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HOME BUYERS INFORMATION
This is some simple information for the sequential steps involved in buying a home that should be read alongside the home sellers section. Information changes so please call to discuss the present situation.
ARE YOU READY
Home buying is a large financial commitment so it is important to go through the various costs.
The minimum down payment is 5% for properties under $500 000. From $500 000 to $1000 000 an additional 10% must be put down. If you have less then 20% down and your homes value is less then $1 000 000 then you must get mortgage default insurance. For properties $1 000 000 and over 20% is the minimum down payment and they cannot be insured against default.
If you are buying an investment property the minimum down payment is 20%. If a second property is for personal use then the minimum down payment is still based on home price.
RRSP HOMEBUYERS PLAN
A buyer may withdraw up to $25000 from RRSP’s to use as a down-payment to buy a home. There are rules as to repayment and accessing the program more then once. Please see…
MORTGAGE DEFAULT INSURANCE
Mortgage default insurance is a one time fee and protects the lender against default which allows the lender to pass lower rates to the borrower. One of the largest mortgage default insurance providers is the CMHC (Canadian Mortgage and Housing Corporation) and it provides a variety of housing services to Canadians. Here are their premiums at present.
Premium on Total Loan
Premium on Increase to Loan Amount for Portability
Up to and including 65%
Up to and including 75%
Up to and including 80%
Up to and including 85%
Up to and including 90%
Up to and including 95%
90.01% to 95% —
The total Realtor fees are typically 7 % on the first $100 000 and 2.5% after this. The buyers agent typically gets a bit less then half of this amount so there is no need for the buyer to pay anything for buyers Realtor services. In some rare cases this won’t be covered and your Realtor will go through this scenario when they agree to represent you.
You should always get an inspection. Typically this is around $400-$600 depending on what needs to be done. The home inspection shows structural and safety issues and includes a report that gives estimates on remaining life on all the main components of the home.
The lender will require an appraisal to be sure that they are making a good investment, they will only lend on the appraised value even if the paid amount is higher. This is typically around $300 and is generally a straight forward procedure that comes in at exactly the purchase price 99% of the time.
The lender will also require that the home and their investment is insured. Strata properties will generally have blanket insurance policies that meet this criteria but a home buyer will need to contact an insurance provider to get more details on options and extras such as mortgage and life insurance.
There may be survey fees for being sure of the exact measurements of lots if needed. This may be a requirement for the lender as well.
Title insurance protects against fraud or liens against the home, your lawyer or notary helps with this and the fee is around $200.
LAWYER OR NOTARY FEES
There are Lawyer or Notary fees and disbursements involved in arranging financing and transferring title. If possible always get a real estate lawyer as you may need expert advice. They will charge you for their services around $700-$1500 plus disbursements (paper, carriers, registration fees etc…) of $200-$500.
PTT – PROPERTY TRANSFER TAX
First time home buyers are exempt from this fee if the home is $500 000 or less with partial exemptions from $500 000 – $525 000.
There is a 1% PTT on the first $200 000, 2% from $200 000- $2 000 000, 3% from $2 000 000- $3 000 000, 5% from $3 000 000 on.
New builds are exempt from this fee if the home is $750 000 or less with partial exemptions from $750 000 – $800 000.
New builds will have a 5% GST charge. Presently, if the new home is going to be your primary place of residence and is priced below $450 000 there is a rebate. At present the rebate is 36% of the GST fee at $350 000 and drops in equal increments till it reaches $0 at $450 000 purchase price.
The cost of moving can vary quite a bit. There are different options for pod and storage rentals that may make sense depending how the new purchase is timed.
There are also property tax, utilities, strata and on going repair and upgrade costs to consider.
SPEAK WITH A MORTGAGE PROFESSIONAL
For more information please see my mortgage tab.
If you feel you are financially ready for home ownership you should check your credit and speak with a Mortgage Professional. They will let you know roughly how much you will be able to borrow and what your rate will be for the mortgage products available to you.
It’s important to get a mortgage pre-approval at this point. The lender gives you a letter that states the amount that they would be willing to lend you at an interest rate with generally a 90 to 120 day rate hold. This doesn’t obligate you to use the lender. It also doesn’t mean they will approve the property you choose to buy or approve you if your situation has changed. There are many different lenders and ways to qualify however.
UNDERSTAND THE MARKET
As noted in the sellers tab it is simpler to purchase in a buyers market rather then a sellers market and this will affect the strategies you use to put in offers and the kinds of conditions that will likely be accepted or that may cause your offer to be over looked for another.
When you start your market research and start reviewing homes there are some important terms to understand.
INTERESTS IN LAND
Fee simple: This is owner ship as we know it with the maximum bundle of rights to own property. Ownership is limited by governmental laws.
Lease hold: The owner has granted rights to use the property for the length of the lease.
Life estate: This is where a property is given as a lease for as long as a person lives.
TYPES OF CO-OWNERSHIP
Joint Tenants: This is where each member has an undivided interest in the property and it passes to the other member or members when one member dies- the right of survivorship. This is the common form of ownership in marriage.
Tenants in common: Each member may own a different percentage amount of the property and there is no right of survivorship.
