THE BUYING PROCESS... in easy 9 STEPS
THE BUYING PROCESS STEP ONE : MORTGAGE PRE APPROVAL BARGAINING POWER STEP TWO : COSTS OF BUYING A HOME STEP THREE : BUYER CONSULTATION STEP FOUR : HOUSE HUNTING STEP FIVE : WHAT PRICE SHOULD YOU PAY? STEP SIX : PREPARING AN OFFER STEP SEVEN : SATISFYING THE CONDITIONS STEP EIGHT : FULFILLMENT OF CONDITIONS STEP NINE : CELEBRATE!
STEP 1 Mortgage Pre-Approval OBTAIN A MORTGAGE PRE-APPROVAL THROUGH: Mortgage Broker Using a Mortgage Broker may be your best option. They can provide you with the most favourable Mortgage available in the market place today with terms, conditions and interest rates to best suit your needs. Mortgage Brokers are not limited to one Lender or Financial Institution they have access to all of them. Financial Institution Your Lending Options are Limited with a Financial Institution. They can only offer you their product and interest rates based on their lending policies. TIPS Establish What You Can Afford Before you start house hunting, establish how much cash (or downpayment) is needed and how much you can afford to carry in monthly payments. Hidden Costs Approximate costs are $3000.00, an amount over and above the above noted cash down payment. These costs may include items such as the Building Inspection, Other Inspections, Appraisal Fees, Mortgage Insurance, CMHC Fees, Legal Fees, Transfer Tax, Title Insurance, Taxes, etc. Stay Within Your Price-range There is no point looking at homes that are out of your afforded price range. It will only frustrate you and waste your time. It also confuses your knowledge building process as it may interfere with you making that right decision. We need to compare apples to apples, not apples to oranges. Most Realtors will not show you homes unless you are pre-approved. Documents Needed For Your Mortgage Approval Notice of Assessment from previous taxation year. Letter of Employment. T4 s Proof of Down Payment Your Mortgage Broker will let you know what else you might need.
HOW MUCH HOME CAN YOU AFFORD? Pre-Qualification will define the numbers Pre-Approval will Show you the money NEGOTIATING POWER PRE-APPROVAL Is a detailed approach that can give you a firm decision on a home loan. It makes you a cash buyer in the seller s eyes. PRE-QUALIFICATION Establishes how much you can afford to borrow, based on how much you earn and owe. Pre-qualification is not an assurance of mortgage approval. PRE-APPROVAL ADVANTAGE Bargaining Power Pre-approved buyers have increased bargaining power with the seller as they are perceived as serious buyers and bring to the table a certain level of credibility. Quick decisions can be made this is attractive to the seller especially in a multiple offer situation, potentially placing your offer to buy in a first choice position.
STEP 2 Costs Of Buying A Home DOWN PAYMENT 5% or more. In some cases a 10% down payment is required depending on the Buyer s employment, income and credit history. TYPES OF MORTGAGES Conventional High Ratio CONVENTIONAL MORTGAGE Down Payment of 30% or more. No insurance premium. HIGH RATIO Down Payment between 5% and 30% Must have insurance through CMHC or Genworth Financial for the Lender. 0.5% to 3.75% of Mortgage amount (check for the most recent percentages with CMHC). eg. $100,000 x 3.75% = $3,750.00 Premium added to Mortgage. (Note HST of 13% added to premium and must be paid upfront) REQUIRED DOCUMENTATION FOR MORTGAGES Accepted Agreement of Purchase & Sale Feature Sheet/Listing Information with Exterior Photo Letter from Employer confirming annual income and length of employment T4 Slips/Income Tax returns Notice of Assessment from previous year Verification of Down Payment copy of bonds, investment certificates, bank books. PROCESSING A MORTGAGE LIFE INSURANCE PRE-APPROVAL BUYER INCENTIVES Apprasial & Application Fee: $250.00 - $350.00 (approx). For lender purposes & CMHC & Genworth Financial insurance. Optional. Get approved by a Mortgage Broker, Lender (Bank) or Trust Company. OHOSP: Ontario Home Ownership Savings Plan. If opened before December 31st 1993, you receive Tax Rebate for Land Transfer Tax. Down Payment: 5% down for Buyers. RRSP Monies: Can be used for Down Payment, up to $20,000 for each individual involved in the purchase. Building Inspections: $450.00 - $500.00 (approx). Highly recommended for both resale and new construction.
