FIRST TIME BUYER/INVESTOR
Click
on one of the articles below to view the tips and articles
Helpful
Hints On Buying A Home
Consider
Hidden Costs When Buying a Home
How To Cut
Years Off Your Mortgage
Understanding
Your Relationship With Your REALTOR®
Understanding
Real Estate Terminology
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Helpful
Hints On Buying A Home
Buying a home is likely one of the biggest investments
you'll ever make. You'll need to make a number of decisions about this
purchase that should be based on the best information available.
The best advice you can obtain on buying a home will come
from a real estate professional -- a REALTOR.
REALTORS are members of The Canadian Real Estate Association
who subscribe to a strict Code of Ethics and high Standards of Business
Practice. The Real Estate Board of Greater Vancouver are members of
both the British Columbia and Canadian Real Estate Associations.
The following is a list of services you can expect to receive
from a REALTOR when you buy a home:
1. Your REALTOR is familiar with the local lending market
and assessing the many financial alternatives is an important consideration
when buying a home.
2. A REALTOR can help you develop a composite picture of
the home that will best meet your needs -- size, style, features, location,
proximity to schools, hospital, shopping, etc.
3. A REALTOR has access to hundreds of current listings
of homes for sale, because of a cooperative listing feature called the
Multiple Listing Service® MLS® system, and can evaluate them in terms
of your needs and what you can afford. You won't waste your time looking
at homes you cannot afford or that are not suitable.
4. A REALTOR will have information on zoning changes, taxes,
utility costs, school and recreation services that could affect your
decision to buy a home in a specific area.
5. A REALTOR has no emotional ties to any type or style
of home and can be objective in pointing out the merits of one home
over another.
6. A REALTOR will assist you in negotiating the terms of
your purchase. Presenting offers and handling counter offers can be
a nerve-wracking process for someone who is not experienced in the art
of negotiating.
7. Finally, a REALTOR will advise you of the legal process
required to obtain title and take possession of your property. The costs
associated with purchasing a home such as insurance, mortgage registration
and legal fees will be explained in detail.
The REALTOR's knowledge and skill can help in many ways
to make the experience of buying a home a pleasant and rewarding one
for you and your family.
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Consider
Hidden Costs When Buying a Home
Homebuyers, especially first-timers, often are not
prepared for the additional costs involved in purchasing property. While
the purchase price of the home is by far the largest cost, it's important
to take into account the numerous direct and indirect expenses related
to getting a mortgage and gaining ownership. While different costs will
apply in each case, here's a list of things to budget for:
MORTGAGE APPLICATION FEE
It costs lenders money to process your application and some
may pass these costs on to you. However, with the highly competitive
nature of the mortgage industry, many will waive this fee, especially
if you have other accounts with them.
APPRAISAL FEE
Before lending you any money, most finance companies will
have their own appraiser determine the value of the property. The borrower
pays the cost of the appraisal which will be at least a few hundred
dollars. You may be able to avoid this fee if the property has been
evaluated within the last three months by a professional appraiser.
LAND SURVEY FEE
Many lenders require a plot plan or survey of the property
you intend to purchase. The survey confirms the property's boundaries
and ensures there are no structures, like fences, in the wrong place.
If the property is located in a subdivision in an urban area, some lenders
will accept an existing survey as long as it was done within the past
five or ten years.
INSPECTION FEE
Before issuing a mortgage, some lenders may require a professional
inspection of the home. For peace of mind, you may want the home inspected
anyway. Regardless of how well we look at a home, few of us have the
training to uncover major structural flaws and maintenance problems
that are not readily apparent. Ask your REALTOR or lawyer to add a conditional
clause to your offer to purchase, making it subject to a satisfactory
home inspection. It's well worth the cost, which is usually no more
than a few hundred dollars.
MORTGAGE INSURANCE
This protects the lender against default when you apply
for a high-ratio mortgage (where you put down less than 25 percent of
the appraised value or purchase price). The cost to you ranges from
1.25% for 20% down, to 3.75% for 5% down, and is added to the mortgage
principal.
