property and ownership of common areas with others. Be sure to ask questions about anything that remains unclear or does not seem to be properly addressed by the forms provided to you.
How low can I consider offering?
There are always some sellers who for some reason must sell quickly, however in general, a very low offer in a normal market might be rejected immediately. In a strong buyer’s market, the below-market offer will usually either be accepted or generate a counter offer. If few offers are being made, an outright rejection of offers becomes unlikely. In a strong seller’s market, offers are often higher than full price. While it is true that offers at or above full price are more likely to be accepted by the seller, there are other considerations involved:
1. Is the offer contingent upon anything, such as the sale of the buyer’s current house? If so, such an offer, even at full price, may not be as attractive as an offer without that condition.
2. Is the offer made on the house “as is,” or does the buyer want the seller to make some repairs before the close of closing or make a price concession instead?
3. Is the offer all cash, meaning the buyer has waived the financing contingency? If so, then an offer at less than the asking price may be more attractive to the seller than a full-price offer with a financing contingency.
4. Are there any requests for seller concessions, such as asking the seller to contribute towards points and/or closing costs? If so, the offer is not really full price.
How and what do I negotiate?
Sellers price houses very differently. Some deliberately overprice, others ask for pretty close to what they hope to get and a few (maybe the cleverest) under price their houses in the hope that potential buyers will compete and overbid. A seller’s advertised price should be treated only as a rough estimate of what they would like to receive.
Some buyers believe in making deliberate low-ball offers. While any offer can be presented to the seller, a low-ball offer often sours a prospective sale and discourages the seller from negotiating at all. And unless the house is extremely overpriced, the offer probably will be rejected anyway.
Before making an offer, also investigate how much comparable homes have sold for in the area so that you can determine whether the home is priced right.
What is title insurance?
Title insurance is a form of insurance in favour of an owner, lessee, mortgagee or other holder of an estate lien, or other interest in real property. It indemnifies against loss up to the face amount of the policy, suffered by reason of title being vested otherwise than as stated, or because of defects in the title, liens and encumbrances not set forth or otherwise specifically excluded in the policy, whether or not in the public land records, and other matters included within the policy form, such as lack of access to the property, loss due to non marketability of title, etc. The title policy form sets forth the specific risks insured against. Additional coverage of related risks may also be added by endorsements to the policy or by the inclusion of additional affirmation insurance to modify or supersede the impact of certain exceptions, exclusions or printed policy “conditions.” The policy also protects the insured for liability on various warranties of title.
In addition, the policy provides protection in an unlimited amount against costs and expenses incurred in defending the insured estate or interest.
Before it issues a title policy, the title insurance company performs, or has performed for it, an extensive search, examination and interpretation of the legal effect of all relevant public records to determine the existence of possible rights, claims, liens or encumbrance that affect the property.
However, even the most comprehensive title examination, made by the most highly skilled attorney or lay expert, can not protect against all title defects and claims. These are commonly referred to as the “hidden risks”. The most common examples of these hidden risks are fraud, forgery, alteration of documents, impersonation, secret marital status, incapacity of parties (whether they be individuals, corporations, trusts or any other type), and inadequate or lack of powers of REALTORS® or fiduciaries. Some other hidden risks include various laws and regulations that create or permit interests, claims and liens without requiring that they first be filed or recorded in some form so that the potential buyers and lenders can find them before parting with their money.
What steps should I take when looking for a home loan?
It is strongly recommended that home buyers are pre-qualified or pre-approved for a loan as their first step in the process. By being pre-qualified, a buyer knows exactly how much house they can afford. They can make more informed decisions in the market place. This does not mean they will definitely get the loan because their credit reports, wages and bank statements still need to be verified before they can receive a commitment from the lender for the loan.
