Question 1: What price of home can I afford?
The price you can afford to pay for a home will depend on six factors:
- Your income
- The amount of cash you have available for the down payment, closing costs and cash reserves required by the lender
- Other debts that you may have such as student loans or car loans
- The type of mortgage that you select
- Your credit history
- Current interest rates
Mortgage lenders will analyze your income in relation to your projected cost of the home and outstanding debts. This will determine the size of the loan you can borrow. Your housing expense-to-income ratio is determined by calculating your projected monthly housing expense, which consists of the principal and interest payment on your loan, property taxes and heating expenses. The sum of these costs is referred to as “PITH.”
If you are purchasing a condominium apartment or townhouse, strata fees are also included in the PITH.
There are two affordability rules that lenders take into consideration:
The first rule, called the Gross Debt Service ratio, only takes into account your monthly income and your monthly PITH. To be considered for a mortgage, your Gross Debt Service Ratio should be 32% or less of your gross household monthly income (i.e., before deductions such as CPP, EI, and taxes).
The second rule, called the Total Debt Service ratio, takes into PITH plus other debt payments such car loans, credit card payments, lines of credit payments, and student loans. Your Total Debt Service Ratio should be 40% or less of your gross household monthly income.
Question 2: In regards to my down payment, should I put more or less down, if we can afford it?
The main advantage to using a small down payment is to be able to have more money left over for making unexpected repairs and renovations. However, if you have a larger down payment, you can reduce the amount of debt that needs to be financed. The size of the down payment as a percentage of the purchase price also impacts the requirement for mortgage loan insurance. Most lenders typically require mortgage loan insurance if the down payment for the home is less than 20% of the purchase price.
In order to obtain mortgage loan insurance, you will typically pay an insurance premium, which can be paid in one lump sum or added to your mortgage and included in your monthly payments. The premium payable is calculated as a percentage of the home’s purchase price that is financed by a mortgage. The amount is can change over time, with more details on the mortgage loan insurance on the CMHC’s Homebuying website.
Question 3: What are the steps that I should take when looking for a home loan?
It is strongly recommended that home buyers are pre-qualified or pre-approved for a loan as their first step in the process. By being prequalified, a buyer knows exactly how much house they can afford. This does not mean they will definitely get the loan because their credit reports, wages and bank statements still need to be verified before you can receive a commitment from the lender for the loan.
Almost all mortgage lenders pre-qualify people at no charge. In order to be pre-approved, an application will be taken. For a fee, your credit report will be pulled, your employment and income will be verified and your chequing and savings accounts will also be verified. The only things remaining will be for you to find a home, obtain an appraisal on it to prove its value to the bank and perform whatever inspections you may want on the property. This process considerably shortens the time frame to closing.
Question 4: Should I purchase a new home or a resale home?
New homes typically have 2-5-10 home warranties (2 year warranty on labour and materials, 5 year warranty on building envelope, and 10 year warranty on the structure), which provides peace of mind that defects on the home will be fixed. In addition, there has usually been no “wear and tear” on new homes.
However, existing homes usually cost considerably less than new homes of a similar size, similar lot size (for single-family homes), and similar degree of amenities.
Question 5: What strategies are used in negotiating home prices?
There are different ways that different home sellers and their selling agents price their homes:
- Some deliberately overprice their homes
- Some ask to close to what they hope to get
- Some underprice their houses in hope of enticing a bid war
Therefore, the advertised list price of a house is only a somewhat general estimate of what the seller would like to receive for their home.
Sale prices and negotiations are also influenced by the motivations of sellers; for example, someone in a divorce or who has bought another home may need to sell quickly and may be more willing to accept lower offers than other sellers.
Although some buyers believe in making deliberate low-ball offers, this can often hurt the negotiating process by angering a seller. The seller sometimes may just reject the offer out of hand and form a negative opinion of that buyer, which will impact any future negotiations for that particular house for that buyer.
Your RE/MAX® LifeStyles Realty — Langley real estate professional will use sale information for comparable home sales in your area to help you determine a reasonable sale price for your home.
Question 6: How do I find out about the condition of the home I’m considering?
First and foremost, it is strongly recommended that you hire a professional person to inspect the home. Many inspectors belong to the Canadian Associated Home Property Inspectors (CAHPI).
Also, British Columbia laws require sellers to complete a Property Disclosure Statement revealing everything known about their property. Home sellers are required to indicate any significant defects or malfunctions existing in the home’s major systems in their Property Disclosure Statements. Review this form in detail prior to purchasing any home or condo.
