Mark's Blog

Ready to Buy?

Mark Fidgett - www.NotaPennyDown.com — Fri, 16 May 2008 09:48:55 -0500

Ready to Buy?

Making an Offer to Purchase


	Offer to Purchase: A written contract setting out the terms under which the buyer agrees to buy the home. If the Offer to Purchase is accepted by the seller, it forms a legally binding contract that binds those who have signed it to certain terms and conditions.

Once you have found the home you would like to purchase, you need to present the vendor with an Offer to Purchase or an Agreement of Purchase and Sale. As your home is probably your biggest investment, it would be wise to work with your real estate agent and/or a lawyer/notary in preparing your offer. Remember that the Offer to Purchase or Agreement of Purchase and Sale is a legal document and should be carefully prepared.

Any offer or agreement will typically include:

Your legal name, the name of the vendor and the legal civic address of the property.

The purchase price offered.

The chattels that will be included in the purchase price (e.g.: window coverings, appliances or a satellite dish). Whatever items in or around the home that you think are included in the sale should be specifically stated in your offer.

The amount of deposit.

The closing day (date you take possession of the home) — usually 30 to 60 days from the date of agreement. It can also be 90 days or longer.

Request for a current land survey of the property.

Date when the offer becomes null and void.

Any other conditions that go with the offer, including property inspection and approval of mortgage financing.

The process of making an offer, receiving a counteroffer and then revising it again is not uncommon. The whole process can seem like a roller coaster ride — exciting, but stressful. It's all part of making the deal work best for you and the vendor.

The diagram below outlines the entire process for you in detail.

Steps for the Offer to Purchase

You
Your real estate representative helps you prepare an Offer to Purchase.This offer should include all the details of the sale.	You may want your lawyer to look at the offer BEFORE you show it to the vendor, because it is a legally binding document.	Your real estate representative or lawyer will then present the offer to the vendor, who will accept (1), make a counteroffer (2) or reject (3).
Vendor
Situation 1 The vendor accepts your offer. The deal is concluded.
Situation 2 The vendor may make a counteroffer, asking for a higher price or different terms.	You sign the offer back to the vendor with a higher price than your original offer, but lower than the vendor’s counteroffer.	The vendor accepts this counteroffer. The deal is concluded.
Situation 3 The vendor may make a counteroffer, asking for a higher price or different terms. If a counteroffer is returned to you at a higher price, ensure that you know exactly how much you can afford before you start negotiating.You don’t want to get caught up in the heat of the moment with costs you can’t afford.	You reject the counteroffer and decide not to make a subsequent counteroffer.	The sale doesn’t go through and your deposit is returned.

When you make an Offer to Purchase, your real estate agent or your lawyer/notary will most likely add certain conditions to it, making it a conditional offer. This means that the contract will only become final when the conditions are met. The following three conditions are generally standard in an Offer to Purchase, especially for first-time buyers:

A satisfactory home inspection report

A property appraisal

Lender approval of mortgage financing to finance the purchase

Once these requirements are met, the conditions are removed and the Offer to Purchase becomes final.

Home Inspection

It is always a good idea to have the home you are buying inspected by a knowledgeable and professional home inspector. The inspector will go through the property and perform a comprehensive visual inspection to assess the condition of the house and all of its systems. When you receive the home inspection report, you and your real estate agent will have to discuss how required repairs may affect the sale price that was agreed upon.

New Home Warranty Programs

A home inspector is not used as frequently for new homes if the builder provides a New Home Warranty. Warranty coverage varies from one province to another, but typically covers labour and materials in your new home for at least one year after completion. It is also intended to address structural defects for a minimum of five years, and up to ten years with some extended coverage options. A dollar cap is common. Before you sign a contract for a new home, contact your New Home Warranty Program office for a list of registered builders in your area.

For Condominiums or Strata Units

To buy a resale condominium or strata unit, you will have to get a satisfactory Estoppel Certificate or Certificate Status (does not apply in Quebec). This should be included as a condition in the Offer to Purchase. If condominium living is your housing choice, ask for CMHC’s free publication called Condominium Buyers’ Guide.

Mortgage Approval

A pre-approved mortgage certificate is not a guarantee of being approved for the mortgage loan. Even if you have a pre-approved mortgage certificate, you must still meet your lender during the conditional offer period to get a final mortgage approval. To ensure that the process goes smoothly, make sure you bring:

A copy of the property listing

A copy of the signed Offer to Purchase

Your lender will update/verify your financial information, the property and other information required to complete the mortgage application. Your lender may require an appraisal and/or a survey. Title insurance may also be required. Your lender will also inform you on the various types of mortgages, terms, interest rates, amortization periods and payment schedules available.

