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I am an IT guy and was not knowing anything about mortgage/house buying. Recently I bought a house after one and half year of immigration to Canada, and it is better than what I thought. Hence, I would to share my thoughts which might help or at least get a different perspective.
There are lots of good articles in this site where you can get the details. I just thought to cover it very high level. Some of my ideas or perceptions might be diluted and need corrections. Feel free to give honest feedback and your experience on it.
I suggest all the immigrants to look for buying house to save what they earn and build equity. This will be your first vehicle to rebuild career, put your children in best school, earn more money, start investment so on and so forth. Here are some tips which might help. Handle the whole thing as a project and act professionally as much you can.
Why we need to buy it desperately -->
-Rent cost and mortgage payment cost varies somewhere between 25-30%. With a little bit of effort and very good planning you can buy house instead of wasting the money in rest. I was paying rent of $1100 x 12 = $13200 per year which was almost one fourth of my salary.
-Treat it as investment and think having a fixed shelter on your head as bonus. You should be willing to sell it after some years to go for a better house or move to a place near to your job location. But buy something now to start saving right away.
Who can get loans?
-You must have a stable income, working and earning record for last 1 year.
-Shop around. All Banks and lot of financial institution are ready to give you loans. Use Internet extensively for this.
-Spend some time to compare.
Various avenues to get money -->
-Plan to raise your income
-Get ready to put your spouse to earn something if needed and plan for it.
-Check whether you can do some part-time, weekend work etc if needed for the time being.
-Check how much Line of Credit you can have and apply for it
-Check who can give you minimum down payment. Some bank gives your down payments too. Only $5000 you require to have.
-Get some credit cards applied for emergency
House selection -->
-Sit with map and know your neighborhood.
-Make a statistical ranking of what is your long term and short term goal and give weight age to those.
-From TDSB find out which schools are best and where they are. Visit those places and check whether you can stay there.
-Find out which area you area you should buy based on five major factors :
Best Schools, Office Commuting time / Transport facility, Job availability,
Peaceful neighborhood, Affordability of house in that area based on your income,
Real Estate price appreciation in that area
-Give less weight age to stay near your community people, as you can always drive. Toronto is a small place to go in any direction.
-Find what are the pros and cons of buying Apartment/Condo, Condo Town House, Semi detached, fully Detached etc. Also, find which one will suit your need and affordability at least for five years.
-Find how much square fit you require, and which all appliances and furniture you get automatically.
-Make a sweet spot for all the above based on your need. Don’t get carried away with look and feel or what people say. Check whether your goals are satisfied and house you are buying is trouble free, peaceful where you can focus more on your work, career, education and quality of life.
-Get some feature checklist to judge the quality of house. Get to know from your friends, connections or websites.
-Give weight to availability of place, shopping/food complex near your house
-Evaluate security you want in your house or neighborhood. After all Safety first specially if you are near to downtown or city areas.
-Find family doctor, library, and community center availabilities
One time cost -->
- $5000 down payment
-Lawyer payment $1000-$1200
-Land Transfer fee to lawyer
-CMHC insurance and 8% PST on CMHC (if you have very less down payment)
-Phone, Cable, Internet, Gas, Electricity setup / transfer cost
-Title Insurance
-Mover cost
-Inspection Cost
-Closure Cost
-Painting cost
-Cleaning cost
-Overlapping rent cost (this can be avoided)
-Keep 30 to 0% of above calculated onetime cost extra in case you need as an emergency
Increase / Adjustment of family running cost -->
-Mortgage payment
-Property Tax (sometimes bank handles)
-Condo Management fee (if Condo is bought)
-House insurance
-Gas / Heating cost
-Electricity cost
-Life Insurance / Mortgage insurance
-Home Security
-Water Tax
-Commuting cost
-Furnace, Boiler, heater maintenance costs
-Keep provision of 10-25% extra to cover up hidden costs e.g. repairing, fees etc.
What all planning activities are required?
-Get some pre-approval from Bank/Financial done
-Get minimum down payment and maximum period to payback. If you have more money later, have the option to pay lump sum anytime and reduce the principal.
-Go for Bi-weekly mortgage payment. This will work as miracle and save you unthinkable amount of money and period of payback.
-Get your budget range fix
-Get all websites where you can see all house listed for sale
-Find Life Insurance/Mortgage insurance details. According to me Life Insurance is cheap and far better option than Mortgage insurance
-Find House inspector
-Find a very good lawyer who spends time to answer your queries
-Find House Insurance. Normally it comes bundled with your car insurance.
-Have a checklist what type of house you want and prefer
-From your lawyer, banker and real estate agent get a comprehensive chart of all payments required when when exactly you have to have the money ready
-Find exact Closure cost from lawyers and real estate agents
-Don’t forget to do Title insurance from your lawyer to protect yourself from ID theft
-Know details of closure activities
-Know about Gas, electricity, Furnace, boiler, Air conditioner, water payment and transfer logistics to your name
-Find maintenance contract details of your boiler, air conditioner, furnace etc.
-Get some handy man contacts ready
-Shop around Security system you need to install
-Shop House Inspector
-Find your parking requirement affect to your car insurance due to change of location
-Find Internet, cable and phone cost
-Make a solid checklist for all change of addresses. Some change of addresses you need to do before movement, and some after. Line those up properly. I had 35 change of addresses got carried out.
-Have some checklist or understanding ready how to judge the quality of your house
-In case of buying Condo/Condo Town House find details abut management fees etc.
-Find some reliable real estate agents in the area where you want to buy, and start looking for house. Go with your entire checklists to judge the quality of house, neighborhood, and objectives.
Select a very good mover and go for fixed price contract. It was a nightmare for me when I went for hourly contract.
Risk Assessment -->
-Anything of the above if you can’t satisfy is risk. Don’t ignore those e.g. if your income is not sufficient to run the family after taking house, then wait or find some avenues.
-You should spend time calculating exactly your onetime cost, hidden cost and family running cost.
-If you cannot stick to the above objective and subjective criteria, then those are risk and you will face those either losing money or comfort in future.
-Keep 10-20% percent buffer money for hidden cost after your take house. No one can tell you what are those and from which directions those can come. E.g. you might have emergency to travel to your homeland etc.
What long time benefit you will get ?
-Develop Equity / savings
-Good education for kids
-Less commuting time and hence better quality of life
Refinancing -->
-Think about refinancing after two three years. If you have already squared off 25% of principal, then you can refinance and save a lot.
Comparison with other country real estate investment -->
-In USA and India, you get tax benefit, but here you don’t.
I have some actual checklist used my me to select a house, mortgage calculator, onetime, regular family cost and address change worksheets. These are developed after talking to real estate agents, financial analysts and bank managers. Also, I have all websites URLs of real Estate agents, Banks, Insurance etc.
If you want to know more then contact alok.sarma@gmail.com
Bets of luck!
Regards
Alok Sarma
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