Question 7: What is title insurance and should I get it?
Title insurance is a form of insurance in favor of an owner, lessee, mortgage or other holder of an estate lien, or other interest in real property. It indemnifies against loss up to the face amount of the policy, suffered by reason of title being vested otherwise than as stated, or because of defects in the title, liens and encumbrances not set forth or otherwise specifically excluded in the policy, whether or not in the public land records, and other matters included within the policy form, such as lack of access to the property, loss due to unmarketability of title, etc.
The title policy form sets forth the specific risks insured against. Additional coverage of related risks may also be added by endorsements to the policy or by the inclusion of additional affirmation insurance to modify or supersede the impact of certain exceptions, exclusions or printed policy “conditions.” The policy also protects the insured for liability on various warranties of title.
In addition, the policy provides protection in an unlimited amount against costs and expenses incurred in defending the insured estate or interest.
Before it issues a title policy, the title insurance company performs, or has performed for it, an extensive search, examination and interpretation of the legal effect of all relevant public records to determine the existence of possible rights, claims, liens or encumbrance that affect the property.
However, even the most comprehensive title examination, made by the most highly skilled attorney or lay expert, cannot protect against all title defects and claims. These are commonly referred to as the “hidden risks.” The most common examples of these hidden risks are fraud, forgery, alteration of documents, impersonation, secret marital status, incapacity of parties (whether they be individuals, corporations, trusts or any other type), and inadequate or lack of powers of real estate agents or fiduciaries.
Some other hidden risks include various laws and regulations that create or permit interests, claims and liens without requiring that they first be filed or recorded in some form so that the potential buyers and lenders can find them before parting with their money.
Question 8: Can I negotiate mortgage rates?
Quoted mortgage rates are not set in stone; they can be negotiated with your bank or credit union. Banks and credit unions will be especially motivated to get your business if you have a good credit rating and other business needs that you can do with them such as RRSPs. By obtaining mortgage rate quotes from various banks and credit unions, you can find out the best rates. You should also ask your bank or credit union whether they will cover appraisal fees. Also ask your bank or credit union about buy-out fees, payment options, terms, and amortization periods . This research can save you thousands or tens of thousands of dollars over the mortgage’s life.
Question 9: Should I buy a fixer-upper?
Fixer-uppers are generally poorly maintained and have lower market values than other homes in their area. If a renovation is well-planned and the buyer has a good understanding of the work involved and a good team of tradespeople to help with the renovations, fixing up a fixer-upper can be a rewording experience.
However, a poorly-planned and poorly-informed renovation can quickly drain a lot of a buyer’s money and cause many headaches. Utilizing the services of your knowledgeable RE/MAX® LifeStyles – Langley real estate agents and an experienced home inspector is important to determining whether a particular fixer-upper is worth purchasing.
Question 10: Can I borrow the money to repair my home?
CMHC provides mortgage loan insurance for the purchase of a home and the cost of any immediate renovations, or for refinancing where funds are used to make improvements which increase the market value of the property. Features:
- Available for purchase or refinance transactions
- Used when the loan includes improvement costs that are less than or equal to 10% of the property’s estimated as-improved value
Question 11: How much of my information does a Realtor need to know when helping me buy a home?
It is important to know who your real estate REALTOR® is representing before you tell them too much. The degree of trust you have in a REALTOR® may depend upon their legal obligation of representation. As a buyer, there are three main scenarios:
- Your real estate agent represents you as a ‘buyer’ and a different real estate agent from a different real estate broker (i.e., company) represents the ‘seller’
- Your real estate agent represents you as a ‘buyer’ and a different real estate agent from the same real estate broker represents the ‘seller’ (‘dual agency’)
- Your real estate agent represents you as a ‘buyer’ and also represents the ‘seller’ (also ‘dual agency’)
In the first scenario, your real estate agent is considered to be at ‘arms-length’ from the ‘seller’ and his or her real estate agent.
In the situations of dual agency, there is a potential conflict of interest because the real estate agent(s) involved may have knowledge of both the buyer and seller’s motivation and financial bottom line. However, in a dual agency, the real estate agents are still bound to not disclose to the buyer that the seller will accept less than the list price, or disclose to the seller that the buyer will pay more than the offer price, without express written permission. In cases of dual agency, a Limited Dual Agency Agreement must be agreed upon by both seller and buyer.