STEP 2 Costs Of Buying A Home Lawyers LEGAL FEES & DISBURSEMENTS May vary ($200 - $800 approx.) Hydro Certificate Title Search Status Certificate Sub-Search of Title Register the Mortgage Tax Certificate Register the Deed Water & Sewage Certificate Title Insurance Plus standard office disbursements including, photocopies, postage, courier services, fax charges (as applicable.) STATEMENT OF ADJUSTMENTS GIVEN TO THE BUYER UPON CLOSING This is a summary of all costs and expenses paid by the Buyer(s) and will be provided to the Buyer(s) upon closing. LAND TRANSFER TAX Paid on the final date of closing to the Treasurer of Ontario Calculated using final Purchase Price of home. 1.5% of Price, minus $1,525 (eg: $275,000 x 1.5% = $4125.00 - $1525.00 = $2600.00) Payment of $2600.00 in Land Transfer Tax. THESE LAND TRANSFER TAX RATES ARE FOR SINGLE FAMILY RESIDENCES $0 - $55,000 >> 0.5% $55,001 - $250,000 >> 1% less $275.00 $250,001 - $400,000 >> 1.5% less $1525.00 $400,001 - and up >> 2.0% less $3525.00 Rebate on payment of Land Transfer Tax up to $2000.00 is available to First Time Buyers. SURVEY $1000 - $2000 Many homes already have one. Note: A survey is not transferable and belongs to the individual who paid for the survey. You cannot rely on the accuracy of the information unless you ordered and paid for the survey. Copies of surveys received from Sellers, can only be used for re-finance purposes. TITLE INSURANCE $300 (approx) If there is no survey, Title Insurance will satisfy the lender and you will not have to incur the cost of a new survey. Note: Title Insurance is a must on all Real Property Purchases. All fees, costs & disbursements quoted are approximate. Actual fees, costs & disbursements could be more or less and should be obtained directly from the Lawyer.
STEP 3 Representation REALTORS CHOOSING THE RIGHT REALTOR One that will offer you professional advice regarding preferred locations, styles, prices, trends, financing and handling the unexpected. They should have connections with Lawyers, Building Inspectors, Mortgage Representatives and many other Professionals. You may need these individuals to provide you with expert advice and protection when completing the offer to buy your home. They should also be skilled at the negotiation process. Choose a that you feel comfortable with. Someone that you feel understands your needs and wants. There are many advantages to having a Realtor work specifically for you in your best interests! THE PERSONAL ONE ON ONE BUYER CONSULTATION The should discuss and advise you on your personal situation. Before you start viewing homes, decide on your needs and your wants (i.e.: number of bedrooms and bathrooms, size of garage, etc). Ask your for advice, and use their experience and knowledge of the Market and Neighbourhoods. TIPS LOCATION, LOCATION, LOCATION. Decide what area you want to live in. Don t be overwhelmed by the owner s décor or furniture. Imagine your own furniture there. Look at the features of the home, even if it needs a coat of paint, it may still suit your needs.
BUYER REPRESENTATION represents you, the Buyer and is working to protect your interests during the home buying process. The Buyer s Representative has a fiduciary responsibility to represent your best interest by structuring the transaction to your advantage. SELLER REPRESENTATION represents the Seller and has a fiduciary responsibility to represent with care, loyalty and disclosure to the Seller. DUAL REPRESENTATION Circumstances can arise where the represents the interests of both the Seller and the Buyer at the same time. In this case, the has a fiduciary responsibility to both the Buyer and the Seller, and must act in the best interests of both parties. The duty of full disclosure is waived in Dual Representation so as to remain neutral to the parties involved.
STEP 3 Client & Customer Care DO YOU WANT CLIENT SERVICE FROM YOUR REAL ESTATE SALESPERSON? The Client is a party who contracts under a Buyer Representation Agreement for a to act on behalf of that party, to assist with the Purchase and/or Sale of property in a Real Estate transaction. DO YOU WANT CUSTOMER SERVICE FROM YOUR REAL ESTATE SALESPERSON? The Customer is a party who receives Services from another party's Representative, i.e. Seller s Representative where is representing the Seller in the transaction while providing customer service to the buyer. WHAT DOES BUYER CLIENT REPRESENTATION MEAN TO YOU? Provide you (the Buyer) with information on properties for sale and sources of financing. Provide you with information on prices of sold homes in any given area, to advise you regarding how much to pay. Prepare the Offer to Purchase Advise you regarding the purchase price of the home and what terms to include in the offer. Under a Buyer Representation Agreement, the Salesperson shall promote and protect the best interests of the Salesperson s Client the Buyer. WHAT DOES BUYER CUSTOMER SERVICE MEAN TO YOU? Provide you (the Buyer) with information on properties for sale and sources of Financing. Provide you with information on prices of sold homes in any given area, so you can make an informed decision regarding how much to pay. Prepare the Offer to Purchase Under a Buyer Customer Service Agreement, the Salesperson owes fiduciary duties to a client (Seller), while treating a Buyer customer fairly, honestly and with integrity. BASICS OF BUYER CLIENT SERVICES BUYER REPRESENTATION BASICS OF BUYER CUSTOMER SERVICES BUYER CUSTOMER SERVICE We give you all the information you need and we advise you on what price to pay for the home and terms of the offer. We give you all the information you need, but you decide what price to pay for the home and terms of the offer. We are working for the Buyer and we must do what is BEST for the Buyer. We are working for the Seller and we must do what is BEST for the Seller.
