The Way It Works
A Buyers Guide To Prosperity
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Are You Ready to Buy?
Now it is time for you to look deep into your heart (and bank account) and decide if you are ready to buy a home. Finding your motivation and specifying your wants and needs is a good beginning, but there are other things to consider before taking the leap into home ownership.
What's your financial situation?
What's your debt load? Credit cards, utilities, car payments, childcare and groceries are factors to consider. Don't forget the money for a broken air conditioning unit will be coming out of your pocket. Will you be able to handle unforeseen emergencies, monthly bills and a mortgage payment? As a rule of thumb, no more than 32 percent of your gross monthly income should be used for housing payments.
How's your credit history?
Delinquent credit card and bank payments, past bankruptcies or a student loan that's unpaid can severely affect your ability to get a mortgage loan. For a small fee or for free you can obtain a credit report on yourself and clear up any misunderstandings before applying for a loan.
Credit Reporting:
Equifax 1-800-456-7166: www.equifax.ca
Trans Union 1-800-663-9980: www.transunion.ca
What's your employment history?
If you have been working continuously for the past two years, a lender should consider this to be steady employment. This does not mean that to be approved for a mortgage loan you need to have worked at the same place for two years; in fact, job changes can be favorable, especially for an increase in pay. However, if your work history has not been continuous for the last two years, as long as you have a reasonable explanation for any breaks in employment, you still may qualify for a loan.
Have you saved money for a down payment and closing costs?
In addition to the amount of money you will have to borrow for your home, the lender will require you to invest a portion of your saving into your new home purchase. In some circumstances you may be able to obtain a gift to be used for a down payment. Although there are a number of programs available (you must have excellent credit) the typical down payments range from 5% to 20% or more.
Closing costs and those costs associated with insuring, inspecting and appraising you new home are additional expenses incurred throughout the buying process that must be paid for in cash. In total the closing costs range from 2%-6%. Your lender will provide you with a good faith estimate as required by law when you apply for your mortgage. Your good faith estimate is: an estimate made in good faith that indicates the amount of money you will need to purchase your new home and where that money will go.
How Much Home Can You Afford?
How much you can borrow will depend on your income, down payment, job stability, existing debts, credit references and payment history. Lenders usually use the following two qualifying guidelines to decide how much of a loan you can manage:
Your monthly housing expenses - mortgage payment, property taxes, insurance, etc. These expenses should be no more than 32 percent of your monthly gross income.
Your monthly living expenses and any long-term debts - utilities, car and school loan, child support, health and car insurance, etc. These expenses should be no more than 42 percent of your monthly gross income. There are some programs that will allow you to exceed these percentages. Check with your lender.
Getting Pre-Qualified
Once your financial matters are in order its time to begin the pre qualification process. You should meet with a lender (for a list of excellent lenders please call me).The lender can translate your results into an amount you can manage and determine the types of mortgages suitable to your needs. Bring tax returns, salary stubs and other financial data to the meeting, along with your calculated net worth and monthly cash flow assessments.
Selecting a Real Estate Professional
What to look for in a Real Estate Professional
Since you will be spending a lot of time with an agent, it's important you choose one you feel comfortable with, who is responsive to your needs and who compliments your personality. Here are some guidelines:
Get referrals from family and friends that you trust.
Seek out a knowledgeable agent with a known reputation - look at credentials, track records.
Interview at least three agents - you will go to great lengths to find a doctor, dentist or even a hair stylist, so don't pick the first agent that you come in contact with.
Find someone who is continuing their education and working full time, this shows that the Realtor is interested in the business long-term and is willing to invest in their career.
Ask for references from any Realtor that you interview (including me). That way you will know you’re getting recent customers and not just the five over the past 5 years that will say good things about the agent.
Questions to ask when checking references
What were they like to deal with?
How hard did they work for you?
Did they get you a good price?
Were there any complications?
Did they always tell you the truth?
Were they always looking out for you or just interested in getting paid?
Would you use their services again?
Questions to ask when interviewing a Realtor
What professional designations do you have?
Are you fully automated with your own personal computer, FAX machine, copier, pager, voice mail, etc?
What is your commission and who pays it?
Do you have a list of home inspectors, insurance agents and reputable lenders for me to consider?
What clauses will be included in our offer to protect us as buyers?
Will you try to sell me one of your listed properties before you show me listings from other real estate companies?
Will you provide me with information about For Sale By Owner properties?
How will you help me save money?
How will you protect my interests, and why should I hire you rather than another agent?
Now that you've chosen a few agents and interviewed them, ask yourself the following questions to narrow your choice down:
Did they return your phone calls?
