Your Buyer Team and Their Roles

Work with a professional real estate agent and save yourself both time and money, maybe even a lot of money. Real estate agents are very well familiarized with the home buying process (an experience which most people generally lack). They are well aware of the process and can negotiate on your behalf.

A real-estate sales representative can assist you with the following:

Contractors

Renovations can be stressful and if you have decided to renovate your home to make it more appealing, you should look for a credible contractor. You should do your research, before hiring someone to work on your home.

Asking for referrals

When hiring contractors it is important to verify their credibility. Call their references. Talk to the contractor to see his work samples and speak to previous clients. This will help in determining if they were satisfied with the results, the cost of the work and the amount of time it took to complete the work. Your local Better Business Bureau is a good resource as well.

After conducting your research, devise a list of a few credible contractors and ask for estimates. You should aim to have at least three different quotes which will give you a good idea of the costs you should anticipate and the quality of work to expect.

You should ensure a contractor understands and is well aware of your needs and your allocated budget. Every contractor is different in their approach and typically inspect your property to provide an estimate. Often an architect’s plan is used by the contractor to provide estimates, if this is the case, you can be certain the contractor has based the amount and type of work required on the architectural drawings.

When there are discrepancies in the price, question the contractor and ask for detailed explanations. You must always be aware that the lowest quote might not be the best option for you. Low estimates and prices may result in hidden fees and additional costs at the completion of the project. On the other hand, a higher price point may not mean you are being overcharged. Often having a higher price might result in having higher quality materials and experienced workmanship.

Before signing any contract, you must be certain that the plan is as detailed as possible. Sometimes this might mean having the exact finsihes and names of products that will be used in your project.

Things to look for when evaluating a quotation:

Appraisers:

You may think it’s sensible to hire an appraiser to appraise the value of the property you are interested in and want to purchase, however contrary to popular belief this is very unnecessary. Most lenders have their own personal appraisers, so hiring one of your own would be a waste of valuable monetary resources. Further, most real-estate agents are experienced enough to do a ‘Comparative Market Analysis’ to provide you with a range of the value. Hiring an appraiser may come in handy when there is a property with no comparable sales (unusual, but possible).

Lenders:

A buyer is often tested with this particular question, “What else can you buy for the same or even better, lesser money?

You may have questions about who or what is classified as a lender? A lender is anyone that will lend you money. Lenders can be classified as private and institutional. Banks and credit unions are classified as institutional lenders. On the other hand, your mother-in-law can be your lender as well. When looking for a lender, it is vital to look for a lender with whom you can build a long term relationship with and the rates and terms they provide are beneficial to you.

There are some options when it comes to lenders. Make an appointment with your mortgage broker. A mortgage broker will research the market and provide you with the most competitive rates pertaining to your situation. The lender directly pays the broker in most instances and you won’t have to incur additional costs. However, if your credit history is a bit shaky, there are more chances there will be a fee associated as well. An experienced mortgage broker will have connections to most if not all major lenders via the mortgage market.

If having a good credit history is something you boast about, you may even do your own research. The internet and print often display what various lending institutions have to offer. Once you find an institution whose terms and conditions are acceptable and satisfactory to you, go in person and negotiate for a better deal.

The mortgage tab above has additional details about this process of lending.

Mortgage Brokers

Mortgages brokers do foundational work of finding you an institution that offers the mortgage terms and conditions that best suit your needs. Very similar to the services of an insurance broker, mortgage brokers are impartial in their referrals. A finder’s fee is applicable as payment to most mortgage brokers, however in some instances a 2% charge on the total mortgage is also applicable as payment.

Lawyers/Notaries

A lawyer is your ally when it comes down to representing your needs and to also assist with processing all required documentation. Every province has different requirements and a slightly different process. Often, your real-estate agent may assist with making recommendations for lawyers that can advise you on the steps required before you acquire your new home. The bonus to working with a lawyer? They are there to protect you!

Home Inspectors

You should always ensure your home is inspected! Often home inspections are added on as a condition to purchasing a property. Hiring a qualified home inspector to pre-inspect the property regardless of you adding it as a condition will provide you with a moral boost that you’ve made a good decision. You must always verify the qualifications of your inspector as there are no government bodies regulating home inspectors. Not all inspectors in Canada have the required qualifications for home inspectors. Do your research prior to hiring one and ensure that they are members of PACHI or OAHI, This will ensure they have the required education, experience and have E&O insurance,

Insurance Brokers

Ensuring your property and your valuable possessions should be a priority. An insurance broker works independently and working with one can save you valuable time and your money. Your banking advisor will strongly recommend you have full insurance as your property is used as collateral against your mortgage.

Conventional and High Ratio Mortgage Types.

A conventional mortgage entails putting down a 25% down payment of the total purchase cost. However, in this instance your mortgage must be no higher than 75% of the value provided to you by your appraiser, also known as the appraised value of your home.

If you are unable to put a down payment of 25%, your mortgage would be classified as a high-ratio mortgage. Having a high-ratio mortgage requires you to have loan insurance. This can result in added costs that range anywhere from 0.5% to 3.75% of your total mortgage amount. Having a high-ratio mortgage may also set an upper limit to your affordability index.

Second Mortgage

If you are unable to add to your existing mortgage, chances are you might have to consider getting a second mortgage. Every mortgage uses your home as collateral and gives the lender the right to seize your home if you’re unable to pay your loan. If you do default on your loan, the first lender receives the payment first and has a better chance at recovering the loan amount. All this to say, secondary or tertiary mortgages are usually associated with higher rates of interest.

Features of the mortgage:

You must do your research with your lender to ensure you are asking for features that are of most value to you. Every lender varies and they all have their own mortgage options that are unique to them.

