Buyer's Guide

The two major components that you must look at in determining your financial situation are the mortgage and the down payment.

Mortgage

• The first step in securing a mortgage is to contact your lending institution or mortgage broker to obtain your maximum amount for pre-approval. This will help you determine your price range. If you would like help in finding a mortgage broker, Marc will recommend one or several.
  
  

  Aside from your pre-approval amount, your mortgage broker will also discuss with you the different kinds of mortgages (See Types of Mortgages) available to you. You can also expect information on which documents will be required, and what you will have to do next.
  
  

  At your lending institution you will be required to fill out an application stating your income, assets, liabilities, etc. You will be required to provide:
  
  1) Income confirmation: usually a letter from your employer and a pay stub with year-to-date figures
  2) Written confirmation of your down payment: usually a bank statement showing the source of funds or a statement of investments for stocks, bonds, etc.
  
  

  Remember to ask for a commitment letter with all the details of your pre-approval. Besides the pre-approved amount, the expiry date on your pre-approval is very important. See the Preparing to Make an Offer section for more information.

Down Payment

• This is the amount of money you will put down on the completion date. The balance will be in the mortgage. (not to be confused with the deposit which is paid at the time the offer is made)

There are many types of mortgages. Please consult your lending institution to consider the best option for you. To get you started, I have listed someof the more typical mortgages below.

Open Mortgages

• Open mortgages give you the option to repay any amount at any time. Plus, they give you the flexibility of increasing your periodic payments. Open mortgages can also allow you to transfer the mortgage to another lender without penalty. Due to the flexibility of open mortgages, the interest rate is usually higher than a closed mortgage.

Closed Mortgages

• Closed mortgages limit the repayment and periodic payments. Typically you can repay up to 15% of the principal amount per calendar year, and double your periodic payments. Anything above and beyond these limitations may result in a penalty. Closed mortgages do not have the option of transferring the mortgage to another lending institution until the end of the term.. However, because of the lower interest rates, if it is likely that you will be making only regular payments and limited lump sum repayments, the closed mortgage is probably preferable. A typical mortgage term is 5 years with and amortization of 25 to 35 years. (Tip: the major banks posted rates are often much higher than the rate you can get)

Fixed Rates

• With a fixed rate mortgage, your interest rate remains constant to the end of your term. For pre-approved mortgages, any fixed term rate will be guaranteed for a specified period (usually 90 to 120 days). And, if the rate goes down for that period, many lending institutions will grant the lower rate to your mortgage.

Variable Rates

• For variable rate mortgages, the interest rate fluctuates with the prime rate. Your actual payments generally don't change during your term. But, if rates go down, more of your payment is applied toward the principal. If rates go up, more of your payment is applied toward repaying the interest.

RRSP - Home Buyers Plan

• It is important to speak to your financial advisor and take into account all the rules and effects of tapping into your RRSPs. As a first-time buyer, you may be eligible for the government-approved RRSP Home Buyers' Plan. See the Home Buyers Plan website for details.

See calculators at :

• CMHC
• Citizens Bank of Canada
• TD CanadaTrust

Once you have determined the criteria for your future home, Marc will begin on the next step: to find suitable homes for your viewing.

He will provide you with detailed information on homes that match your criteria. From there, you can choose which homes to view, and Marc arrange appointments for you.

Note: If you prefer to look at homes on your own, simply contact Marc with the MLS# or address of the homes you find interesting. He will arrange appointments to view those homes at a convenient time for you.

For each home to be viewed, you will get an MLS information sheet with space to write your own comments about each home. This is an excellent way of keeping track of your impressions of each home.

Once you find a home you would like to purchase, the next step is to prepare an offer.

The key elements of an offer

• Price - Depends on the market conditions and how much you are willing to pay.
• Deposit - Shows good faith to the seller (typically 5% of the price). The deposit is due at the time your offer is accepted.. It is important to understand that you will need to have 5% of the purchase price available at the time of the offer. This deposit goes into a regulated trust account and is put toward the purchase of the home on the completion date.
• Conditions - After your offer is accepted there are some conditions that have to be met before the offer becomes binding on both sides. Conditions can include: Financing with acceptable terms and rates; Inspection by a qualified home inspector; and approving the Status Certificate in the case of a condominium (not applicable for freehold properties).
• Inclusions and Exclusions - These are the items on the property you would like and would not like as a part of the purchase price. These may include appliances, certain fixtures, etc.
• Offer Acceptance Time Frame - This is the deadline for the sellers to accept, refuse, or counter your offer. Usually it is less than 24 hours.
• Possession, Completion or Closing Date - The day you get the keys and can move into the property. The possession date typically falls 60 or so days after the date of the offer.This is the day the title of the property is legally transferred and the transaction of funds is finalized unless otherwise specified (in other words, the day you have to pay for the home).

The negotiation process:

• Marc presents the offer to the sellers and/or their realtor. He explains and provides evidence and reasons for the contents of the offer.
• After presenting the offer, the sellers and their realtor are left to discuss the offer. They can either accept, refuse or counter the offer.
• If the sellers counter the offer (which means the sellers make changes to your original offer and send it back to you as a new offer) then, Marc will discuss the details of the counter-offer with you. You can decide whether to accept, refuse or counter the seller's return offer.
• The goal is to negotiate the best price, dates, inclusions, etc. for you, and he will always treat your offer like it was his own.
• When you and the seller agree, and all the changes are initialled by both parties, you have an accepted offer. Once the confirmation of execution is signed and dated by the accepting party, the deal is done whether firm or conditional.

