1.
Am I Ready To Own A Home?
2. What Can I Afford?
3. Attached Versus Detached Living - Which Is Right
For Me?
4. New Versus Used?
5. What Are The Costs Associated With My Purchase?
6. I Don't Have a Downpayment But Lots Of RRSP's -
Can I Use Them?
- Am
I Ready To Own A Home?
Let's start by asking
a few questions.
First of all, there are many things we all take for granted when renting a home.
For instance: What happens if your tap starts dripping continuously? Or the dishwasher
starts squealing? Well... you probably call the landlord or property manager and
the problem is fixed (hopefully!). When you own, there is nobody to call except
the tradesman and they will expect to be paid! Are you ready to take on
the responsibility of property maintenance?
The next thing we would
ask you is: how you are with your spending. Are you able to save money?
Not many people can but we still manage to own homes if we can be reasonable and
responsible! How is your personal credit? Your current financial
situation and credit history will be examined by your mortgage
broker. This does not mean that unless your history is squeaky clean you
cannot get a mortgage - but depending on what it is, the lender may ask for a
simple explanation and will more than likely want it cleared up and/or paid off
before they will agree to lend to you.
Do you have a Downpayment?
In Canada, you need at least a 5% down payment. Any down payment between 5 &
24% is considered a high ratio mortgage and the lender will require it to be insured
by CMHC or GE Capitol. Additionally on high ratio mortgages the lender will charge
a sliding insurance fee of up to 3.75% for 95% financing, but if you mortgage
only 85% (a 15% down payment) your insurance fee is brought down to 2%. For
more information about mortgages, click here!
And while It may seem a
little like "putting the horse before the cart" you definitely need
to find out how much home you can afford by pre-approving yourself for a mortgage
so that we can determine the price range of homes to show you.
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- What
Can I Afford?
Lenders use a standard
formula to calculate how much home you can afford. There are two relevant calculations:
First they look at your Gross Debt Service ratio (GDS). In High Ratio lending,
lenders do not want to see your household expenses exceed 32% of your gross household
income. These expenses will include your financing, ½ of the condo fees
(if applicable) and heat. The second calculation a lender will do is, Total Debt
Service ratio (TDS). This is calculated the same as GDS except they now include
your contractual debts (car/student loans, child maintenance payments etc.). TDS
cannot exceed 40% of your gross monthly income. Click
here for an Online Mortgage Pre-approval!
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- Attached
Versus Detached Living - Which Is Right For Me?
Okay so lets say that you
have been qualified for a mortgage and you are ready to make your purchase today
- WAIT a minute... slow down!!! First thing you have to do now is determine What
kind of housing you would like to live in? Attached townhouse, condo,
detached single family etc.
Let's first look at Condo
Living - Do you know what a condo is? Condominium is defined as
"a form of property ownership in which each owner holds a private ownership
in his/her own unit and group ownership (an undivided interest) in all the non-unit
or common property managed by the board of managers of the strata corporation".
Pardon me you say, what does all that mean? It simply means that the unit you
live in is yours, you can do with it as you please (providing you are within your
condo guidelines set by your condo corporation) and you pay a monthly fee to maintain
the common areas, which would be the hallways, parking garages, courtyards, exercise
facilities etc. So while you don't "own" the lobby of the building anymore
than your neighbours do, you do pay fees to maintain it and the other common areas.
Your control over how those common areas are maintained is exercised by voting
and/or by attending your strata meetings.
Other things to remember
about condo living are: that you have commons walls between your unit
and the ones attached to it, beside, above and/or below. You must consider the
amount of noise you make and the amount of noise you are prepared to accept. You
also have to consider the condo corporation's by-laws prior to moving in. These
tell you whether or not you are able to have pets, gardens or swings on your balcony,
bikes in the hallways and all other pertinent information that may deter or encourage
you into buying in a particular community. Condos do have rules and regulations
that must be followed by all - if you are a rule breaker or have not enjoyed living
in apartment style housing in the past, start looking at detached housing!
