Buying a home is exciting and overwhelming at the same time.Whether you’re a first time home-buyer or a veteran there’s always something new that creeps up. The best advise as an experienced Realtor, that I can give you is, be PREPARED. I cannot emphasize the importance of making sure you have everything checked and cross-checked.
This is no easy decision and it’s imperative you have the best person working for you, one who is a professionally trained Realtor, who is on top of their game in terms of networking, technological know-how and passionate. More importantly, a licensed professional who has been educated and trained to guide you, advice you and protect you in face of any unfortunate situations. Here are some things for you to consider when thinking of buying:
1. How much can you Afford?
Now this is a question you have probably asked yourself many times, and it’s probably going to be the first question a good real estate agent will ask you too. How much can you afford? Have you been pre-approved? Before beginning your home search you should first and foremost figure out how much you are realistically willing to pay every month towards your mortgage. What is your credit rating?
A pre-approval does not mean you are approved. It realistically means your financial situation has been evaluated and you are pre-approved for a certain amount, at an interest rate, which is locked in for 90-120 days depending on the lending institution. This will allow you to be in a better position when making an offer to negotiate favourable terms and most importantly grab your dream home.
In order to get pre-approved the lender will evaluate how much debt you have using a GDS (Gross Debt Service) and TDS (Total Debt Service) ratio. These simply calculate your gross and total debt in relation to your total household income. Lenders will also look at your credit score. Make sure you are not behind on any payments and avoid having excessive credit checks done as both these things adversely affect your credit score. Find a good mortgage broker to work with you, if you don’t have one already contact me, I will be more than happy to refer you to one.
2. Additional Costs
It’s critical to budget for additional costs that will arise during the course of your home buying process. Below are some of these costs you should look out for:
Down Payment: You are required to have 5% to 20% down payment for closing. Additionally a deposit of up to 5% is required when offer is made. This deposit can be part of your down payment.
Mortgage Insurance: For high ratio mortgages, i.e. mortgages with down-payments of less than 20% an additional charge of insurance is applied over and above your mortgage. These are also referred to as CMHC mortgages as the Canadian Mortgage and Housing Corporation insures them.
Legal Fees: These can range from $500 to $1,500, including title search conducted by your Lawyer. Contact your lawyer to get a lists of included costs.
Land Transfer Tax (LTT): These can range anywhere from 0.5% to 2% based on a multi-tiered taxation system in Ontario. E.g. buying a property for $1,000,000, 0.5% is charged on the first $55,000, 1% on $55,000 to $250,000, 1.5% on $250,000 to $400,000 and 2% on anything over $400,000. You may even qualify for a rebate on the LTT up to a maximum of $2,000 as a first time home-buyer. maximum of $2,000.
Home Inspection: This is highly recommended as it protects the buyer irrespective of the age of the house and whether you personally know the seller. Average fees for home inspections range from $200 – $300.
Appraisal: Mortgage lenders may require an appraisal of the house being bought and charge a fee to the buyer.
Survey/ Title Insurance: An up to date survey will be required by the lending institution, a condition can be set requiring the seller to provide one if they refuse. It might work out cheaper to obtain a Title Insurance, if acceptable by the lending institution.
Adjustments: If the seller has pre-paid taxes and utilities, the buyer will typically need to reimburse these charges at closing.
Moving costs: Depending on the extent of the move these could range from hiring professional packers, to movers, U-haul, storage space.
3. Your Wants & Needs
Once the financial nitty gritty has been worked out its time for the fun stuff to begin. What kind of house do you want? Where do you want to live? These questions can be very daunting, it is important to stay focused and really key in on what is necessary for you. Is it the location, the house itself, size, upgrades, or is cost a big factor? There are a couple of checklists, published by the Canadian Real Estate Association to help you list and differentiate between your wants and needs.