Making the right choice when it comes to purchasing a home is a matter of good planning, not good luck. No one person can be expected to know everything, so it’s important to surround yourself with qualified professional assistance throughout the process.
What can I afford?
The first step is to review your current expenses thoroughly. Find out how much added expense will be incurred in taking on a mortgage. Before you embark on your housing search, it’s a good idea to get a pre-approved mortgage, especially if you’re a first time buyer.
A pre-approved mortgage lets you know how much money you qualify for, so when you’re looking at houses, you will know what you can afford and can shop in comfort. When you sit down with your lender or his agent to pre-qualify, it’s a good idea to review all your questions at that time.
To determine affordability, your mortgage agent will look at your Gross Debt Service Ratio (GDS) and your Total Debt Service Ratio (TDS). The GDS ratio is based on what you can afford to pay each month and it includes mortgage payments, taxes and heating. Our maximum GDS ratio is 32%.
Agents also help you estimate the carrying cost with the Total Debt Service Ratio. The maximum TDS ratio is 37 per cent (40 per cent if it’s CMHC) and this includes items covered under GDS plus all other financing obligations.
If these are near the maximums, your mortgage agent will help you do a complete budget analysis based on net income looking at current and projected budgets to determine what you can actually afford and what size of mortgage payment is realistic.
This pre-qualifying stage is also the time to find out about the differences between conventional mortgages and high ratio insured mortgages. Ask about assistance for first time homebuyers such as the five per cent down payment allowed under the ``First Home Loan Insurance Program`` sponsored by the Canada Mortgage and Housing Corporation (CMHC) and the federal government’s ``RSP Homebuyers Plan`` letting you use funds from your RSP to purchase a home.
Treat your pre-qualification meeting with your mortgage agent as a fact-finding mission to go over closing costs, too, such as land transfer taxes, legal fees and other disbursements. And let’s not forget that if you buy a new home from a builder, you will pay the seven per cent GST on its purchase price. A good rule of thumb is to budget about three per cent of the purchase price for closing costs.
Before you’re automatically pre-qualified, your mortgage agent will need to run a credit bureau report and receive written confirmation of income and how much you plan to put down on your purchase.
Once you’re pre-qualified, the interest rate at which you pre-qualify is frozen for 60 to 90 days from the time of your application. If rates drop below what you pre-qualified for, you’ll get the lower rate and if they rise, you’re covered. Just because you pre-qualified for a mortgage at a certain financial institution, you’re by no means obligated to obtain your mortgage through that particular bank.
Applying For Your Mortgage - A Checklist
• A copy of the accepted Offer To Purchase and the land survey.
• A salary letter from your employer.
• Self-employed individuals need financial statements for the past three years as well as personal income tax returns.
• Confirmation that your down payment came from your own resources (i.e. bank statements or a gift letter).
• A list of all your assets and debts along with account numbers.
• A copy of the Real Estate Listing if buying an existing home.
• Condominium financial statements, if applicable.
• If you are buying a home to be constructed, bring a picture of the property, a copy of the building plans and specifications, the land survey, plus your agreement with the builder.
• Your mortgage agent can help you determine how much you can afford (perhaps even obtain a pre-qualified approval), and you’ve selected a Mortgage that’s right for you. This allows you to act quickly when you find the perfect home. As soon as your real estate agent draws up an Offer To Purchase between you and the vendor (this agreement sets the final price and all the conditions of sale), go back to your mortgage agent and your deal is almost complete.
Before Signing the Offer
The same advice applies to selecting your lawyer as to your real estate agent. Competitive fees, excellent service, knowledgeable, approachable and, in a word, VALUE...make sure that you get the right combination of price and service.
It’s not a bad idea to involve your lawyer before you sign the Offer, which becomes the legal Agreement of Purchase and Sale once signed by both the buyer and seller. If you wish, have your lawyer read the document carefully and review it with you. Once signed and accepted, your lawyer will order a series of searches from various municipal offices. This is to ensure that the vendors have not been sued and that they have paid all of their realty taxes, hydro, water and gas bills; and that there will be no old mortgages or liens on the property once you become the owner.
Your lawyer will also draft a series of closing documents, and will review the closing documents drafted by the lawyer for the vendor, since both lawyers participate in this process.
Your bank and lawyer will co-ordinate and draft the appropriate documents. Your lawyer will notify the property tax offices as well as the utility offices that you will be the new owner as of the closing day.
A few days before closing, you will visit your lawyer’s office to sign the closing documents. Then you bring a certified cheque for the balance of the closing funds, because the lawyer pays the relevant parties on your behalf (land transfer to the government, balance owing to the vendor etc.) Part of that amount covers the lawyer’s fee and the disbursements incurred. The lawyer obtains the mortgage funds directly from the lending institution.
Finding and Purchasing the Right Home
When it comes to the largest purchase in one’s life, the key phrase is ``you’d better shop around``. Don’t settle on the first home you see.
Decide where you want to live based on such things as transportation, distance to work, proximity to schools, day-care, recreation facilities, shopping, health care etc. When you hear ``10 minutes to downtown``, find out if that was determined at 2 a.m. in a race car!
Next, find a real estate agent who is really interested in giving you service...whose attitude and availability indicates that they are working for you. Do this by seeing who’s most active in your neighbourhood. An agent who actively makes sales calls, who keeps you informed of sales or listings in your area, or who leaves flyers at your door is one who is aggressively involved in pursuing business.
Set up appointments with a few agents from different companies and assess their presentation package to you. Are they prepared? Have they done some homework in advance? Do they have any special affiliations or packaged discount programs with other corporations where you can save on your mortgage, on moving costs or on household purchases for your new home? You’ll want to work with someone you relate to, with whom you have some chemistry, and who offers you excellent service and value. Make sure you ask if the Realtor is acting for a vendor or for you.
Making House Hunting Fun
There’s no shortage of information available to help you make an informed purchase decision. Banks, as well as CMHC, the Canadian Bankers` Association, the Ontario Real Estate Association and the Home Builders` Association all have brochures (even videos) to make house-hunting stress free and fun. Take the guesswork out of shopping for a home by taking advantage of all the professional resources available to guide you through the many choices available when purchasing your first home.
Mortgage Life Insurance
You should look at mortgage life insurance, especially where two incomes are involved. The cost is low and can be incorporated with your mortgage payments. Your balance will be paid in full (the maximum varies with different financial institutions) in the event of death, terminal illness, or permanent disability. These quotes are available with each mortgage approved on the system. However, I suggest that you should compare this with your personal term insurance as well because the rates of term insurances have gone down significantly in last 3-4 years.
On Closing Day
On closing day, your lawyer will meet a representative from the vendor’s law firm at the land registry office. There, your cheque will be exchanged for the keys to your home and the two side’s trade closing documents. The purchaser’s legal representative will then register the new deed and mortgage, so that anyone doing a search will learn that you are the new owner. Finally, you pick up the keys and YOU`RE IN!
For further information or clarification I can be reached at 416-560-6951 or at my toll free pager 1-877-366-3487 or by email at
The Mortgage Alliance Company Of Canada
1-877-366-3487 24 hour pager
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