Depending on your down payment, you may have a conventional or high-ratio mortgage.


	Conventional mortgage: A mortgage loan up to a maximum of 80% of the lending value of the property. Typically, the lending value is the lesser of the purchase price and market value of the property. Mortgage insurance is usually not required for this type of mortgage.


	High-ratio mortgage: A mortgage loan higher than 80% of the lending value of the property. This type of mortgage may have to be insured — by CMHC, for example — against payment default.

A conventional mortgage is a mortgage loan that does not exceed 80% of the lending value of the property. The lending value is typically the lesser of the property’s purchase price and market value. Your down payment is at least 20% of the purchase price or market value.

If you contribute less than 20% of the home price as a down payment you will typically need a high-ratio mortgage. This type of mortgage usually requires mortgage loan insurance, of which CMHC is a major provider. Your lender may add the mortgage insurance premium to your mortgage or ask you to pay it in full upon closing.

Fixed, Variable or Adjustable Interest Rate

Mortgage interest rates are either fixed, variable or adjustable. A fixed rate is a locked-in rate that will not increase for the term of the mortgage. A variable rate fluctuates based on market conditions while the mortgage payment remains unchanged. With an adjustable rate, both the interest rate and the mortgage payment vary based on market conditions.

Closed Mortgage

A closed mortgage may be a good choice if you'd like to have a fixed payment that will allow you to adjust your budget to your new lifestyle. However, closed mortgages are not flexible and there are often penalties or restrictive conditions attached to prepayments or additional lump sum payments. It may not be the best choice if you decide to move before the end of the term or if you want to benefit from a potential decrease of interest rates.

Open Mortgage

This type of mortgage is flexible and can usually be pre-paid by any lump sum or paid off at any time without penalty. An open mortgage can be a good choice if you plan to sell your home in the near future or to pre-pay with large lump sums. Most lenders will allow you to convert to a closed mortgage at any time, although you may have to pay a small fee.

Term

Your lender will also inform you on the term options for the mortgage. This is the length of time that the agreed-upon mortgage contract conditions, including interest rate, will be fixed. It can vary from six months to ten years. Choosing a longer term (e.g.: five years) gives you the chance to plan ahead and protects you from interest rate increases while you adjust to homeownership. Weigh your options carefully and don't be afraid to ask your lender to work out the differences between a one, two, five-year term or longer term.

Amortization

This is the amount of time over which the entire debt will be repaid. Many mortgages are amortized over 25 years, but longer periods are available. The longer the amortization, the lower your scheduled mortgage payments, but the more interest you pay in the long run.

Payment Schedule

A mortgage loan is often repaid in regular payments, either monthly, biweekly or weekly. Payment schedules that are more frequent can save some interest costs by reducing the outstanding principal balance more quickly than with monthly payments. The more payments you make in a year, the lower the overall interest you have to pay on your mortgage.

Keep in mind that mortgages may have important payment features that can save you money and let you be mortgage-free sooner.

Once the Offer is Accepted

Once all the conditions of the offer are fulfilled or dropped, it is time to start thinking ahead and making arrangements:

Give notice to your landlord if you are renting.

Start looking at moving options — hiring a professional or doing it yourself.

Make necessary address changes (utilities, services, post office). See the Moving to Your New Home worksheet for a more complete list of who to contact.

Arrange for property insurance.

An offer will usually include a clause that allows the buyer to revisit the property a couple of times before closing (after all the conditions are fulfilled) so that he/she can:

Measure for window treatments.

Measure for special-sized furnishings.

Bring in a tradesperson for a renovation or remodelling estimate.

Arrange for these visits in advance to make sure your real estate agent is available.

Take care ,

Mark Fidgett
"Your Mortgage Consultant....For Life!"

T 604.273.2002 | F 604.522.2072
E mark@notapennydown.com
W www.notapennydown.com

Each VERICO broker is an independent owner operator.
© Copyright NotaPennyDown.com 2008. All Rights Reserved.

How Can you Find the Right Home?

Mark Fidgett - www.NotaPennyDown.com — Fri, 16 May 2008 09:41:04 -0500

How Can you Find the Right Home?