OWNING AS A CORPORATION
Many investors set up a real estate holding company because of the tax benefits and legal protections that a corporation has.
TYPES OF OWNERSHIP
Free hold: The property does not share any common areas with another property.
Strata: Also known as a condo or condominiums. Strata have a dwelling that has private ownership that may or may not be connected to other units and common areas with group membership. There will be an elected strata board and strata fees to pay for upkeep costs.
Cooperatives: A corporation purchases land and individuals own shares in the cooperative. The members are granted use of a dwelling.
TYPES OF HOMES
Single Family Detached: These homes don’t share a wall with anyone and comes with a parcel of land. There may be a basement suite that is legal or illegal. A legal suite has been built with permits and conforms to municipal building permit requirements. The majority of the houses in the Lower Mainland that are older then 20 years or so with secondary suites are illegal (non conforming, unauthorized).
There are manufactured or mobile homes that are made in movable sections. These are often sold in sections of land that are not owned and the owner must pay a pad fee for lease of the land.
Single Family Semi Detached: These homes share a wall with a neighbour, generally they cost less then single family detached homes.
Town Houses: A town house is row housing and will generally have a bit of land in the front and back of the unit. Stacked town houses are usually two-storey units with one unit stacked on a unit below and come in minimum of four units.
Apartments: Generally single level units these can be studio or bachelor apartments that combine living room, kitchen and bedroom into a single room. Lofts have a raised area that is generally used as a sleeping area however they may also have multiple bedrooms. A junior bedroom has a separated sleeping area but it doesn’t have a door.
More and more people will be living in strata in the Lower Mainland over the coming years. If you are thinking of buying a strata property it is important to understand how they run. Please see…
There is some key paperwork you will need to see if you are thinking of making a purchase.
Of key importance is obtaining the information certificate “Form B” which shows at a glance the important finances and details of strata corporation. The information certificate will have a copy of the rules, budget, depreciation report and rental disclosures attached.
The depreciation report that shows the common property and assets and what are the projected maintenance, repair and replacement costs over a 30 year time span. Some strata will vote to not get one done and one must find out why if this is so.
CHOOSING THE HOME
It’s important to prioritize what matters to you in a home and be realistic about what you can afford. If the market is demanding to much for what you want then you may have to settle for something a bit different. Some important features that people consider are home size, lot size, age, bedrooms, bathrooms, view, neighbourhood, quality and aesthetics of elements, is there a secondary suite or a garage. The list goes on.
Some people are very comfortable making upgrades and repairs themselves, some fix and flip and some are not comfortable with arranging any kinds of repairs at all. Understanding your wants and needs is very important in making the right purchase for you.
If you can afford the higher price tag buying new has many benefits. You will have a great deal of control if you hire a builder for a custom detached home. Having a contract that clearly states pricing and expectations is important. Fixed price contracts provide a budget for each part of the construction based on customer choice. Cost plus fee contracts may be used for jobs or aspects of jobs where prices are difficult to estimate.
If you buy from a developer who has made pre-built homes you will benefit from the cheaper prices of volume on labour and material.
Presale apartment purchases have many benefits as well and because of their importance in the Lower Mainland these next many years I have tab devoted to them in the menu.
2-5-10 Warranty: All new builds come with a two year warranty on labour and materials, five years on building envelope and ten years on structure.
Low Repair Costs: Repairs and maintenance costs should be lower until components start to wear. Strata costs should be lower depending on the services provided.
Higher Rental Value: Modern design and modern appliances with little wear have higher value.
GST: New builds will have a 5% GST charge. Presently, if the new home is going to be your primary place of residence and is priced below $450 000 there is a rebate. At present the rebate is 36% of the GST fee at $350 000 and drops in equal increments till it reaches $0 at $450 000 purchase price.
There are a few things to consider when purchasing an investment property.
Expected Yield: This the net income divided by the total cost of the property. Capitalization Rate is the same concept used when describing commercial properties.
Growth Potential: Is the area expected to rise in value ? Ideally the neighbourhood will be rising in value.
Resale Value: Can the home be upgraded and flipped for profit ? Investors that are able to make upgrades professionally and at lower costs can do quite well flipping properties.
Zoning Laws: These regulate how a property may be used. Zoning changes to reflect the will of the community.
Strata Rules: If the property is part of a strata the strata votes on how the units may be used. Perhaps it is an age restricted strata or perhaps they won’t allow pets or rentals.
Money Matters: As buildings age maintenance costs rise. Property taxes rise as value increases. Tenants may leave, cause damage, refuse to pay. Cash flow may be import. Talk with a mortgage professional about a Home Equity Line Of Credit to manage costs if needed.
WHERE DO YOU WANT TO LIVE
There are many things to consider. There all the details related to the home and property of course, however, the details of the location and community can be just as important.
There is the community and economy to consider. You must love (or at least like) where you live. Walking the area and getting a feel the neighbourhood is very important.
Commute Times: How close are you to your work place and major public transit routes ? What does the future hold ? Is there a highway or a sky train stop coming in ? Accessible areas with lower commute times will have more value.