STEP 4 House Hunting THIS IS WHERE WE START LOOKING AT HOMES FOR SALE! To find homes we use the MLS system. New Builders, Private Sellers, contacts with people who may be interested in selling if we have a Buyer. We set up all appointments to see Re-sale and New Homes. NOTE: We must accompany you to all New and Re-sale Home Sites. We have first access to all the Hot New Listings that come on the market, which we cross reference with your needs. We input all your requirements into a computer program that matches you instantly with the new listings. This is a fantastic tool for today s buyer. HOME FINDING TOOLS Our Office offers area-wide Multiple Listing information that displays thousands of broker-listed homes for sale, regardless of which Brokerage the property is listed with. I ll recommend and show you the MLS homes that meet your criteria. This comprehensive source lets you visit many homes online or on paper and select those that interest you the most. Homes that you see listed in newspapers and Home Buyer guidebooks are available to you, right here! TIPS Ask me about homes you see or read about in newspapers, regardless of which Listing Brokerage or Sales Representative s name is in the ad. I will provide you with detailed information about the homes and take you to see the ones that are of interest to you! When buying a NEW CONSTRUCTION home we can advise you on who is a preferred and reputable builder and which models are the most attractive to the buying population when its time to resell. We take into account preferred locations and neighbourhoods, as well as upgrades that will enhance the future marketability of your home and offer you the best return on the upgrade investment. We ll discuss undisclosed negative site influences such as utility boxes in the yard, easements, community mail kiosks or boxes, bus routes, busy streets, nearby commercial development, auxiliary road expansions or widening, hidden costs, future resale value of the home, and more. The onsite Salesperson is representing the builder. As a Buyer, you should have your own representation to protect your interests.
STEP 5 Pricing What should you pay for the home? Make sure you know what the home is worth! A Real Estate has the information that YOU need to know! We prepare a comprehensive Comparative Market Analysis (CMA) for the Buyer to determine what the home is actually worth. DETERMINING THE RIGHT PRICE Comprehensive Comparative Market Analysis determines today s Market Value for the home. SIMILAR HOMES RECENTLY SOLD These tell us what a Buyer is willing to pay for this kind of home, in this area, at this time. SIMILAR HOMES FOR SALE NOW These tell us what we are competing against. Buyers will compare the price of all these homes along with their selling features, extras and location. SIMILAR HOMES THAT DID NOT SELL These illustrate possible problems or overpricing TIPS Try to avoid getting into a bidding war, if possible. Try to avoid getting too emotionally involved. Do you need to have this home no matter what? The Problems With Overpricing Hard to get Salespeople excited. Hard to get good Buyers to look. Hard to get people to make an offer. Hard to get financing.
STEP 6 Preparing An Offer PRICE As per the previously prepared Comparative Market Analysis (CMA). DEPOSIT 1. Initial deposit between $500 and $1000. 2. Additional deposit of $4000.00 or more, depending on the price of the home. Given after the removal of all conditions by the Buyer and/or Seller. CONDITIONS Financing, Inspection, Insurance, Lawyer Approval, Seller Property Information Statement (SPIS), Sale of Buyer s Home, etc. TERMS Balance of Purchase Price, Chattels in Good Working Order, Right to Re-Visit prior to Closing, Survey, etc. INCLUSIONS (refrigerator, stove, washer, dryer, etc.) Exclusions and Rental Items IRREVOCABLE Time the Seller has to accept the Buyer s offer. Note: If Seller is countering the Buyer s offer, it is a new offer from the Seller to the Buyer and can be done after the expiration of the Buyer s irrevocable time. CLOSING DATE When the Buyer can take possession of the home.