Start the Search


	Vendor take back mortgage: This is when the vendor rather than a financial institution finances the mortgage. The title of the property is transferred to the buyer who makes mortgage payments directly to the seller. These types of mortgages, sometimes referred to as take back mortgages, can be helpful if you need a second mortgage to buy a home.

Once you figure out what you can afford to pay for a house and obtain a pre-qualified mortgage, you are ready to start your search. There are a variety of sources you can use to find the home that is right for you:

Word of mouth. By telling everyone you know that you are looking for a house, you might hear about homes that are just becoming available on the market.
Newspapers and real estate magazines. Check the new homes section in daily newspapers or look for real estate magazines available at newsstands, convenience stores and other outlets. These free publications feature pictures and brief descriptions of a variety of homes.
The Internet. Check out real estate websites, such as http://www.mls.ca for information and pictures of a wide range of properties. This site allows you to narrow your search by location, price, number of bedrooms and other features.
"For Sale" signs. Drive around a neighbourhood that interests you and look for “For Sale” signs. This is a good way to find homes that are being sold by the owner.
Visit new development sites. If you are looking for a newly built home, this will allow you to see the different models available and to get information from builders.
Work with a real estate agent. For most buyers, a real estate agent is key to finding the right home.

Take care,

Mark Fidgett
"Your Mortgage Consultant....For Life!"

T 604.273.2002 | F 604.522.2072
E mark@notapennydown.com
W www.notapennydown.com

Each VERICO broker is an independent owner operator.
© Copyright NotaPennyDown.com 2008. All Rights Reserved.

What Professionals Should You Call On?

Mark Fidgett - www.NotaPennyDown.com — Sun, 11 May 2008 20:12:07 -0500

What Professionals Should You Call On?

Because purchasing a home is probably the biggest investment you will ever make, you'll definitely want a team of professionals working with you throughout the process.

The Real Estate Agent

No one will play a more important role in helping you find a home than your real estate agent. Your real estate agent's job is to:

Help you find the ideal home.
Write an Offer of Purchase.
Negotiate on your behalf to help you get the best possible deal.
Provide you with important information about the community, arrange and coordinate the home inspection and essentially save you time, trouble and money.

When the time comes to select a real estate agent, don't be afraid to ask questions — especially about any possible service charges. Vendors normally pay a commission to the agent but some agents charge buyers a fee for their services. Use the Checklist for Evaluating Real Estate Agents to help you choose your real estate agent. If you would like to know more about a real estate agent's ethical obligations, you can visit the Canadian Real Estate Association's website at http://www.crea.ca or call your local real estate association.

The Lawyer/Notary

You need a lawyer (or a notary in Quebec) to protect your legal interests such as ensuring the property you are thinking of buying does not have any building or statutory liens or charges or work or clean-up orders associated with it. He or she will review all contracts before you sign them, especially the Offer (or Agreement) to Purchase. Having a lawyer/notary involved in the process will give you peace of mind and ensure that things go as smoothly as possible. Law associations can refer lawyers/notaries who specialize in real estate law (in Quebec, contact the Chambre des notaires du Québec).

Lawyer/notary's fees range widely and depend on the complexity of the transaction. Shop around for rates and, when choosing your lawyer/notary, use the Checklist for Selecting a Lawyer/Notary to guide you.

Remember that a lawyer/notary:

Should be a licensed full-time lawyer/notary.
Should be local and understand real estate laws, regulations and restrictions.
Should have realistic and acceptable fees.
Can explain things in plain language.

The Home Inspector

You should consider having any home you are thinking of buying inspected by a knowledgeable and professional inspector.

The home inspector's role is to inform you on the property's condition. He will tell you if something is not functioning properly, needs to be changed or is unsafe. You will also be informed of repairs that need to be done and he/she may even be able to tell you where there may have been problems in the past.

Every inspection should include an evaluation of at least the following:

Foundation
Doors and windows
Roof and exterior walls
Attics
Plumbing and electrical systems
Heating and air conditioning systems
Ceilings, walls and floors
Insulation
Ventilation
Septic tanks, wells or sewer lines
Any other buildings such as a detached garage
The lot, including drainage away from buildings, slopes and natural vegetation
Overall opinion of structural integrity of the buildings
Common areas (in the case of a condominium/strata or co-operative)

There is presently no mandatory certification and no legislated requirements for home inspectors to take any courses or to have passed any tests. Anyone can say that they are a home inspector. However, a good home and property inspector generally belongs to a provincial or regional industry association. CMHC does not recommend or endorse any individual home inspector or association. CMHC supports national uniform standards of competency for home inspectors. For more information on the inspection industry’s National Certification Program, please refer to the National Certification Authority’s website http://www.nca-anc.com/.

