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In this section
February 24, 2016 – Huffington Post Canada
How to make yourself mortgage-ready
Written by and with permission from:
Samantha Brookes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

What can you afford?

When buying a home there is more to consider than simply the property price. Making a budget is very important because it will tell you exactly what you can afford when it comes to purchasing a new home. Purchasing a home involves one-time costs and monthly expenses.

Your budget for buying a new home should include the following costs:

Deposit -
It usually represents between 5-25% of the total price of the property.
Closing
Legal fees -
Searches and duties performed by your lawyer; such as a checking on taxes in the purchase of your home. Lawyer fees may vary and can be quite expensive so do not overlook this aspect of home buying.
Closing
Home inspection fees -
Optional but recommended. This up-front cost could save you thousands of dollars.
At inspection
Property Survey -
May or may not be applicable. It is sometimes provided by seller.
When completed
Appraisal fees -
These fees are generally low.
At inspection
Transfer tax -
You may be required to pay a percentage of the purchase price to the Provincial Government when the title of the property is transferred into your name. This fee tends to be large and can also vary.
Closing
Property taxes -
The seller must pay any outstanding taxes.

Closing
Registration fees -
There is a registration fee when registerering the title and mortgage for your property. This is paid to the Provincial Government.
Closing
Mortgage insurance -
This cost can be avoided if you have a down payment of 25 percent or more. Otherwise, insurance costs vary depending on the amount borrowed for your mortgage. Depending on the situation, mortgage interest adjustment and take over fee may be applicable.
Closing and on-going
House and content insurance -
The larger the house, the more its going to cost for insurance. It is based on the actual cost to replace the dwelling and its contents.
Closing and on-going
Moving costs -
Don't forget to move! Connection Charges for Utilities such as Gas, Water and Electricity
Date of move

 

 

What are market conditions?

The sales-to-new-listings ratio measures the balance between demand and supply. A ratio of above 55 to 60 percent for a sustained period of time points to the seller's market conditions. The buyer's market represents a downward trend in home sales and the sales-to-new-listing ratio of below 35 percent.

Seller's market
The number of buyers wanting homes exceeds the supply or number of homes on the market.

If you are a buyer, you will need to make decisions quickly, buy fast, and in such a market, prices tend to increase.

 

 

 

 

If you find a home that you just have to have in a hot market, you should try to secure a quick sale by offering over the asking price.

If a bidding war breaks out, set a ceiling based on your own financial position and recent market developments. Be aware that the seller may reject all bids and ask for additional money.

Offers with limited or no conditions have an add-value! Having a pre-approved mortgage can eliminate the need for a financing condition on your offer and you can easily get peace of mind by having a home inspection before writing up your more competitive, firm offer.

As a seller, you have more negotiating power and can usually obtain a higher selling price for your property. Offers with limited or no conditions are more apt to present themselves.

 

Balanced market
The number of homes on the market is equal to the number of buyers (supply equals demand).

As a buyer, you will have a satisfactory number of homes from which to choose.
For sellers, homes sell within an acceptable time period and generally prices are stable.

 

Buyer's market
The supply of homes exceeds the number of buyers.

Buyers have more time to look for a home and more negotiating leverage.

Home buyers are in an excellent position in this market to seek financial incentives for new home loans. Buyers' incentives can be as much as 6% of the price of the home and applying the incentive to non-recurring closing costs can save buyers tremendously on the up-front cost of closing on their new home.

As for negotiating leverage; size up the seller and then decide how aggressive you want to be with your offer. Try to find out why they are selling. What have comparable properties sold for? Remember, hard bargaining is one thing, insultingly low bids another.

If you are a seller, your home may take longer to sell and you will have less negotiating power in terms of the selling price since, in a buyer's market, there are many homes out in there competing.

 

 

Why a pre-approved mortgage?

Before starting your new home search, it is sensible for you to know what is in your price range and focus on homes that are right for you.

Many buyers mistakenly only get pre-qualified for a mortgage without understanding what a pre-qualification tells you. A buyer should be aware that they may not actually be approved for the loan amount suggested because factors such as your exact net income, taxes and expenses, outstanding credit balances as well as many others have not been calculated yet. Since you have not applied for a mortgage, the financial institution is going on your words alone.

When getting pre-approved , your lender will pull your credit report and find out what your financial liabilities are. Assets and income will be verified when you submit the final mortgage application.

In a Seller's market, having a pre-approved mortgage can eliminate the need for a financing condition on your offer. If several buyers are interested in the same property that you are, being pre-approved can give you a slight advantage.

Having a pre-approved mortage will protect you against rising interest rates and allow you to take advantage of falling rates while you look for your new home. Lenders usually offer a 90-120-day rate guarantee. If rates go up during this period, you still get to take advantage of the rate you were guaranteed (as long as your purchase completes before the guarantee's expiry date). If rates go down during your guaranteed rate period, your guaranteed rate will generally go down accordingly.

The home you are purchasing, work term and stability will all factor into the final decision your mortgage company will make. If you have gotten a pre-approved application you are certainly less likely to have a problem getting your financing in order during your agreements conditional period.

 

 

Home inspections are a must.