Did they ask you questions to determine what you want/need in a home?
Did they perform a financial analysis to help you determine how much you can afford?
Did they suggest financing methods?
Did they seem knowledgeable about the community?
Did they explain things clearly?
Did you feel comfortable with them?
Whoever received the most "yes's" should be the one you choose - especially if the last question was a definite yes!
How Can I Help?
The selection of a sales representative will be one of the most important decisions you will make when looking to buy a home. Think about it...You are on the verge of spending an astronomical amount of money on something that you will have to look at and live in everyday. Wouldn't it make sense to seek advice and wisdom from someone who "buys" houses for a living?
Working with me as your real estate sales representative is beneficial for several reasons:
I will examine your financial situation and determine exactly how much you can afford.
I can easily obtain information on all properties listed for sale I am a member of Toronto Real Estate Board covering all of Southern Ontario.
I am a full time sales representative. I can set appointments for you to see homes that interest you when you want not when it my day off from another job.
I can help you complete the necessary paperwork when you make an offer.
I will help you arrange for financing.
I am an experienced negotiator.
When it comes time to make the offer I can assist you in the terms and price to offer based on my negotiation skills and by pulling up all of the comparable properties that have recently sold. We can compare those homes to the home you've selected to come to a price that is fair and will ensure you won't spend more than you need to!
What to Expect from me:
I will treat you as a respectable client.
I will have your best interests at heart.
To be served selflessly - I won’t be eyeing your wallet.
I will work as hard for you as I would if I was buying the home for myself.
My training means I have highest skills available.
I will return your call promptly and you will be kept up to date.
I will go above and beyond what's expected when dealing with problems that may arise.
What is a Mortgage Broker?
A mortgage broker is an independent real estate financing professional who arranges residential mortgages. Mortgage brokers don't lend and can not approve loans or make loan commitments to borrowers. Their role is to bring borrowers and lenders together. A broker keeps tabs on the mortgage market through ties to local, regional, and national lenders, and can refer a future borrower to a mortgage banker, savings institution or commercial bank.
What Can a Mortgage Broker do for Me?
Brokers provide consumers with choice, convenience and expertise. The consumer receives an expert mentor through the complex mortgage lending process.
A mortgage broker can place a loan with the lender that has the best rate at the time of agreement. Mortgage companies offer the consumer the means to obtain manageable and affordable home loans while balancing the consumer's financial resources and objectives.
A huge benefit is the extensive network of private and institutional lenders that mortgage brokers represent. Since each lender has specific loan guidelines, the mortgage broker can help you find the type of loan that will suit your specific needs.
What to Look for in a Home?
With the multitude of houses on the market today, narrowing down your search by specifying your wants and needs is beneficial. So before you start looking, ask yourself these two questions:
What kind of home do I want?
You should make three lists: A dream list, a need list and a do-not-want list. Factor in your current housing needs, likes and dislikes and what you may foresee in the future, i.e. children, schooling and aging parents.
For the dream list, jot down all of the features that you would love to have in your home - let your imagination run wild. It might include the following:
Fireplace
Swimming pool with Jacuzzi
Greenhouse
Breakfast nook
Two stories
Skylights
The need list should be the features that you know you must have. This list might include:
Location
Certain number of bedrooms
Certain number of bathrooms
Bath in the master bedroom
Separate dining room
Garage
Basement
The do-not-want list should include everything that you won't be able to live with in your home. This list might include:
Small bathrooms
No counter space
No windows in kitchen/bathroom
Tiny yard
Insufficient closet space
No garage
Where do I want to live?
No single factor influences the desirability of a home as much as location. If you can't manage to buy what you want where you want it, it's better to sacrifice a feature on the inside of the house than sacrificing the location. You can add a dishwasher or install hardwood floors, but you can not improve the neighborhood.
Look at the surrounding houses. Do the homes and yards seem to be well kept? The condition of these houses will affect the value of the house you buy. If the houses are in poor repair, what does that say about the neighbourhood?
What kind of area is it in? How close are the shopping facilities, banks, churches, hospitals, schools, parks, movie theatre, and so on?
Explore the lot thoroughly. Does it offer adequate privacy? Will you be able to maintain the ground, or will you hire someone? Do you like the landscaping? If not, are you the type of person who wants to design your own landscaping?
Before you make a decision on a particular home, reject locations where negative conditions outweigh the positives. Consider:
Crime: You have the right to go to the police station and ask for records of robberies, break-ins, vandalism, assaults and drug-related problems in the neighborhood. Is crime increasing or decreasing?