Community Activities: How are the parks, community centres, restaurants, activities. Are there many things available that you like in particular ?
Schools and Safety: Even if you don’t have children many other homeowners do. Being close to good schools in areas of low crime are important to most home buyers and will affect your homes value.
The Economy: What do people do and where do they work. Are they dependant on a local industry like a mill, tourism or are there many commuters ? This will give you an idea of what may affect your homes value in the future.
By letting your Realtor know exactly what you are hoping for and at what budget you can save a great deal of time by only going through homes that may interest you.
It is a good idea to preview the feature sheets before the open house. You’ll want to look up how long has the home been on the market, the taxes and assessments, the sales history, the age and all the other relevant information.
You should be quite direct and ask about all the possible issues with the home. If you are considering making an offer ask to see the PDS (property disclosure statement) and copies of the receipts for work done as this will help the inspector know what to take a harder look at.
You should also ask those personal questions that the seller may be willing to answer. Is the seller motivated ? Why is the seller selling ? Have they found a place they want to purchase yet ? Often a seller may be happy to instigate an offer.
MAKING AN OFFER
Please review the notes on offers in the sellers section. There are a few more points that pertain more to buyers that are worth going over.
Making an offer in a seller market: If there is competition for a home then you want to make your offer as enticing as possible. If you expect the seller to choose your offer over another they will want the arrangement to be as straightforward as possible. Here are some ideas.
Give the seller a copy of your lenders pre approval letter with the offer.
Perhaps give the deposits herewith (bank drafts given with the offer) or given within 24 hours of acceptance. This is a way of saying that you are serious and will not refuse to fulfill a condition with out a good reason. If the deposit isn’t going to be given till after you have removed conditions the seller may worry about losing out to a better offer if you don’t remove conditions.
Present objective conditions. If a condition is too subjective then it becomes very difficult to enforce the contract. Suppose your offer is subject to an inspection or legal advice that you find to be ‘satisfactory’. This gives no guarantees to the seller that the conditions will be removed. If the inspection is subject to ‘repairs no greater than $25000’ then this is an objective, quantifiable term and the seller may take your offer seriously.
Making an offer in a buyers market: Here the buyer has more control. Offers can be more subjective and deposits can be paid when subjects are removed. If an inspection comes through that shows damage then most likely better terms can be negotiated to cover the cost of the damage if the buyer still wishes to proceed.
CHATTELS INCLUDED FIXTURES EXCLUDED
Chattels are items that could be moved and are not considered part of the house. Fixtures are attached items. Some items like fridges, stoves, washers are not so clear as to be a chattel or a fixture so if the buyer wishes to keep all the appliances it is important to put this down. The CPS gives room to be clear on what a buyer may want to keep or have taken away.
SUBJECT REMOVAL AND NEGOTIATING
Once an offer is made it can be accepted, ignored or countered. The countered offer negates the original offer so care must be taken through this process. The market and seller motivation are the key things to consider when offering a price, the conditions of the offer and what to ask for in order to complete on the conditions.
In the Lower Mainland seven days are usually asked for in an offer to allow for conditions to be met. The buyer is required to make reasonable efforts to have the conditions met- however often the buyer can choose not to remove the conditions and the deal will end. The buyer may ask for a reduced price in order to remove conditions (to cover repairs for example)- in doing so though their new offer may be refused and their old accepted offer is no longer valid.
SELLER RENT BACK
If the buyer is in no rush to move then offering to rent the home back to the seller while they find their new home may be a way to get their offer accepted. Lets say the buyers are renting or they are purchasing an investment property or they are in no rush to sell their own property. If the seller needs to find another home still they may find this option very attractive. There is a great deal of stress in moving and finding new suitable homes. Often people need to find transition housing and move twice. Not being rushed allows for an easy transition and often a better deal.
PRIOR TO CLOSING
Once subjects have been removed there is typically four to six weeks before closing where the money and title change hands. The buyer will visit the home a few days before closing for a final inspection. Possession typically takes place one to two days after closing.
During this waiting period homeowner insurance needs to be lined up. Utilities need to be set up and disconnected as needs be. Addresses need to be changed with all relevant institutions. These will all go through after closing on the date of possession.
The lender will have money ready to be handled by your real estate lawyer.
The real estate lawyer handles the transfer process. They explain the legal documents, make sure the title is clear and purchase title insurance. They deal with money and payment and register the property in the buyers name.
The buyer will receive a statement of adjustments from the lawyer that will show exactly where the money goes and has gone for the transaction.
One or two business days are allowed to be sure that everything goes through properly before possession takes place.
MOVING AND CLEANING
Many buyers have to declutter and store much of their stuff or make a transition move before they buy. Some people rent storage containers that are moved from location to location and stored in yards- this helps because items don’t have to be packed and unpacked from moving trucks. Some people rent storage lockers in heated, secure compounds- some of these have short term deals.
Some buyers can simply move directly to the new home without using any storage options. Depending on budget it may be a good idea to hire movers, packers and cleaners to help with the transition. It is always better to pack and move personal and expensive items yourself of course. There is usually a great deal to do and a bit of stress associated with buying a home. Having some professional help can make moving day much easier and more relaxed.