Fit To Buy
Congratulations on your decision to become a homeowner! Buying a home is one of the most exciting and important moments of your life. Your home is not just the roof over your head, where you live, eat, sleep, play, and raise a family; it's also one of the most important investments you'll ever make.
Choosing Your RE/MAX Agent
Buying your first home is one of the most important investment and personal decisions of your life. It's also one of the most complex transactions you may ever undertake. Your first step involves deciding how you will approach your home search. Who will you work with throughout this process — and how will you work with them? Ask yourself, "Do I want a RE/MAX agent working with me or for me?" There is a difference!
As a buyer, you have a choice in representation. As a first-time homebuyer, it's important that you find someone you feel completely comfortable with, who you can trust, and who listens to you and respects your views. They have the market knowledge and expertise, but at the end of the day, it's your home and your investment, so you must be able to work well with your agent. Experienced, professional RE/MAX agents understand and excel at this.
What a RE/MAX agent does for you
There are many good reasons to work with a qualified real estate professional. In a formalized agency relationship, you can expect your RE/MAX buyer's representative to:
- Provide you with the highest standard of care and extreme loyalty to you as the client.
- Understand your specific needs and wants, and locate appropriate properties.
- Assist you in determining how much you can afford.
- Help you get pre-approved for your mortgage.
- Preview and/or accompany you in viewing properties.
Determining how much you can truly afford involves meeting with a mortgage representative at a financial institution. Use our Mortgage Calculator to see how much of a loan you might qualify for. Make sure you take all of these items into consideration when calculating your mortgage affordability. Real estate experts cite overbuying as one of the most common mistakes first-time home buyers make. Whether they got caught up in a bidding war or fell in love with a home they just had to have, many people spend more on their new home than they can afford. Months later they may realize that their purchase has left them "house poor" with no money left to contribute to savings, other necessities, or even rainy day funds.
Costs of Home Ownership
From deposits to moving expenses, and everything in between, buying your first home involves more than just saving for a down payment. That may be the largest cost, but there are other things you'll need to plan and budget for:
- Deposit - You might need to put down a deposit; the amount depends on your area, the purchase price of the home, and your situation. If a deposit is required, it will be held in trust and will be deducted from your total purchase price and is considered part of your down payment.
- Down payment - Generally speaking, the larger a down payment you're able to make, the better, because that means you'll have to borrow less. But you also don't want to leave yourself so cash-poor you can't cover all of the other costs that come with closing a sale. The minimum amount you can put down is 5% of the purchase price, assuming that you have made an offer to purchase and all conditions have been met.
- Mortgage loan insurance - If your down payment is less than 20% of the purchase price of your home, you are required to have mortgage loan insurance. It protects your lender not you in case you default on your mortgage.
- Land transfer tax - Ontario uses a tiered Land Transfer Tax system. In the tiered systems, the rate varies depending on the purchase price of the house.
- Appraisal fee - Your mortgage lender will likely require an appraisal, it prevents you from borrowing more than a property is actually worth.
- Home inspection - Don't even think about buying a home without first having a proper inspection done. In fact, your lender may insist on one to verify the condition of the home.
- Property insurance - Your mortgage lender will require you to have property insurance in place on closing day, since the property is actually the security against the loan amount.
- Mortgage life insurance - Mortgage life insurance protects you in the event something happens to you. Obtaining life insurance instead of mortgage life insurance is the best bet.
- Legal fees - Legal fees for buying real estate range in price and must be paid upon closing. When purchasing brand new condos, since such deals can involve more paperwork, the cost might be higher.
- Title Insurance - Insures you against any defects of title to the property. For example, if the previous owners undertook major renovations without proper permitting, you would be protected against any costs required to bring the house up to code. Typically, this one-time premium costs less than $500.
- Moving expenses and services connections - When you're totalling up all the costs of buying your first home, don't forget to include moving expenses and connection fees or deposits for services, such as phone, electricity, and other utilities. Moving expenses vary widely, depending on your personal circumstances and possessions.
It is likely you will need the services of a lender when purchasing your home. Once your RE/MAX agent understands you and your home purchase requirements they will recommend that you talk to a lender to determine your price range. Your lender will begin the process to pre-approve you for a mortgage, which will include verification of income and down payment (among other details).
The importance of pre-approval
Taking the important step of getting pre-approved affords you knowledge and confidence: you’ll know in advance exactly how much financing you qualify for, and you’ll be confident during your search knowing where you stand. This is also likely the time when you will first be introduced to the often intimidating and complex world of mortgages. It’s critical you understand your options so you can make an informed decision that suits your personal circumstances. When you meet with your financial representative, if there’s anything you don’t understand, ask. Ask lots of questions. If you still don’t get it, ask again. This is not an area to take chances or to be shy, since how you structure your mortgage could amount to tens of thousands of dollars over the term of your loan. If during this process you sense your lender representative isn’t patient in answering your questions, move on. The financial services industry is very competitive and, assuming you qualify for a mortgage, if one company doesn’t want your business, someone else will.
Fixed or variable
A fixed mortgage involves a fixed rate of interest over a specified period of time, known as the term. This provides a certain level of peace of mind, since you’ll know exactly what your monthly payments will be, which allows you to budget accordingly. A variable mortgage, on the other hand, is just like it sounds: the interest rate fluctuates based on the market rates. This can be a good arrangement if rates are on the way down, but it also tests one’s nerves if rates begin to rise. With rates being as low as they have been over the last couple of years, more and more home buyers are locking into fixed mortgages to take advantage of the low rates.