Pre- payement:

You may opt for a prepayment of our mortgage. A pre-payment feature allows you to make additional payments towards your principal on top of the monthly payments you are already making. This feature may be the most attractive to individuals with fluctuating incomes and consistent bonuses. If you select the prepayment option, your mortgage will be considered “closed”. Having an open mortgage allows you to pay your entire principal portion without notice of extra payment.

Probability

After loan negotiations, if time is on your side you may want to discuss probability as an option with your mortgagee. In simpler terms, probability is when you transfer your existing mortgage (as is with the terms and conditions) to your new property.

Assumability

In the instance you are able to secure a dynamite mortgage, with assumable mortgage all you need to do is assume the mortgage (i.e., the obligations). If the terms provided to you are more competitive than what the market has to provide, this would be a beneficial feature to have. However, if putting the property on sale, you may be responsible for any loan (mortgage) that you had allowed the buyer to assume. You would be held accountable for the payments if the buyer decides to stop making payments. This could be detrimental and you can easily avoid this by having the subsequent buyer receive an approval for the assumption of the loan.

Expandability

You should get a clear understanding of how flexible your lender is. Questions such as: if in the future you are in need of additional loans, will your mortgage term be permissive to allow an increase to your principal amount? Generally, the new rate is merged with your primary mortgage rate and the current market rates. This is maybe a good discussion to have with your mortgagee if you anticipate incurring large expenses such as renovation or education costs in the near future.

Mortgage Terms and Fees

Often over the course of your remuneration period, you may have different mortgages. Your mortgage term is the length of time that you are obliged to make payments to the mortgagee, inclusive of applicable interest rates and any other commitments that may apply. Towards the end of the term, you have the option to extend your mortgage with either your existing lender or a new mortgagee. You also have the option of paying a large amount towards your principal amount or your entire mortgage amount without facing any penalties. However, changing aspects of your loan during the amortization period may result in facing large penalties from the mortgagee.

Security Vs. Flexibility

Mortgages come in several different varieties, you can choose from: closed, open and convertible with rates that can be fixed or variable. However, your selection will depend largely on your opinion of the market. Your short-term and long-term goals will also play a role when deciding. Is security more important to you or do you have some short-term goals that are more vital? These are some questions to ask yourself and decide accordingly.

Amortization:

This period is a reflection of the total time it will take to repay the debt in its entirety! The amortization period can vary anywhere from 15 to 25 years. However, keep in mind that the longer your amortization period, the more interest you will end up paying in the longer-term (but your monthly payments will be significantly lower).

Open Mortgage

This mortgage is for individuals who prefer flexibility. When selecting this type of mortgage you can either pay the full amount or pay in parts anytime during your amortization period without facing any penalties. These terms are usually limited to 6 months to a maximum of one year and may be a good idea if you are confident about interest rates moving down or if you are planning a move.

Closed Mortgage

The interest rate is fixed for the entirety of your term and if you wish to change your agreement terms and conditions you would be liable to pay a penalty. If you believe the interest rates will increase and you are not planning a move in the near future, this option may be the one for you. Talk to your advisor, as closed mortgages come with a wide range of terms.

Convertible Mortgage

This type of mortgage is similar to a closed term, it differs in the flexibility it has to offer. Convertible mortgages can be converted to closed mortgages without facing any penalties from your lender. If you anticipate a fluctuation in interest rates, this type of mortgage allows you the flexibility to lock in a lower rate or if you sense rates rising, you can lock it in earlier.

Additional Costs

You should set a few thousand dollars to prepare for any additional unexpected costs you might incur during your purchase. Below is a good list of costs you may have to incur (not all will apply!)

Land Transfer Tax

Your closing costs will include a land transfer tax. The three Canadian provinces where Land Transfer Tax are not applicable are: Alberta, Saskatchewan and rural Nova Scotia. The buyer is responsible for the tax. Land Transfer Tax varies from location to location and can be anywhere from 0.5% to 2% of the total cost of the property.

Multi-tiered taxation systems are often complex and difficult to comprehend. For example if you purchase a property in Ontario that is worth $260,000: you are charged 0.5% on the first $55,000, 1% on $55,000 – $250,000, and 1.5% on 250,000 – $400, 000. The total Land Transfer Tax bill would be $2,375.

Below is an informative chart to demonstrate the Land Transfer Tax and how it varies by province:

In Ontario:

Up to $55,000 X .5 % of total property value

From $55,000 to $250,000 X 1 % of total property value

From $250,000 to $400,000 X 1.5 % of total property value

From $400,000 up X 2 % of total property value

Making an Offer

Your real estate agent is a good resource to have when looking for information on the current market and they will assist you with presenting the offer.

Your agent works on your behalf and will present the ‘Offer to Purchase’ to your seller or their representative. Oftentimes, there are multiple offers on a property you may be interested in. Your agent is there to guide you through the process and provide you with any resources you might need.

Firm Offer To Purchase

This type of offer is preferred by the vendor because it indicates that you are ready to buy the property without any added conditions. Once the vendor accepts the offer – the keys to the home are YOURS!

Conditional Offer to Purchase

When a condition is placed on your ‘Offer to Purchase’ it is called a conditional offer. Conditions can be any of the following (but are not limited to these): passing the home inspection, approved financing, sale of the buyer’s current home. All conditions outlined on the offer must be fulfilled prior to the sale.

Acceptance Offer

Your Offer to Purchase is presented to the vendor and they may accept the offer, reject it or provide you with a counter offer. A number of factors may influence the counter offer, these include but are not limited to, the date of the closing or the cost price. There may be several negotiations between the vendor and the buyer until both parties reach an agreement.