MORTGAGE LIFE INSURANCE
This is a form of term life insurance that pays off the
balance owing on your mortgage if you or your co-borrower dies. Many
lenders offer you the option of buying this insurance and adding it
onto your monthly payments. You may prefer to protect yourself by taking
out your own policy instead. Talk to your insurance agent.
FIRE AND LIABILITY INSURANCE
Most lenders require that you carry fire and extended coverage
insurance that well exceeds the outstanding balance on the value of
the home. You'll want to have fire and weather-related damage protection
any way. Public liability is often included in home insurance coverage
and you may want to have this as well.
LEGAL FEES
Your lawyer is a key part of your home-buying team. You
can expect to pay all legal fees required to arrange the mortgage, as
well as "disbursements" - the costs involved in conducting a title search,
drawing up the title deed, and preparing and registering the mortgage.
OTHER COSTS
These include the cost of adjustments to property taxes,
utility bills, heating oil, etc., for which the seller has already paid
and will want credit for the unused portion. To avoid any surprises,
ask your REALTOR to explain each cost that you're likely to incur.
MAINTENANCE AND UTILITY COSTS
In addition to budgeting for your monthly mortgage and property
tax payments, you'll have to budget for the monthly cost of heating,
electricity and related costs of your new home.
GOODS AND SERVICES TAX
Although the Goods and Services Tax (GST) is collected on
the sale price of goods and services, it doesn't apply to every type
of home sale or every form of real estate service. You will be required
to pay GST on some of the aforementioned fees. As a general rule, purchasers
of homes that have been lived in or used do not pay GST on the price
of the home. If the home is new and it will be your primary residence,
you may have to pay the GST. However, you may also qualify for a partial
rebate depending on the sale price. Your REALTOR will be able to provide
you with information.
This article is provided by theVancouver Island Real Estate
Board for the benefit of consumers in the real estate market.
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How
To Cut Years Off Your Mortgage
Few people can buy a home for cash. Most of us have
a difficult enough time saving the money needed for a down payment.
To realize the dream of home ownership, we usually have to combine our
savings with borrowed money through a financial arrangement called a
mortgage.
Paying off a mortgage is usually a long-term commitment
over many years. Most homeowners would like to be mortgage-free sooner.
Even if you lock into a long-term mortgage with an affordable interest
rate, many lenders today offer the flexibility to pay down the principal
and interest faster than scheduled.
To ensure you have the flexibility to cut years off your
mortgage, you need to look at the options and understand them before
you buy.
When house hunting, ask your REALTOR to help you calculate
how much mortgage you can afford. Your REALTOR will also be able to
explain the many financial options available. Before buying, shop around
and compare what different lenders (banks, trust companies and other
financial institutions) have to offer. You'll want to compare not only
interest rates, but the different types of payment and prepayment options
offered.
The typical mortgage
Typically, mortgages are amortized over 25 years. This is
the length of time it will take you to pay the principal, or amount
borrowed, plus interest, off in full. Lenders provide money at a variable
or set interest rate for a specific period or term, ranging anywhere
from six months to 10 years.
Most common is the conventional mortgage, where a lender
will loan up to 75 per cent of the appraised value of the home or the
purchase price, whichever is lower. The remaining 25 per cent is what
the buyer contributes as a down payment. Some lenders offer high-ratio
mortgages, which require only 10 per cent down if a buyer qualifies.
Government-assisted mortgages enable eligible buyers to borrow up to
95 per cent of the value of a home.
Despite prepayment privileges in many cases, most mortgages
are "closed". This means they can't be paid off in full without penalty
until they mature at the end of their term. "Open" mortgages can be
paid off at any time without penalty, but they usually bear a higher
interest rate. Still, there are other ways of paying that mortgage off
faster, without paying a high price.