Traffic: Heavy traffic produces a lot of noise and pollution, and it can become quite a nuisance. Make sure you pay attention to the amount of cars and the level of noise.
Visually unappealing: When you look into the back yard are you greeted with the sight of a transformer, radio broadcasting tower, gas station, bus stop or ball field where night games are played?
Flooding: Slope and the soil's ability to absorb water determine where and how fast water drains away from the house. You can check out local flood information, find out if the house is in a flood plain.
Mistakes to Avoid When Buying a Home
A great way to make the home-buying process flow smoothly is to educate yourself and learn from mistakes others have made - this can make the difference between buying the home of your dreams and buying a "lemon."
Not getting pre-qualified or pre-approved
If you receive pre-qualification or pre-approval from a reputable lender, your negotiating position is strengthened. It shows sales representatives and sellers you are serious about buying a home.
Not seeking guidance from real estate professionals and inspectors
These people are trained in buying, selling and inspecting. Find someone you respect and trust and allow them to help - it will benefit you in the end.
Choosing an agent haphazardly
Don't jump from agent to agent just because you saw their name on a sign outside of a house you like. Interview at least three agents and choose the one you feel most comfortable with and who will focus on your needs.
Not getting enough information about the properties
Obtain market statistics and sales records for the area you are considering buying a home in so you know how things (prices, conditions, list-to-selling price ratios) stack up in your neighborhood.
Not looking at enough houses for sale
The more you see, the more you'll learn about what you want and what each house is worth.
Not making the correct price comparison
Don't assess the value of a house only on the asking price. Your real estate agent should compile reports that reflect and compare the selling price of similar houses recently sold.
Forgetting to calculate all the costs
When calculating the maximum price you can afford, don't forget to include hidden costs, i.e. courier costs. Calculate a reasonable price range and look for a house that is priced closer to the lower end of your range.
Not asking enough questions
Don't be afraid to ask questions! You're not supposed to know everything about buying a home. Remember, this is potentially the biggest purchase you will make in your life - don't get caught in a "lemon" because you didn't ask enough questions!
Fear of losing a specific house
Don't fall in love with the first home you see. New listings come onto the market all the time. The best deal may still be around the corner.
Not looking past the interior decorating or cosmetic improvements
Don't choose a house because you like the interior decorating - that is not what you are buying and it will probably go with the seller when he moves. Check out the actual structure of the house!
Not checking out every nook and cranny before purchasing
Go through the house with a fine-tooth comb. You don't want to find out after you've bought the house that the roof is leaking. Open cabinets, turn on every switch, notice details, move stuff away from the walls, look in the attic, turn on faucets.
Not making a low offer
Pay only what you can afford. The seller can always make a counter-offer, and you can counter-offer again until you settle on a suitable price, or you can simply walk away.
Being pushed into buying a certain home
Don't make a decision until you feel you've seen enough to pick the best one.
Making an Offer
Find out the selling prices of similar properties to use as a guideline to set your sales price. These comparable properties should have sold no more than six months earlier, should be around the same age and condition, should have close to the same number of bathrooms, bedrooms and square footage and should be in a similar location and on a similar lot.
If you still don't feel comfortable setting a price, consider having a professional appraisal done. Appraisers look at what the home is worth today and how the neighborhood may affect future property value. If you have the time and want a realistic figure for the true market value of the property, an appraiser is your best bet.
The most important thing to remember is to rely on yourself. You've looked at enough properties to know what similar houses are listed for. This knowledge will provide you with a good idea of the price range of your future home.
Put it in Writing
Put your negotiations in writing. Don't reveal your strategy, and don't make oral offers. You want to buy the house, but you don't want to hand over your money until you're sure the seller is legally capable of conveying a good title and meeting other conditions. The seller, in turn, doesn't want to deliver the deed until you've paid for the property. Now what? You present the seller with a written contract setting out the commitments and promises that you and the seller need to agree on and fulfill to make the sale. A well-drawn contract should protect all parties.
The first contract you submit should be comprehensive; everything of any importance should be included. Once it is accepted by the seller, it may be too late to add or change anything. Your contract should include:
Offering price
Down payment
Legal description of the property
Method of conveying the title
Fees to be paid and who will pay them
Amount of deposit
Conditions under which the seller and buyer can void the contract
The settlement date
Financing arrangements
A list of appliances, furnishings and other items being sold with the home
The Art of Negotiating
Everything is negotiable when buying a house. For some reason, most buyers either don't believe it or don't like it. Here's a partial list of what's negotiable when you buy a home:
Price
Financing
Closing costs (except where specified by financing or law)
Occupancy (when can you get the key and move in?)