Home inspector fees generally range around $500, and depend on the size and condition of the home. Use the Home Inspection Checklist to review your home inspection report.

The Insurance Broker

An insurance broker can help you with your insurance needs, including property insurance and mortgage life insurance. Lenders insist on property insurance because your property is their security for your loan. Property insurance covers the replacement cost of your home, so premiums may vary depending on its value.

Your lender may also suggest that you buy mortgage life insurance. Mortgage life insurance provides coverage for your family should you die before your mortgage is paid off. This type of insurance is often available through your lender, who then simply adds the premium to your regular mortgage payments. However, you may want to compare rates between both an insurance broker and your lender.

Be careful not to confuse property or life insurance with mortgage loan insurance, which may be required for high-ratio mortgages.

The Appraiser

Having an independent appraisal done on a property before you make an offer is a good idea. It will tell you what the property is worth and help ensure that you are not paying too much. Your lender can also ask for a recognized appraisal in order to complete a mortgage loan.

The appraisal should include an unbiased assessment of the property's physical and functional characteristics, an analysis of recent comparable sales and an assessment of current market conditions affecting the property.

Appraisal fees may vary but you should not pay more than $250 – $350 in most areas for a typical single-family house.

Your real estate agent may be able to refer an appropriate professional.

The Land Surveyor

If the seller does not have a Survey or Certificate of Location, you will probably need to get one for your mortgage application. If the Survey in the seller's possession is older than five years, it will probably need to be updated. Remember that you must have permission from the property owner before hiring a surveyor to go onto the property. Ask your real estate agent to help co-ordinate this with the owner.

The Builder/Contractor

If you are buying a newly constructed home or require renovations to a resale home, you will have to hire a builder or contractor. Here are some things to keep in mind when choosing one:

Ask for references and talk to other customers about the builder's performance.
Check with the New Home Warranty program in the area.
Visit other housing developments that the company has built.
Ask builders or contractors if they are members of a local homebuilders' association or ask for a provincial license number.

If you are having a custom home built, remember that:

You may want to hire an architect.
Builders of custom homes usually work on either a fixed-price or a cost-plus basis. Authorize any changes to your contract by writing your name or initials beside the change.

On a final note, make sure your contract is as specific as possible about construction details, right down to the brand name or model number of any finishes. Make sure that you initial any changes to your contract. Use this handy worksheet when you assemble your Team of Professionals.

Take care ,

Mark Fidgett
"Your Mortgage Consultant....For Life!"

T 604.273.2002 | F 604.522.2072
E mark@notapennydown.com
W www.notapennydown.com

Each VERICO broker is an independent owner operator.
© Copyright NotaPennyDown.com 2008. All Rights Reserved.

What Should You Buy?

Mark Fidgett - www.NotaPennyDown.com — Sun, 11 May 2008 20:08:47 -0500

What Should You Buy?

Your Current and Future Needs

Before you start searching for a home, you need to think about your needs both now and in the future. Here are some things to consider:

Size requirements. Do you need several bedrooms, more than one bathroom, space for a home office, a two-car garage?
Special features. Do you want air conditioning, storage or hobby space, a fireplace, a swimming pool? Do you have family members with special needs?
Lifestyles and stages. Do you plan to have children? Do you have teenagers who will be moving away soon? Are you close to retirement?

Try to buy a home that meets most of your needs for the next 5 to 10 years, or find a home that can grow and change with your needs. Use the Home Features Checklist to see what you want, need and may potentially need in the future. Use the Home Hunting Comparison Worksheet to note and compare features of up to 3 different homes to help you decide on the right home for you.

Choosing a Location That Is Right for You

Even if the home you choose has everything you need, the location might not be appropriate. When deciding where to live, you should take the following things into consideration:

Whether you want to live in a city, a town or even in an out-of-town location
Where you work and how easy it is to commute
Where your children will attend school and how they will get there
Whether you need a safe walking area or recreational facilities such as a park nearby
How close you would like to be to family and friends

Ask for CMHC’s free publication called Your Next Move: Choosing a Neighbourhood with Sustainable Features. Simply visit www.cmhc.ca or call 1-800-668-2642.