Get the best interest rate
Interest rates can make a huge difference on payments. Study
the market. If rates are falling, take out a short term and lock into
a longer term when rates have fallen even more. If rates are rising,
lock in for a longer term. If the rates keep fluctuating, take advantage
of options offered by lenders such as short-term convertible mortgages,
where you can lock into a fixed rate at any time; or variable rate mortgages,
where rates change along with market fluctuations. The key is to keep
your payments as low as possible, so that you can take advantage of
other options such as double-up payments and annual lump sum payments.
Shorten the amortization period
The average amortization period is 25 years, but you can
arrange for a shorter period. The shorter the period, the larger your
payments, but the more you save on interest and the long-term cost of
your loan. This is a great idea when interest rates are low and you
can afford larger monthly payments.
Accelerate your payments
Few people can buy a home for cash. Most of us have a difficult
enough time saving the money needed for a down payment. To realize the
dream of home ownership, we usually have to combine our savings with
borrowed money through a financial arrangement called a mortgage.
Double-up payments
Some lenders allow you to make additional payments against
your mortgage balance (up to the equivalent of a full monthly payment)
occasionally, or even every payment date. The extra payment is directly
applied to your mortgage principal to reduce the total balance. Making
the equivalent of just two additional monthly payments a year can cut
years off your mortgage.
Lump sum payments
Some lenders allow you to prepay a one-time lump sum each
calendar year. This lump sum, along with other annual pre-payment privileges,
generally does not exceed 10 to 20 per cent of the original principal
amount of the mortgage. Once again, the money goes directly to reducing
your principal. However, when the term of your mortgage is up, most
lenders will allow you to make any size repayment at no extra charge.
Annual payment increase
If you feel you can afford slightly higher payments, many
lenders today allow you to boost your regular mortgage payments once
each year throughout the term of your mortgage and to apply that increase
directly to reduce your principal. By increasing your payments by as
little as $15.00 or $20.00 per month, you can also cut years off your
mortgage.
Re-Finance your mortgage
If you have a fixed, closed, long-term mortgage and rates
have fallen more than two per cent, you may want to re-finance the loan
to get the better rate. The cost of re-financing can be very high. To
discharge your closed mortgage, you with either have to pay three months'
interest penalty or an "interest differential" which can cost considerably
more. Calculate carefully and seek expert advice before re-financing,
or you could end up paying more than if you stayed the course on your
current rate.
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Understanding
agency relationships with your REALTOR®
Buying or selling a home may be the most important financial transaction
you'll ever make. So it's a good idea to take a moment and consider
the kind of relationship you will be entering into with a Realtor.
Realtors work within a legal relationship called agency. The agency
relationship is established through a contract between you, the client,
and your agent, the company under which the Realtor is licensed. Most
Realtors use a blue brochure titled Working with a Real Estate Agent
to disclose the nature of the agency relationship with their client.
A Realtor can act for a seller or a buyer, or to a limited degree,
both. Whomever they represent, Realtors have a legal obligation to uphold
the integrity of their clients, while protecting and promoting their
interests.
Realtors also commit to:
- Protect the client’s negotiating position at all times.
- Provide undivided loyalty and keep the confidences of the client.
- Adhere to a strict Code of Ethics and a high standard of practice.
- Exercise reasonable care and skill in performing all assigned duties.
- Be accountable for all money and property placed in the agent’s
hands while acting for the client.
Seller’s Agent
As a seller, your Realtor’s professional marketing skills and networking
connections can help in obtaining the maximum market value for your
home. During negotiations, you can rely on your Realtor to represent
your interests and provide advice on price, possession and closing date.
In order for your Realtor to list your property for sale on the Multiple
Listing Service® (MLS®), the Real Estate Board of Greater Vancouver
requires completion of a listing agreement. By signing the listing agreement
with you, your Realtor has committed to uphold the obligations mentioned
above. The listing agreement also states the amount of compensation
that the seller will pay the Realtor.
Buyer’s Agent
The buyer can benefit from agent representation, too. The Realtor’s
expert knowledge of the neighbourhood, future development plans, taxes,
zoning, transportation, schools, and community services will help you
select the property that meets your needs. By combining personal knowledge
with research, your Realtor will be able to provide a comparison of
similar properties and market statistics. Your Realtor will also advise
you on financing options and make recommendations of other professionals
needed to complete the sale.