In order to achieve a firm offer, we must remove the conditions of the offer, within the required timeframe. It is also time to start thinking about a lawyer you would like to use. You will have to make arrangements for the following:

• Financing

  • Contact your mortgage broker to let them know you have accepted an offer. Also, inform them that you or Marc will be faxing over the required documents. Your lender may do an appraisal of the property to insure that its market value is fair relative to the purchase price. Once the appraisal has been done, you will receive written confirmation of the approval of your mortgage. Now you can remove the financing subject by signing a waiver.

• Inspection
  • Choose a home inspector and set up an appointment with them for the inspection. Keep in mind that it would be best if you could attend the inspection. Let Marc know which inspector you choose, the inspection date, and time, and Marc will set up the appointment with the sellers. On the day of the inspection, the inspector will explain the details of the home you have purchased, and give you a report of what needs immediate attention, future considerations, and ongoing maintenance. Then you can choose whether you would like to proceed in buying the home. The primary purpose of the home inspection is to discover major, less obvious problems with the house or to verify claims made by the seller and his realtor. If there are major fundamental problems, the buyer can walk away from the deal. Otherwise the price could be renegotiated in the form of an abatement to cover the cost of the repairs. This would require mutual agreement.

• Status Certificate (Not Applicable for Freehold Properties)

  • Marc will pick up the status certificate from the condo corporation and pass it on to you or your lawyer. Please read the documents carefully. Once you understand the documents, it is your decision whether you would like to proceed with the purchase and waive the condition.

• Other Subjects

  • Marc will be happy to explain and assist you in waiving any other conditions in the offer.
    
    A separate signed contract addendum will be provided once the time comes. After all necessary parties have signed the waivers, the contract is binding. Note: If you decide not to buy the home after this point, you will likely lose your deposit as well as be sued for breach of contract.

After all conditions have been removed you have to immediately attend to:

• Choosing a lawyer. If you need help finding a lawyer, Marc will be happy to assist you.
• Informing your lending institution of your lawyer.
• Informing your lawyer of your lending institution.

After all the conditions have been removed but before completion (or closing) you should:

• Prepare to make a payment on the completion day.
• Finalize your mortgage and make your down payment available.
• Get home or fire insurance prior to the completion date. When you go to your insurance company, bring the MLS data sheet and/or the inspection report. This will help the insurer understand the details of your home. On occasion the home owner may have difficulty obtaining house insurance due to certain physical issues in the house such as knob and tube wiring or oil tanks. Ask Marc to inform you of the latest relevant issues.
• Finalize your mortgage and make your down payment available.
• Prepare to move.

Land Transfer Taxes

• Calculated on the purchase price of the home using a formula. See Provincial and Municipal Land Transfer Tax calculator

• Rebates are available for these taxes for first time buyers. See Ontario Land Transfer tax rebate details as well as City of Toronto

Mortgage Loan Insurance

• Those mortgages with less than a 20% down payment require mortgage loan insurance. The cost is usually added to the amount of the mortgage. See the CMHC website for details

Goods and Service Tax

• The GST is payable for the purchase of any new home, or a home that has been substantially renovated. A purchaser may be entitled to a GST rebate if they or a relative will be residing in the new home, making the home their permanent residence. See the Government of Canada website for details

Appraisal Fee

• The mortgage lender will require a professional appraisal of the property to determine whether the selling price is reasonable for that market.

Legal Fees

• This is the fee paid to your lawyer. Choose a lawyer who has experience doing real estate transactions. The lawyer will provide you with a detailed list of expenses incurred (photocopies, courier fees, title searches, etc.) as well as their fee. This must be paid on or before the closing date.The fee ranges from 600 to 1500 depending on the Lawyer. (typically $1200)

Survey (Not Always Necessary)

• The cost is approximately $800.00 to $2000 +. A survey certificate is required to ensure that the house in question does not cross over the property line and encroach on another property. Some vendors will already possess a survey of the house, so the purchaser will be able to save cost of getting a survey. Also, surveys are not necessary for strata properties (i.e. condos). Land Titles Insurance can also compensate for a lack of a survey. See a Title Insurance provider's website for details.

Adjustments

• These are prepaid expenses which will need to be prorated between the vendor and the purchaser. For instance, a typical adjustment deals with the property taxes paid to the City or Municipality. The amount paid will be adjusted as of the adjustment date and one party will be required to reimburse the other. Other typical adjustments include strata maintenance fees and utility expenses.

Home Inspection Fee

• Costs depend on the company and size of the home, but they usually range from $275 to $600. This is paid at the time of the home inspection.

Fire Insurance

• Your lender will require you to purchase fire insurance for your home. Costs can vary depending on the coverage you would like. See your insurance agent for more details and the costs.

Moving Costs

• Moving costs depend on the moving company. Charges typically depend on the number of hours and number of workers, but some companies will also charge for insurance.

Note

• The information regarding the purchaser's expenditures is just a guide for one planning to purchase a home. Please consult with a lawyer or your mortgage broker as early as possible to determine the cash requirements necessary to purchase a home.