New Home, Previously Owned or Build Your Own?

When thinking about the kind of home you want, the first thing you should consider is whether you want a previously owned home (often called a resale) or a new home. Here are some characteristics that may help you decide:


	Diane and Wayne's dream home was a home with four bedrooms, a large family room, a big yard and situated in a preferred location. When they did their calculations, they realized that they couldn't balance that home and that location with their budget. Instead of putting aside their dream, they continued to look and they found a smaller house they could afford in a nice neighbourhood. After all, those extra rooms could come later!

New Home

Personalized choices. You may be able to upgrade or choose certain items such as siding, flooring, cabinets, plumbing and electrical fixtures.
Up-to-date with the latest codes/standards. The latest building codes, electrical and energy-efficiency standards will be applied.
Maintenance costs. Lower maintenance costs because everything is new and many items are covered by a warranty.
Builder warranty. A homebuilder's warranty is usually available in all provinces (except Nunavut and the Northwest Territories). This can be important if a major system such as plumbing or heating breaks down. This warranty does not apply if you build the home yourself.
Neighbourhood amenities like schools, shopping malls and other services may not be complete for years.
Taxes such as the Goods and Services Tax (GST) (or, in certain provinces, the Harmonized Sales Tax (HST)) will apply. However, you may qualify for a rebate of part of the GST or HST on homes that cost less than $450,000. For more information about the GST New Housing Rebate program, visit the Canada Revenue Agency website at, http://www.cra-arc.gc.ca.
Extra costs. You may have to pay extra if you want to add a fireplace, plant trees and sod, or pave your driveway. Make sure you know exactly what's included in the price of your home.

Resale Home

Easy access to services. Probably established in a neighbourhood with schools, shopping malls and other services.
Landscaping is usually done and fencing installed. Previously owned homes may have extras like fireplaces or finished basements or swimming pools.
No GST/HST. You don't have to pay the GST/HST unless the house has been renovated substantially, and then the taxes are applied as if it were a new house.
Possible redecorating and renovations. You may need to redecorate, renovate or do major repairs such as replacing the roof, windows and doors.

Building Your Own Home

Some people prefer the challenge and flexibility of building their own home. On one hand you can get exactly what you want in terms of size, design, location, quality of material, level of energy-efficiency, etc. However, you should expect to invest lots of time and energy.

Deciding on the Type of Home to Buy

There are many types of homes to choose from and each has its advantages and disadvantages. Think about your needs before making a decision. Don't forget to look beyond the walls. The environment surrounding your home can be almost as important as the environment inside of it.


	Susan, after looking at several suburban homes, decided that buying an urban condominium would give her more of what she wanted for less money. She found one with a full fitness centre in a downtown area she liked, for less than a home in the suburbs, and with no worry about exterior maintenance, yard work or commuting.

Single-family Detached

The most popular style and the most solid investment. It is a free-standing home which sits on its own lot thereby offering a greater degree of privacy.

Semi-detached

A single-family home that is joined to another one by a common wall. It can offer many of the advantages of a single-family detached home and is usually less expensive to buy and maintain.

Duplex

Two units — one above the other or side by side. The owner usually lives in one unit and rents the other.

Row House or Townhouse

One of several types of single-family homes joined by common walls. It offers less privacy than a single-family detached home but still provides a separate outdoor space. These homes can cost less to buy and maintain.

Link or Carriage Home

Houses joined by garages or carports which provide access to the front and back yards. Builders sometimes join basement walls so that link houses appear to be single-family homes on small lots. These houses can be less expensive than single-family detached homes.

Manufactured Home

A factory-built single-family home that is transported to your chosen location and placed on a surface-mounted foundation. The term manufactured home has replaced the term "mobile home".

Modular Home

Also a factory-built home constructed in compliance with local building codes. The home is typically shipped to your location in two or more sections. It may or may not have a longitudinal sub-frame.

Condominium

Refers to a form of legal ownership as opposed to a style of construction. Condominiums can be high-rise residential buildings, townhouse complexes, individual houses and low-rise residential buildings. Condominiums are also known as stratas in British Columbia or syndicates of co-ownership in Quebec.

Take care ,

Mark Fidgett
"Your Mortgage Consultant....For Life!"

T 604.273.2002 | F 604.522.2072
E mark@notapennydown.com
W www.notapennydown.com

How Much will it Really Cost?