STEP 7 Satisfying The Conditions Typically the Buyer has up to five business days (excluding Saturdays, Sundays & Statutory holidays) to remove their conditions and proceed with the sale. FINANCING The bank needs a copy of the Agreement of Purchase and Sale, Feature Sheet of Home with front exterior photo and all of the personal documents that have been mentioned previously. INSPECTION This is when you have a qualified Building Inspector inspect the home to identify deficiencies or any major structural problems. Note: Other Inspections could include but are not limited to, septic inspections, environmental inspections, etc. LAWYER APPROVAL Send your Lawyer a copy of the Agreement of Purchase & Sale for review, and to obtain his/her legal opinion and approval of the contents (this is optional). TIPS The above noted are some examples of conditions that may be contained in any offer. However, every offer needs to be created and structured to suit the Buyer s needs and must take into consideration the specific property being purchased.
STEP 7 Home Inspections WHAT IS A HOME INSPECTION? Technically defined a Home Inspection is the visual examination of the home to determine the condition of that home at the time of inspection. Home Inspectors are highly skilled at determining the condition of a house, but they are limited to what they can access visually. The main purpose of a home inspection is to determine if the home has any existing major defects (usually defined as repairs costing $1000 to $1500 and up), or any major repairs requiring attention in the near future. The inspector will point out smaller defects during the inspection, but of course, many small problems can add up to a major cost. An inspection done to the Standards of Practice of the Ontario Association of Home Inspectors (OAHI) will cover the following major systems and components: Roofing, Chimneys and Flashing, Exterior, Property Drainage, Structure, Electrical, Heating and Cooling, Insulation, Plumbing, Foundation and Interior. A typical Home Inspection takes approximately three hours. A quality inspection is very thorough, as the entire home is checked, from the basement to the attic and everything in between. Professional Home Inspectors are highly skilled individuals with knowledge of building codes as well as all systems and components of your home. WHY HAVE A HOME INSPECTION? There are several good reasons to have a professional inspection done on the home you are thinking of buying. The first and most important reason is knowing what you are buying. This will help eliminate future surprises and unplanned expenses. A quality home inspection allows you to make an informed decision about your purchase. If significant defects are discovered during an inspection you should speak with your Real Estate Representative to discuss your options. It is quite possible you will save money in the future by completing maintenance repairs suggested by your inspector, that would lead to larger repairs if left unattended. Finally you will be able to continue with the purchase of your home with full knowledge of its condition, giving you Peace of Mind during what is often a very stressful time.
STEP 7 Home Inspections WHEN DOES THE INSPECTION TAKE PLACE? Your Real Estate should include a clause in your offer, allowing you to have a Home Inspection performed and ensuring that you re satisfied with the outcome. The inspection generally takes place after the final price has been negotiated and agreed upon between you and the Seller. At this point you are pretty sure you will be buying the home. It is strongly recommended that you attend the inspection. If your Inspector suggests that you need not attend the inspection, you should look for a new Inspector. Your inspector will share a wealth of information with you about the home this information is much easier to understand if you are present. Buying a home is likely the biggest investment you will make in your lifetime, so don t miss out on the opportunity to learn as much as you can about your new home. PART OF THE HOME INSPECTION TAKES PLACE OUTSIDE REMEMBER TO DRESS FOR THE WEATHER. How Much Will It Cost? A good quality Home Inspection in the Ottawa area will cost between $400.00 and $500.00 plus HST. This is surely a small price to pay when compared to the cost of a major deficiency discovered after you own the home. Be sure your Inspector offers a written report and a written contract. A verbal Inspection will be of no use to you when you move into the house three or four months later. The benefits realized from a professional inspection far outweigh the cost. HOW TO CHOOSE A HOME INSPECTOR? The Ontario Provincial Government has granted the Ontario Association of Home Inspectors (OAHI) the exclusive right to designate its members Registered Home Inspectors. Hiring a Registered Home Inspector (RHI) from the Ontario Association of Home Inspectors ensures you are hiring a qualified, professional home inspector. Members of the OAHI follow a strict Code of Ethics and Standards of Practice. The stringent Code of Conduct ensures that you will be getting a quality Home Inspection.
STEP 7 Home Inspections THE HOME INSPECTION APPROXIMATELY $400 $500 Foundation
STEP 8 Fulfillment Of Conditions YOU ARE NOW SATISFIED WITH ALL OF THE CONDITIONS A final document called a Notice of Fulfillment of Conditions needs to be signed and delivered to the Seller within the time frame provided for in your offer. Once you have executed this document, your sales representative will deliver it to the Seller or their Representative. Then once the Seller has acknowledged receipt of the document, you will have bought your new home! We take care of sending all of the required documentation to your appointed Lawyer. From this point until your Closing date, your Lawyer will finish the purchasing process.