The contract of purchase and sale is initiated when an offer is made
by the buyer to purchase the seller’s property. The contract outlines
the terms and conditions of the offer, such as offer price and any subject
conditions. The seller may reject the offer or make a counter offer.
Once all terms have been accepted and both the seller and the buyer
have signed the contract, each party is legally bound to fulfill the
conditions of the contract.
Dual Agency
Dual agency is created when an agent represents both the buyer and a
seller in a single transaction. This can happen if a Realtor who is
representing a buyer sells one of his or her own listings to that buyer
(see diagram on bar).
A dual agent must be impartial to both the buyer and the seller and
fully disclose all information pertinent to the transaction. A Realtor
can be a dual agent only if both the seller and the buyer agree in writing.
Remember: always read all contracts and disclosure forms before signing.
If you have questions regarding agency relationships contact your Realtor.
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UNDERSTANDING
REAL ESTATE TERMINOLOGY
If you're thinking of buying a home for
the very first time, the process may seem a little confusing -- even
intimidating. You'll find yourself immersed in what may seem like a
whole new language as you hear terms like "encroachments," blended mortgage
payments," "buy-downs" and "debt service ratios."
To help you better understand the language of real estate,
the Vancouver Island Real Estate Board has compiled a glossary of some
of the most common real estate terms which you're likely to encounter.
When reading it over, keep in mind that the list is by no means exhaustive.
Still, it's a general list which will give you a basic understanding.
Adjustment Date: The day from which all
calculations of interest, tax adjustments, utility bill adjustments
(if applicable) are made to the credit of either the buyer or the sellers.
This is usually (not always) the same as the possession date.
Amortization: The number of years it takes
to repay the entire amount of the mortgage.
Appraised Value: An estimate of a property's
market value, used by lenders in determining the amount of the mortgage.
Assessed Value: The value of a property,
set by the BC Assessment Authority, for the purposes of calculating
property tax.
Buy-down: When the seller reduces the interest
rate on a mortgage by paying the difference between the reduced rate
and market rate directly to the lender or to the buyer.
Closing: The real estate transaction's
completion, when the parties involved agree that all legal and financial
obligations have been met and the deed to the property is transferred
from the seller to the buyer.
Condominium Common Property: The portions
of a condominium development owned in common (shared) by the unit owners
e.g.: pool, exercise room, lobby, etc. A strata fee is charged to every
unit owner for the use of the common property.
Condominium Ownership: Shared ownership
in a strata-titled property. Owners have title (ownership) to individual
units and a proportionate share in the common property.
Conventional Mortgage: A first mortgage
issued for up to 75 per cent of the property's appraised value or purchase
price -- whichever is lower.
Conveyance: The term used to describe the
process of transferring the seller's title to the buyer and indicates
all the necessary steps to complete the transfer. A conveyancer is a
lawyer or Notary Public responsible for the conveyance process.
Counter-offer: An offer made by the seller
back to the buyer altering one or several terms and/or conditions of
the offer as originally written.
Gross Debt Service (GDS) Ratio: This is
the amount that a lender will permit a borrower to use from his/her
gross income in order to qualify for a loan for housing costs, including
mortgage payment and taxes (and condominium fees, when applicable).
Total Debt Service (TDS) Ratio is the maximum percentage of a borrower's
income that a lender will consider for all debt repayment (other loans
and credit cards, etc.), including a mortgage.
Deed: A legal document that conveys (transfers)
ownership of a property to a buyer.
Easement: A legal right to use or cross
(right-of-way) another person's land for limited purposes. A common
example is a utility company's right to run wires or lay pipe across
a property.
Encroachment: An intrusion onto an adjoining
property. Common examples are a neighbour's fence, storage shed or overhanging
roof line that partially (or even fully) intrudes onto your property.
Equity: The difference between the price
for which a property can be sold and the mortgage(s) on the property.
Equity is the owner's stake in the property.