Mark Fidgett - www.NotaPennyDown.com — Sun, 11 May 2008 20:06:05 -0500

How Much will it Really Cost?

Once you have figured out the home price range you can afford and the type of mortgage you qualify for, you will need to calculate all of the associated costs of the transaction to make sure you are financially ready.

Up-Front Costs

You will need to plan ahead to cover the many up-front costs of buying a home. Timing is important to help make sure things go smoothly.

Mortgage Loan Insurance Premium. If yours is a high-ratio mortgage (less than 20% down payment), your lender may need mortgage loan insurance. Your lender may add the mortgage insurance premium to your mortgage or ask you to pay it in full upon closing.
Appraisal Fee. Your mortgage lender may require that the property be appraised at your expense. An appraisal is an estimate of the value of the home. The cost is usually between $250 and $350 and must be paid when you contract for those services.
Deposit. This is part of your down payment and must be paid when you make an Offer to Purchase. The cost varies depending on the area, but it may be up to 5% of the purchase price. If you wish to make a down payment of 5% and you give a deposit of 5%, then your down payment is considered to be made.
Down Payment. With mortgage loan insurance from CMHC you can own your home with little or no down payment. At least 20% of the purchase price is usually required for a conventional mortgage.
Estoppel Certificate Fee (not applicable in Quebec). This applies if you are buying a condominium or strata unit and could cost up to $100.
Home Inspection Fee. Remember that this may be a condition of your Offer to Purchase. A home inspection is a report on the condition of the home and generally ranges around $500, depending on the complexities of the inspection. For example, it may be more costly to inspect a home that has large square footage, one that is expensive or one where contaminants such as pyrite, radon gas or urea-formaldehyde are suspected.
Land Registration Fees (sometimes called a Land Transfer Tax, Deed Registration Fee, Tariff or Property Purchases Tax).You may have to pay this provincial or municipal charge upon closing in some provinces. The cost is a percentage of the property's purchase price and may vary. Check with your lawyer/notary to see what the current rates are.
Prepaid Property Taxes and/or Utility Bills. To reimburse the vendor for pre-paid costs such as property taxes, filling the oil tank, etc.
Property Insurance. The mortgage lender requires this because the home is security for the mortgage. This insurance covers the cost of replacing the structure of your home and its contents. Property insurance must be in place on closing day.
Survey or Certificate of Location Cost. The mortgage lender may ask for an up-to-date survey or certificate of location prior to finalizing the mortgage loan. If the seller does not have one or does not agree to get one, you will have to pay for it yourself. It can cost in the $1,000 to $2,000 range.
Water Quality Inspection. If the home has a well, you will want to have the quality of the water tested to ensure that the water supply is adequate and the water is potable. You can negotiate these costs with the vendor and list them in your Offer to Purchase.
Legal Fees and Disbursements. Must be paid upon closing and cost a minimum of $500 (plus GST/HST).Your lawyer/notary will also bill you direct costs to check on the legal status of your property.
Title Insurance. Your lender or lawyer/notary may suggest title insurance to cover loss caused by defects of title to the property.

If you feel you cannot cover all of the up-front costs, you can ask your lender for a loan. Remember that payment for this loan amount, based on a 12-month repayment period, will have to be included in your Total Debt Service ratio calculation.

Other Costs

Besides up-front costs, there are other expenses to consider:

Appliances. Check to see what comes with the house, if anything.
Gardening equipment.
Snow-clearing equipment.
Window treatments. Check to see what comes with the house.
Decorating materials. Paint, wallpaper, flooring and tools for redecorating.
Hand tools. You will need some basic hand tools for your new home.
Dehumidifier. May be required to control moisture levels, especially in older homes.
Moving Expenses.
Renovations or Repairs.
Service Hook-Up Fees. Charged for utilities. You may be required to pay a deposit for utilities such as telephone and heating services.
Condominium Fees. You may have to make the initial payment for these monthly fees.

Take care ,

Mark Fidgett
"Your Mortgage Consultant....For Life!"

T 604.273.2002 | F 604.522.2072
E mark@notapennydown.com
W www.notapennydown.com

Are you Financially Ready?

Mark Fidgett - www.NotaPennyDown.com — Sun, 11 May 2008 20:03:06 -0500

Are you Financially Ready?


	Net worth: Your financial worth, calculated by subtracting your total liabilities from your total assets.