STEP 9 Congratulations TIME TO CELEBRATE! You ve just bought a home!
Monthly Expenses Child Care Groceries/Lunches/Dining Out Clothes/Personal/Sundry Life Insurance Public Transportation Car: Gas/Oil Car: Repairs/Service Car: Insurance/License Electricity/Hydro Water Telephone Cable TV/Video Rental Entertainment & Recreation Magazines, Books, etc. Home Maintenance Home Insurance Savings (Bank Account, RRSP) Car Loan/Lease Credit Cards Other Loans TOTAL Monthly Lifestyle Expenses Income Tax & Other Deductions TOTAL Monthly Expenses Monthly Income Subtract Total Monthly Expenses From Monthly Income AMOUNT LEFT FOR HOUSING COSTS $ $
A Few Tips For Buyers Choose a Realtor you are comfortable with, someone who is honest, trustworthy and understands your needs and wants. Before you look, you should decide your needs and wants. Get your Realtor s advice. Get Pre-Approved for a mortgage. Know how much you can afford. Stick to your budget. You still want to go out for dinner and a movie sometime. Before you look, get your documentation ready for your Mortgage: T4 s, Letter of Employment, Proof of Down Payment (your Mortgage Representative will let you know what you need). Make sure you know how much the home is worth, to avoid paying too much. Avoid getting into a bidding war. You usually pay too much. Don t be overwhelmed by the owner s décor or furniture. Imagine your own furniture there. Look at the features of a home, even if it needs a coat of paint, it may still suit your needs. Location! Location! Location! Decide what area you want to live in. Decide if you want to be close to work, school, buses, etc. Get the home inspected by a Professional Home Inspector. If you re renting, you may be able to buy a home and not even realize it. Get in touch with a Mortgage Representative and see if you qualify for a mortgage. Get a Lawyer usually a referral from family, friends or your Real Estate.
GLOSSARY Agreement of Purchase and Sale A written document in which the purchaser agrees to buy certain real estate and the seller agrees to sell under stated terms and conditions. Amortization Repayment of a loan in equal installments of principal and interest, rather than interest-only payments. Assumption of Mortgage A buyer s agreement to assume the liability under an existing note that is secured by a mortgage. The lender usually must approve the buyer in order to release original borrower (usually the seller) from liability. Cap The limit on how much an interest rate or monthly payment can change, either at each adjustment or over the life of the mortgage. Closing Statement The financial disclosure statement that accounts for all of the funds received and expected at the closing, including deposits for taxes and mortgage insurance. Condition/Contingency A condition that must be satisfied before a contract is binding. For instance, a sales agreement may be conditional/contingent upon the buyer obtaining financing. Fee Simple An estate in which the owner has unrestricted power to dispose of the property as he wishes, including leaving it to someone by will or inheritance. It is the greatest interest a person can have in real estate. Gross Debt Service Ratio (GDS) The percentage of a borrower s gross income that can be used for housing costs, including mortgage payments and taxes (condominium fees when applicable). Home Inspection Report A qualified inspector s report on a property s overall condition. The report usually includes an evaluation of both the structure and the mechanical systems. Home Warranty Plan Protection against failure of mechanical systems within the property. Usually includes plumbing, electrical, heating systems and installed appliances.
GLOSSARY Tenancy An equal undivided ownership of property by two or more persons. Upon the death of any owner, the survivor(s) take the decedent s interest in the property. Lien A legal hold or claim on property as security for a debt or charge. Condominium A form of real estate ownership where the owner receives title to a particular unit and has a proportionate interest in certain common areas. The unit itself is generally a separately owned space whose interior surfaces (walls, floors and ceilings) serve as its boundaries. Cooperative A form of multiple ownership in which a corporation or business trust entity holds title to a property and grants occupancy rights to shareholders by means of proprietary leases or similar arrangements. CMHC Canada Mortgage and Housing Corporation. CMHC administers the national Housing Act of Canada and also provides default insurance on mortgages where the down payment is less then 25%. Deposit Payment of money or other valuable consideration as pledge for fulfillment of contract. Loan-To-Value Ratio The relationship between the amount of the mortgage and the appraised value of the property, expressed as a percentage of the appraised value. Mortgage Commitment A written promise to make a loan for a specified amount on specified terms. Mortgage Life Insurance A type of term life insurance often bought by mortgage balance declines. If the borrower dies while the policy is in force, the debt is automatically covered by insurance proceeds. PIT Principal, Interest, and Taxes. Realtor A real estate broker or salesperson who is an active member of the Canadian real Estate Association and the local real estate board.