 

For BUYERS- Most houses for sale today, old and new, have defects or repair needs, many of them serious. In these cases, any savings achieved through lower mortgage rates or purchase prices can easily get absorbed by unanticipated repair costs after the family moves in. Finding faults in a home doesn’t necessarily mean one shouldn’t buy it, only that the consumer will know in advance the type of repair costs to anticipate. Often sellers will make adjustments on the basis of major problems discovered in an inspection. If the inspector finds no need for major repairs, then the peace of mind in making an informed purchasing decision can be just as important as avoiding a potential nightmare.

Besides providing information to help with the purchase decision, a good home inspection report is a gold mine of information concerning future maintenance and repair. Just as cars need regular oil changes and tune-ups to run smoothly and prevent major engine problems, so do houses need periodic preventive maintenance.

Home buyers must also remember to have their prospective purchase inspected even if it is brand new. It is the independent home inspector who works for and reports to the home buyer on all items not completed, or not done in a good workmanlike manner, etc. before closing date. Due to rising labour and material costs, some builders have used shortcuts and inferior products, which can lead to problems later on.

 

 

Homeowner's insurance.

When buying a home most of us have to take out a mortgage to finance the purchase of that property.

The lending institution will require that you have home insurance to cover the property in case of a big loss, like a fire. However, protecting your home isn't the only reason to choose property insurance. Your coverage will also protect your valuable personal items and protect you against personal liability should anyone be injured while visiting your property or should you accidentally damage a neighbour's property.

In Canada, when you borrow more than 80% of the value of your property from a federally licensed lender, regulations require you to also purchase mortgage loan insurance. This insurance protects the bank or lender in the event that the person who owes the mortgage runs into financial difficulties and defaults on the mortgage, this insurance will ensure that the mortgage firm is able to recover all the outstanding principal of the mortgage, plus expenses, from the sale of the foreclosed property and the insurance.

Mortgage Life Insurance (MLI) is optional, inexpensive coverage on your life, which protects your beneficiaries by paying off your outstanding mortgage in the event of your death. The premium is added to your mortgage payment so there's no extra paperwork, and it remains the same until your mortgage is paid off. Some policies also cover the potential disability of the mortgage borrower

Disability insurance(optinal) provides replacement income if an accident or illness prevents you from working. Some employers offer some sort of combination of short and long term disability insurance as part of their employee benefits package, but those who are self-employed may need some insurance for such eventualities. Disability Insurance is most important if your mortgage payments depend entirely or in part on your income.

Recently insurance companies have started to offer Job Loss Mortgage Insurance(optinal). This insurance covers the mortgage payments in the event that you involuntarily lose your job.

Title insurance(optinal) is unlike any other kind of insurance. Title insurance protects your ownership to the property and protects you against:

  • Fraud – fraudulently obtained mortgages on your home

  • Errors in surveys or other official public records

  • Encroachments onto neighbouring properties

  • Zoning infractions


  • And many more known and unknown defects that could affect your ability to sell your property in the future.
    Unlike house insurance, you only pay a one-time premium with no deductible. Title insurance covers all legal expenses related to restoring title, meaning that you do not have to take time off work and deal with the added stress needed to defend yourself.

     

     

     

    The service your Realtor can provide.

    Finding the perfect home doesn't happen in one day. There are a number of things you can do to simplify the process, including defining financial parameters, potential neighbourhoods and the desired features in your next home.

    Do you need an extra bathroom, a garage, a fenced backyard, or lower utility bills? Do you want a fireplace, a short drive to work, or maybe minimal yard work? Once your list is complete, decide what is most important to your lifestyle.

    Then it's location, location, location. Location affects your day-to-day living and is one of the most significant influences on value. Your choice of location may be limited somewhat by the price you can afford. Even so, make sure you consider such things as distance to work, schools, shopping and entertainment.

    What type of property do you want? A single-family detached home is attractive to many people because it typically provides more living space and land. On the other hand, a condominium may be a more appropriate choice for you, with an emphasis on maintenance-free living.

    A REALTOR® can help you analyze all of these buying issues. A REALTOR® working as a buyer's agent works to find the connection between homes available in the market and the needs and financial capacity of buyers. Talk to and compare the services of REALTORS® to help you navigate through this complicated business transaction. Be comfortable and confident with the REALTOR® you are selecting as your business partner.

    Once you find the house you want to make your home, work with a REALTOR® to develop an offer. In the offer, you should specify how much you're willing to pay. State when the offer expires, and suggest a closing date for the transaction. You can also propose some conditions on the offer. Some common types of conditions are:

    • Getting a suitable mortgage (include the amount, interest rates and any other figures you feel important);
      selling your current home (the seller may continue to look for a buyer, but will give you the right of first refusal);

    • The seller providing a current survey, or a "real property report," showing the location of the house on the property owned by the seller and that there are no encroachments;

    • The seller having title to the property (your lawyer will check this out when he or she conducts a title search to see if there are any liens on the property, easements, rights of way or height restrictions);

    • If there is a septic system, the seller should have a health inspection certificate, stating the system meets local standards;

    • If you still have any doubts about the home's safety and construction, you may wish to make the purchase conditional on an inspection by a qualified engineer;

    • Any inclusions - basically, what stays and what goes.

     

     

     

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