Detached housing
requires much more from you than attached living does. You are required
to keep your yard clean, sidewalk shovelled and if your roof starts to leak you
have to get it fixed! You don't pay a simple fee to have all these things looked
after for you but if having a nice big yard and a garden and the freedom to do
with them what you like then a detached home is the way to go for you. You can
stomp on the floors as much as you want, turn the music up, rant and rave until
the wee hours of the morning... within reason, you aren't buying your own country
here!
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- New
Versus Used?
Budget +15%
Okay whatever you budget, immediately add an additional 10-15% if you buy brand
new! As the months of construction go by and you have seen everything new in door
handles, light fixtures, water fixtures, appliances big and small, security systems,
heating systems, digital wiring and electric garage door openers you will have
upgraded your home by probably 10-15% of the original purchase price! It all adds
up QUICKLY while you are thinking "Oh it's just another few hundred...".
Brown shag, gold
velvet wallpaper ...
However building does offer that whole "dream home" advantage where
you get to pick everything from the fixtures to the carpet and paint. It's a sensation
you'll likely never forget watching your creation come to life as the construction
proceeds - we highly recommend you visit your site regularly (& bring beer)
to watch the process! Choosing tiles and appliances can also be a fun and exciting
experience if you face it realistically with a firm budget in place. Most reasonable
budgets can be accommodated and there is no need to always go top of the line
just because you are building new - leave yourself room to improve ;)
Are you patient enough?...
If you think about it logically, you don't really want them to rush through the
process and slap up your home in some company record that wins them dinner at
the local diner! When you build a quality home it takes time 6 - 9 months on average
to build - and there can be many, many delays along the way! Everything depends
on good plans and a solid foundation so expect it to seem like forever before
things get started.
Write your name in
the concrete ...
Don't be afraid to take part in the process. No one's insurance company wants
to see you out there swinging a hammer but if you talk with your developers and
builders and take the time to read your plans thoroughly and make regular visits
to see the construction happening there will be little to complain about in the
end as you sit in your beautiful, designed by you, home. But don't forget to treat
the people involved, both on and off the site, with the respect they deserve ...
they are building your home and in control of the quality on which it will stand!
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- What
Are The Costs Associated With My Purchase?
Be prepared to cough up
at least $1500.00 on top of your downpayment for "closing costs".
Shocked? Well, let's start by explaining what needs to be covered over and above
your downpayment. You will need to have a home inspection.
This will cost approximately $310.00 and will give you a detailed report on the
condition inside and out of the home you are buying. Next, you will need an appraisal
from the bank to verify that the home is indeed worth what you are paying for
it. This will cost approximately $200.00. There will be a land tax adjustment.
This figure is hard to determine because it will depend entirely on what time
of year it is when you buy and what the annual taxes paid on the property were
- in some cases this could even be a credit. Speak to a Lawyer
about this. And speaking of Lawyers…there will be legal fees of course. These
fees will include their legal fees and disbursements. Count on at least $900 (an
average purchase on an average priced home). You will also be required to have
home insurance in order for the mortgagor to lend you the funds. And yes, GST
will be a factor if you are purchasing a brand new home. GST is not applicable
on used/preowned homes.
Keep in mind that as the
home buying process proceeds you will need a security deposit to be attached to
a completed offer to purchase. This amount should be close to $5000 but
it is deducted from your downpayment - so if you are making an $8000 down payment,
after the initial deposit of $5000 you only need to come up with another $3000
by closing.
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- I
Don't Have a Downpayment But Lots Of RRSP's - Can I Use Them Instead?
You sure can!
You can use up to $20,000 of your RRSP's towards a downpayment and you have 15
years to fully repay those RRSP's. Minimum annual payments of 1/15th of the original
withdrawn amount are required each year - failure to do so will result in that
1/15th being added to your taxable income any year the minimum re-deposit is not
made. If this seems confusing ask us for more information
and we will be happy to explain n more detail.
For more FREE information
on buying your first home or any real estate related questions please contact
us.
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