Long versus short term
The term of the mortgage refers to the life of the mortgage contract, typically anywhere from one to five years. At the end of the term, the mortgage becomes due and payable. In most cases, however, the lender and borrower negotiate a renewal for a new term, which also provides you the opportunity to change the terms of the mortgage if your circumstances change. So, long versus short term is pretty self-explanatory. Generally speaking, if rates are low it might be a good idea to lock in for a long term. If rates are high, it may be advisable to choose a shorter term until you know how the rates are trending. If they begin to rise, you can consider locking in for a longer term.
Open versus closed
This refers to how much flexibility you have to repay the mortgage, in full or with large lump-sum payments, at any time over the term without penalties. However, you do pay for the flexibility. For example, open mortgages are usually available only for short terms, and the interest rate is often higher. The benefit is you have the freedom to make a large payment when you can. Closed mortgages, on the other hand, often have lower rates, but you don’t offer the flexibility to make large one-time payments.
This is the period over which your mortgage is paid in instalments. In June 2012, the Canadian government outlined new rules limiting the maximum amortization period at 25 years. For many first-time buyers, the period is usually 25 years. Generally speaking, the shorter your amortization, the less interest you have to pay, but the larger your monthly payments will be. Most first-timers go for a long amortization to keep payments as low as possible, since it’s their first experience with a mortgage. With all of the above mortgage considerations, what you choose really depends on your own personal circumstances, preferences, and comfort level. Your mortgage specialist can walk you through a number of different scenarios with these variables, so you can see exactly what each change will cost you. There are many products and services available in the industry today, so be sure to take your time and explore all your options.
Making an offer you can afford
This is where the rubber meets the road — and where your RE/MAX agent earns his or her stripes. After weeks or months of planning, preparing and searching, you’ve finally found a home on which you’re ready to make an offer. It’s an exciting time, to be sure, but also one where emotions can easily come into play, particularly if you’ve found a home you love and really want. Your RE/MAX agent will help you keep your emotions in check, balancing against the realities of the market. Think of it as a game of poker — you don’t want to be so excited that you tip your hand to the seller. Nor do you want to be too conservative and bid so low that you lose out. If you’ve taken the important step of getting pre-approved for a mortgage, you know exactly how much you can afford, and are less likely to get caught up in a bidding war that will carry you above your price point.
Keeping your emotions in check
If you’ve done your research, received mortgage pre-approval, and looked at a good selection of houses with your RE/MAX agent, you’re going to feel well prepared and in control. Sure, you may really love this one house and desperately want it, but you should also remember that there are likely others just like it, or better, out there. And if that voice of reason doesn’t pop into your head at negotiation time, your RE/MAX agent will help caution you against letting your emotions get carried away. Of course, the interest and potential competition for a property depends on market conditions. If it’s a buyer’s market, you hold the cards and you’ll be confident in knowing there are other options out there. If, however, it’s a seller’s market, acting fast to make an offer that you can afford and is acceptable to the seller is a combination of instinct, preparation, and the experience of your RE/MAX agent.
Avoiding bidding wars
Several factors are at play come offer time: price, which speaks for itself; inclusions, which cover exactly what is included in the deal, such as appliances; and other conditions such as closing date. You want the best combination of those items that suit you, as does the seller. Then there are human relations. If you make an offer the seller deems insultingly low, for example, there may be nothing you can do to bring them to the negotiating table. After all, this is their home you’re buying, and quite often sellers still have emotional attachments to their home, even though they’ve decided to sell. It’s the job of your RE/MAX agent — as well as the seller’s agent — to navigate these often complex issues for both parties.
One of the most important tools you have when it comes time to make an offer is the comparables your RE/MAX agent generates from the Multiple Listings Service, or MLS. These are excellent snapshot reports into the recent sales activity of similar — comparable — properties in the same neighbourhood. You can see important information such as original and adjusted asking prices, number of days properties were on the market, listing agent history, and actual selling prices. Once you have this information, weighed against the details of the home you’re making an offer for, you will feel tremendously empowered to make an informed decision, and less likely to enter into a bidding war.
So you've made a successful offer to purchase with your RE/MAX agent on the home of your dreams — or at least taken that important first step toward home ownership. Now what? Well, now there's usually a bit of waiting, as closing periods typically take anywhere from several weeks to a few months. But there are some important things that need to happen right away.
Once your offer has been accepted, there's usually a 10-day conditional period, during which you take all the necessary steps with regard to financing, home inspection, and everything else that needs to happen before you officially seal the deal. Your mortgage lender will need a copy of the offer to make sure everything is still in order and in keeping with your pre-approved level of financing.
And as we discussed in Costs from A to Z, this is when the home inspection takes place. You should accompany the inspector throughout this process, which takes about three hours, so you can learn as much as you can about the various systems in the home, from heating and plumbing to electrical and roofing. Importantly, the inspection may identify some repairs that need to be made, which may allow your RE/MAX agent to negotiate a lower purchase price or insist that the repairs be made at the seller's expense before you proceed with the deal.
At the completion of the conditional period, with any adjustments or repairs made to your satisfaction, your RE/MAX agent will finalize the deal and your lawyer will process the paperwork, including the mortgage documents with your lender.
All of this would point to a final date of actual legal possession — the real closing day, when:
- Your mortgage lender will provide the funds to your lawyer
- You pay all the remaining closing costs
- Your lawyer pays the seller and registers the home in your name
- You have all your insurance in place
Whether it's weeks or months between finalizing the deal and actually moving in, it's just a matter of planning your move: hiring a mover or renting a truck and doing it yourself; arranging services such as electricity and cable; rerouting your mail; and other moving essentials.
After that? Congratulations! You've done it! Welcome home!