Almost all mortgage lenders pre-qualify people at no charge. Many of them will even do it on the internet. In order to be pre-approved, an application will be taken. Your credit report will be pulled, your employment and income will be verified, your checking and savings accounts will also be verified. In other words, all the necessary documentation will be completed in order for you to obtain a loan. The only things remaining will be for you to find a home, obtain an appraisal on it to prove its value to the bank and perform whatever inspections you may want on the property. This process considerably shortens the time frame to closing.
Is it possible to negotiate interest rates?
Compare the mortgage charts published in most newspapers.
Occasionally some lenders are willing to negotiate on both the loan rate and the number of points. This isn’t typical among many of the established lenders who set their rates. Nevertheless, it never hurts to shop around, know the market and try to get the best deal. Always look at the combination of interest rate and points and get the best deal possible. This is reflected in what is called the APR or Actual Percentage Rate.
The interest rate is much more open to negotiation on purchases that involve seller financing. Generally, these are based on market rates but some flexibility exists when negotiating such a deal.
Is it better to buy a new home or a resale?
Sale price increases in either type of housing are strongly tied to location, growth in the local housing market and the state of the overall economy.
Some people feel that buying into a new-home community is a bit riskier than purchasing a house in an established neighbourhood. Future appreciation in value in either case depends upon many of the same factors. Others believe that a new home is less risky because things won’t “wear out” and need replacement.
“Existing homes have been appreciating a little more than new homes but every once in awhile they’re at the same level and sometimes the new home prices go up a little quicker” according to the National Association of REALTORS® (NAR).
Fixer-Uppers - Are they good or bad?
Distressed properties or fixer-uppers can be found everywhere. These properties are poorly maintained and have a lower market value than other houses in the neighbourhood. It is often recommended that buyers find the least desirable house in the best neighbourhood. You must consider if the expenses needed to bring the value of that property to its full potential market value are within your budget. Most buyers should avoid run-down houses that need major structural repairs. Remember the movie ” The Money Pit?” Those properties should be left to the builder or tradesman normally engaged in the repair business.
Can you borrow the money to repair?
One of the keys to success in any home renovation project is to match your budget with your inspiration and expectations – Keep the project within your means.
Know what the costs are up front! Get quotes from at least two reputable local contractors, architectural firms and materials suppliers. Explain exactly what you want to do and discuss various options. Then, take the most reasonable quote and add 10 to 15 per cent for unexpected costs.
Major repairs can be: a new heating system, roof, replacement windows, etc. You may then also finance additional repairs and improvements i.e.: new carpeting, kitchen cabinets, appliances, etc. You must of course “qualify” for the total amount you will be borrowing.
Is there a good "return" for my efforts?
Remodeling a home improves its livability and enhances curb appeal, making it more salable to potential buyers. Some of the popular improvement projects are updated kitchens and baths, enlarged master bedroom suites, home-office additions and increased amenities in older homes.
The resale market is often difficult because you are competing with new construction. You need to give your home every competitive advantage you can if you are selling an older home.
Home offices are a relatively new remodeling trend. Adding one to a house often recoups 58 percent of the costs, according to a survey found in a report called “Cost vs. Value Report” in Remodeling Magazine.
Are foreclosures good or bad ideas?
The incidence of foreclosures is negative, based on national and regional economic trends.
Buying directly at a legal foreclosure sale can be risky and dangerous. The process has many disadvantages. There is no financing so purchases require cash. The title needs to be checked before the purchase or the buyer could buy a seriously deficient title. The property’s condition is not well known and generally, an interior inspection of the property is not possible before the sale.
When buying a home how much does my real estate REALTOR® need to know?
Be sure to find out who your REALTOR® is representing before you tell them too much. The degree of trust you have in an REALTOR® may depend upon their legal obligation of representation. An agency working with a buyer has three possible choices of representation. The REALTOR® can represent the buyer exclusively, called buyer agency, or represent the seller exclusively, called seller agency, or represent both the buyer and seller in a dual agency situation. Some provinces require REALTORS® to disclose all possible agency relationships before they enter into a residential real estate transaction.