Painting (will the seller repaint a portion of or the entire house?)
Repairs (will the seller repair the roof, plumbing, windows, etc., and what kind and quality of repairs will be made?)
Yard (will the seller remove unwanted trees, bushes - put in desired landscaping?)
Fixtures (which lights, fans, appliances, etc. stay and which go?)
Wall coverings (do the drapes stay or go?)
Furniture (will the seller throw in certain pieces?)
Negotiation gives the buyer incredible power in making a favorable transaction. It can also place him or her in a position of immense weakness. How you negotiate determines whether you get the home of your dreams or whether those dreams end up being a nightmare.
Ultimately, how you fare when buying a home is going to be a direct result of your knowledge. The more you know, the better position you'll be in to negotiate.
Closing on a Home
There is no way to guarantee a smooth path from an approved contract to the settlement table, but doing your part is at least half the job. Expect minor problems and delays along the way. On the seller's side, title problems are a common cause of postponed settlements. On your side, bureaucratic snags such as extensive credit checks and slow appraisals can bog things down. In many cases, there isn't much you or the seller can do but wait.
While you're waiting for completion of all the processes now in motion, you should:
Apply for homeowners insurance on your new home.
Get an exact accounting settlement cost, and make sure the money and necessary documents will be there at closing.
Select a date for the final walk-through of the house.
Contact utility companies about starting service in your name.
Insurance on your new home
Your lender will require you to take out a homeowner’s insurance policy, something you would want to do anyway. The lender wants to cover the amount of its mortgage loan so it can recover the money in the event of a loss. However, it's up to you to see that your insurance coverage remains adequate by getting property protection, liability insurance and/or any additional coverage you think is necessary.
The final inspection
The house you're buying must be handed over to you in the condition specified in the contract. To verify this, schedule a walk-through of the house shortly before settlement, several days in advance is best, to allow time for the seller to correct any last-minute problems.
Take along a simple device for testing all electrical outlets - a plug-in nightlight, for example. Turn on the furnace and air conditioning, flush toilets and turn on faucets, put the washing machine and dryer through a cycle. In short, put the house through its paces.
If anything needs fixing or further cleaning, tell the seller immediately. Neither you nor the seller wants to postpone the settlement, but make it clear you won't go to closing until a second walk-through is satisfactory.
What happens at closing?
The closing is where ownership of the home is officially transferred from the seller to you. Your closing lawyer coordinates the document signing and the collection and disbursement of funds. Your main role at the closing is to review and sign the documents related to the mortgage loan and to pay the closing costs.
Most parties involved with the purchase of your new home will attend your closing. The closing is a formal meeting typically attended by the buyer(s) and the seller(s) (and their lawyers offices).
What to bring to closing?
For things to go smoothly, each party should bring certain documents and be prepared to pay the necessary fees. Many closing costs can be paid by personal check, but ask the closing lawyer. A certified check or bank draft may be required; find out to whom checks should be made payable.
The seller and his lawyer are responsible for preparing and bringing the deed and the most recent property-tax bill. They also will bring other documents required by the contract. This can include the property insurance policy, termite inspection, documents showing the removal of liens, and a bill of sale for personal property.
Make sure you have adequate funds in your checking account for the down payment and other settlement costs, arrange for your lawyer to represent your interests at the meeting, bring the loan commitment, inform the lender of closing meeting time and place and have your driver's license ready as proof of identity. Finally, it's a good idea to bring a copy of the purchase contract to refresh your memory.
Closing Process and Role of the Closing lawyer
Now that you've decided to buy a home, what happens between now and the time you legally own it? The next step is to obtain title for the property. A title gives the owner the right to possess and use the property. But before receiving title, the closing lawyer will need to complete the following:
Title search: A title search is a thorough check of the records concerning the property. It is performed to verify the seller's right to change ownership. A title search will uncover any demands, faults and other privileges or restrictions on the property.
Document preparation: Appropriate forms are prepared for settlement.
Settlement: Many events happen during settlement; the seller signs the deed, the buyer signs the new mortgage, the old loan is paid off and the new loan is established. The seller, real estate professionals, lawyers, surveyors and others performing services for the parties are paid.
Why do I need title insurance?
Owning real estate is one of the most precious values of freedom in this country. You want the assurance that the property you are buying will be yours. Other than your mortgage holder, no one else should have any claims or restrictions against your home.
Title insurance eliminates any risks and losses caused by faults in title from an event that occurred before you owned the property.
How does title insurance differ from other types of insurance?