Foreclosure: A legal process by which the
lender takes possession and ownership of a property when the borrower
doesn't meet the mortgage obligations.
High-Ratio Mortgage: Is a mortgage that
exceeds 75% of the loan-to-value ratio; must be insured by either the
Canada Mortgage and Housing Corporation (CMHC) or a private insurer
to protect the lender against default by the borrower who has less equity
invested in the property.
Lien: Any legal claim against a property,
filed to ensure payment of a debt.
Mortgage: A contract between a borrower
and a lender. The borrower pledges a property as security to guarantee
repayment of the mortgage debt.
Mortgage Insurance: Government-backed or
private-backed insurance protecting the lender against the borrower's
default on high-ratio (and other types of) mortgages.
Mortgage Life Insurance: Insurance that
pays off the mortgage debt, should the insured borrower die.
Mortgage Penalty: Is a fee paid by the
borrower to the lender in exchange for being permitted to break a contract
(a mortgage agreement); usually three months' interest, but it can be
higher or it can be the equivalent of the loss of interest to the lender.
Multiple Listing Service® (MLS®): A current
and comprehensive listing system for relaying property information to
REBGV's REALTORS. This service offers the widest exposure to properties
listed for sale and includes total exposure on the Internet (mls.ca).
Principal: The mortgage amount initially
borrowed or the portion still owing on the mortgage. Interest is calculated
on the principal amount.
Property Condition Disclosure Statement:
This form enables sellers to disclose known defects. If the seller decides
not to complete the form and does not disclose known defects, he or
she is still held liable. The form also serves as a checklist for buyers
enabling them to address concerns about the property's condition on
the spot. The form was developed by the British Columbia Real Estate
Association.
Property Taxes: This levy is affected by
location and is determined by local property tax assessment practice.
Tax assessments are conducted by local governments. They are paid on
an annual basis.
Property Transfer Tax: Payment to the provincial
government for transferring property from the seller to the buyer. However,
first-time buyers are exempt under certain circumstances.
REALTORS: Real estate professionals who
are members of the Real Estate Board of Greater Vancouver and the British
Columbia and Canadian Real Estate Associations. Only these professionals
can call themselves REALTORS.
Rights of Way: Are indicated on title at
the Land Title Office; often for use of utilities or city or municipality
on order to make repairs to pipes, etc.; no permanent structure may
be built on a right of way.
Statements of Adjustments: Closing statements
in a real estate transaction which set out the sources of funds which
make up the purchase price, adjustments to and from the purchase price,
the final amount required from the buyer and the amount due to the seller.
Lawyers will prepare a statement for the seller and the buyer.
State of Title Certificate: A copy of the
title which lists charges against the property e.g.: liens, mortgages,
rights of way, etc.
"Subject-To" Clause: A statement of a condition
to be fulfilled before the contract will become firm and binding; must
include a specific deadline for removal.
Title: The legal evidence of ownership
in a property.
Title Search: A detailed examination of
the ownership documents to ensure there are no liens or other encumbrances
on the property, and no questions regarding the seller's ownership claim.
Utility Taxes: Examples may include water,
sewer and garbage (may include recycling levies).
Variable Rate Mortgage: A mortgage for
which payments are fixed, but whose interest rate changes in relationship
to fluctuating market interest rates. If mortgage rates go up, a larger
portion of the payment goes to interest. If rates go down, a larger
portion of the payment is applied to the principal.
Seller Take-Back Mortgage: When sellers
use their equity in a property to provide some or all of the mortgage
financing in order to sell the property.
(These
articles are provided by the BCREA for the benefit of consumers in the
real estate market. Copyright British Columbia Real Estate Association.
Reprinted with permission.)
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Royal LePage Westside
5970 East Boulevard
Vancouver, B.C.
V6M 3V4
Tel : (604) 261-9311
Fax: (604) 261-6648
Toll-free:
1-888-661-9311
E-mail:
hazeltan@shaw.ca
Web
sites:
http://www.royallepage.ca
http://www.hazeltan.com
http://www.hazeltan.ca
http://www.SouthGranvilleHouses.com
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