	Mortgage: A mortgage is a security for a loan on the property you own. It is repaid in regular mortgage payments, which are usually blended payments. This means that the payment includes the principal (amount borrowed) plus the interest (the charge for borrowing money). The payment may also include a portion of the property taxes.

So, you've decided that homeownership is right for you. Now you need to determine if you are financially ready to buy a house.

In this Step, you will find a number of simple calculations that you can do to evaluate your current financial situation, how much house you can afford and the maximum home price that you should be considering.

Once you understand these variables, you can make the best choice for you and even save money.

Test Yourself

To avoid any future surprises, you can do some financial exercises to see where you stand. They include: calculating your net worth, your current monthly expenses and your current monthly debt payments.

Knowing your net worth is important because you will need this information when you discuss a mortgage with your lender. Your net worth is the amount left over once you've subtracted your total liabilities from your total assets. It will also give you a snapshot of your current financial situation and show you how much you can afford to put as a down payment.

How Much Can You Afford?


	Principal: The amount that you borrow for a loan. Each monthly mortgage payment consists of a portion of the principal that must be repaid plus the interest that the lender is charging you on the outstanding loan balance. During the early years of your mortgage, the interest portion is usually larger than the principal portion.

Now that you have a clear picture of your current financial situation, it's time to find out what you can afford in monthly housing costs. Lenders follow two simple affordability rules to determine how much you can pay.

The first affordability rule is that your monthly housing costs shouldn't be more than 32% of your gross household monthly income. Housing costs include monthly mortgage principal and interest, taxes and heating expenses — known as P.I.T.H. for short. If applicable, this sum also includes half of monthly condominium fees and the entire annual site lease (in the case of leasehold tenure).

Lenders add up these housing costs to determine what percentage they are of your gross monthly income. This figure is known as your Gross Debt Service (GDS) ratio. Remember, it must be 32% or less.

The second affordability rule is that your entire monthly debt load shouldn't be more than 40% of your gross monthly income. This includes housing costs and other debts, such as car loans and credit card payments. Lenders add up these debts to determine what percentage they are of your gross household monthly income. This figure is your Total Debt Service (TDS) ratio.

Your Maximum Home Price

The maximum home price that you can afford depends on a number of factors but the most important are your gross household income, your down payment and the mortgage interest rate.

This table gives you an idea of the maximum home price you can afford.

Income, Home Price and Down Payment Guide

Household Income	5% Down Payment	Maximum Home Price	10% Down Payment	Maximum Home Price	25% Down Payment	Maximum Home Price
$25,000	$3,000	$60,000	$6,300	$63,000	$18,900	$75,600
$30,000	$3,900	$78,000	$8,200	$82,000	$24,700	$98,800
$35,000	$4,800	$96,000	$10,100	$101,000	$30,300	$121,200
$40,000	$5,700	$114,000	$12,000	$120,000	$36,000	$144,000
$45,000	$6,600	$132,000	$13,900	$139,000	$41,700	$166,800
$50,000	$7,500	$150,000	$15,800	$158,000	$47,400	$189,600
$60,000	$9,300	$186,000	$19,600	$196,000	$58,800	$235,200
$70,000	$11,050	$221,000	$23,400	$234,000	$70,100	$280,400
$80,000	$12,500	$250,000	$27,200	$272,000	$81,500	$326,000
$90,000	$14,400	$288,000	$31,000	$310,000	$92,800	$371,200
$100,000	$16,275	$325,500	$34,800	$348,000	$104,300	$417,200
Figures are rounded to the nearest $100.

This table assumes a mortgage interest rate of 8%, average tax and heating costs in Canada, and the mortgage an average Canadian would qualify for based on a 32% debt service ratio.

For most people the hardest part of buying a home – especially the first one – is saving the necessary down payment. Many people will not have 20% of the purchase price to put down. With mortgage loan insurance, you can purchase a home with little or no down payment. Mortgage loan insurance protects the lender and, by law, most Canadian lending institutions require it. The way it works is if the borrower defaults (fails to pay) on the mortgage, the lender is paid back by the insurer. The cost for this type of insurance is in the form of a premium and can be paid in a single lump sum or it can be added to your mortgage and included in your monthly payments.

CMHC enables lenders to offer financing of up to 100% of a home’s value to homebuyers who have not yet saved up a down payment and have a proven track record of managing their debt.