Title insurance is different from other types of insurance in that it protects you, the insured, from a loss that may occur from matters or faults from the past. Other types of insurance such as auto, life or health cover you against losses that may occur in the future. Title insurance does not protect against any future faults.
Another difference is that you pay a one-time premium. A title insurance policy will protect you from risks" or undiscovered interests.
There are two principal forms of title insurance:
1. The lender's policy
2. The homeowner's policy
What is a lender's policy?
A lender's policy protects the mortgage holder. If there is a fault in title that results in a loss, the mortgage holder will be paid back.
What is a homeowner's policy?
A homeowner's policy protects you, the purchaser, against a loss that may occur from a fault in your ownership or interest you have in the property. You should protect the equity in your new home with a title policy.
What does a homeowner's policy provide?
Protection from financial loss due to demands that may be charged against the title to your home, up to the cost of the title policy.
Payment of legal costs if the title insurer has to defend your title against a covered claim.
Payment of successful claims against the title to your home covered by the policy, up to the cost of the policy.
What "hidden risks" are protected under a title policy?
False impersonation of the true owner of the property by the seller or other persons previously in title
Forged deeds, releases and other documents
Deeds by persons of unsound mind
Deeds by minors
Invalid documents completed by an expired lawyer
Invalid deeds delivered after the death of the grantor
Deeds by supposedly single persons but actually married
Fraud
Claims for unpaid estate inheritance and gift taxes against prior owners of your home
Unrecorded easements - giving one party the right to enter another party's property
Undisclosed descendents of former owners of your home or the land on which it is situated
How long does my coverage last?
Once purchased, title insurance remains in effect for as long as you own your property. Title insurance adds security and peace of mind to home ownership.
How do I obtain title insurance and what does it cost?
All lenders require title insurance in order to release funds. Let the lawyer handling the closing of your property know that you want to purchase an Owner's Title Insurance Policy. When choosing a title insurer, you should look for a company with experience, as well as the financial strength to protect you.
In most provinces, the insurance commission or some other governmental body controls the premiums for title insurance policies. You only pay the premium once. The cost depends upon the purchase price of the property, and your policy amount must be equal to the purchase price.
Congratulations, You're a Homeowner
You've done it. You've bought a home. In the process you've also acquired many responsibilities and concerns. There are mortgage payments to make, records to keep and maintenance work to complete. Below are a few tips for the new owner.
Mortgage payments
Every month you'll receive a statement from your lender reminding you that your mortgage payment is due.
Some lenders can automatically deduct your monthly payment from your checking account. This saves you time and postage costs, and it can prevent the possibility of missing a payment. Ask your lender about this service.
Furnishing and renovating
You've just moved in. Most of your belongings are still in boxes. But you've decided the first thing you want to do is redo the first-floor bathroom, buy new furniture for the living room and strip the wallpaper from every wall in the house.
Stop. Put your hands in your pockets, seal your wallet, and tie yourself to a chair. Don't do anything major right away.
Acquiring a home requires some adjustment. Your mortgage payment is probably a good deal higher or less than the rent you've been paying, so you need some time to get used to the new cash regimen you'll be living under. Too many new buyers realize to late that they had no idea how much it costs to run a home.
The message here is simple common sense. Go for a slow, smooth transition. You'll probably be living in this house for a good while; don't try to do everything at once, even if you can afford it.
Papers to keep
You should keep a copy of every document you signed at the closing. It's especially important to keep a copy of your settlement form. It will be useful when you file your taxes and if you sell your home. For example, the real estate taxes and loan discount points you paid as part of your closing costs are might be tax deductible. So, when you file your taxes, refer to your settlement form to get these amounts.
In addition to the closing documents, you should keep all insurance records, such as homeowners and title insurance. You would need to have access to your homeowners policy if, for example, someone were to sue you because they were injured on your property. And you would refer to your insurance policy or if you were to find a flaw in the title after you bought the house.
It's a good idea to keep these important records in a safe place. You may want to store them in a safety deposit box or a bank vault in addition to keeping a copy at home.
Home maintenance
Your mortgage requires that you adequately maintain your property and not allow it to deteriorate. As a homeowner, you can not afford to sit back and postpone maintenance. You can extend the life of appliances and fixtures and avoid expensive repairs by performing routine maintenance yourself.
It's a good idea to set up a budget for your home's regular maintenance and unexpected repairs. You may want to budget 1/2 percent of the purchase price of your house to cover annual maintenance and repairs. You also may want to stick to a regular savings plan to cover essential bills, emergency repairs and large, periodic expenses such as property taxes and homeowners insurance.
I thank you very much for going through my Buyers Guide and I look forward to meeting you in person.