For homebuyers who have saved up a down payment, most mortgage loan insurance products require homebuyers to provide the down payment from their own resources, such as savings and RRSPs. Gift down payments from immediate relatives are also acceptable.

For down payments of 10% or less, CMHC enables lenders to offer homebuyers the flexibility to use additional sources of down payment such as borrowed funds or lender incentives.

Financing Required	Premium % of Loan Amount
Up to and including 65%	0.50
Up to and including 75%	0.65
Up to and including 80%	1.00
Up to and including 85%	1.75
Up to and including 90%	2.00
Up to and including 95% Traditional Down Payment Flex Down	2.75 2.90
Up to and including 97% Traditional Down Payment Non-Traditional Down Payment	2.90 3.00
Up to and including 100%	3.10
Extended Amortization Surcharges Greater than 25 years, up to and including 30 years Greater than 30 years, up to and including 35 years Greater than 35 years, up to and including 40 years	0.20 0.40 0.60
*Premiums in Ontario and Quebec are subject to provincial sales tax — the sales tax cannot be added to the loan amount.

Get a Mortgage Pre-Approval


	Amortization: The period of time required to reduce the mortgage debt to zero when all regular blended payments are made on time and provided the terms (payment and interest rate) remain the same.


	Mortgage payment: A regularly scheduled payment that is often blended to include both principal and interest.


	Interest: The cost of borrowing money. Interest is usually paid to the lender in regular payments along with the repayment of the principal (loan amount).

Once you've made the necessary calculations and feel that you are ready to obtain a mortgage, it's a good idea to select a lender to get pre-approved. This means that the lender will look at your finances to establish the amount of mortgage you can afford. At that time, the lender will give you a written confirmation or certificate for a fixed interest rate good for a specific period of time.

Some buyers may not wish to pursue a mortgage pre-approval until they have found the home they want to buy. However, the idea of having a pre-approved mortgage amount makes the search for your new home much easier and less time-consuming because you have a good price range in mind.

Some of the things you will need to have with you the first time you meet with a lender are:

Your personal information, including identification such as your driver's license
Details on your job, including confirmation of salary in the form of a letter from your employer
Your sources of income
Information and details on all bank accounts, loans and other debts
Proof of financial assets
Source and amount of down payment and deposit
Proof of source of funds for the closing costs (these are usually between 1.5% and 4% of the purchase price)

Will You Have Trouble Qualifying for a Mortgage?

Your calculations may show that you will have trouble meeting monthly debt payment and that you will likely have trouble getting approved for a mortgage. Here are some things you can do:

Pay off some loans first
Save for a larger down payment
Revise your target house price

Other Helpful Strategies

Meet with a credit counsellor who can help you minimize your debts.
Buy your home through a rent-to-own program provided by the builder, a non-profit sponsor or a government sponsor.
Find out about programs through which you can help build your own home.
Ask the housing department of your municipality about any special programs available.

The Importance of Your Credit Rating

Before approving you for a mortgage, lenders will want to see how well you have paid your debts and bills in the past. To do this, they simply get a copy of your credit history (credit report) from a credit bureau. This provides them with information on your financial past and use of credit. Before your lender sees your credit history, you should get a copy for yourself to make sure the information is complete and accurate. Simply contact one of the two main credit-reporting agencies (Equifax Canada Inc. or TransUnion of Canada) to get a copy of your credit report. There is often a fee for this service.


	Credit report: The main report a lender uses to determine your credit worthiness. It includes information about your ability to handle your debt obligations and your current outstanding obligations.

Lack of Credit History

If you have no credit history, it is important to start building one by, for example, applying for a standard credit card with good interest rates and terms, making small purchases and paying them as soon as the bill comes in.

Fixing a Credit Record

If you have bad credit, lenders might not want to give you a mortgage loan until you can re-establish a good credit history by making debt payments regularly and on time. Most unfavourable credit information, including bankruptcy, is dropped from your credit file after seven years. If you have bad credit, you may want to consider credit counselling.

Despite your poor credit history, you might still be able to get a mortgage loan if you have a relative such as a family member willing to be a guarantor or co-signer on the loan. This person must meet the lender's borrowing criteria, including good credit history, and is legally obligated to make the mortgage payments if you do not.

Take care ,

Mark Fidgett
"Your Mortgage Consultant....For Life!"

T 604.273.2002 | F 604.522.2072
E mark@notapennydown.com
W www.notapennydown.com