COMPLETE HOME-BUYER’S GUIDE FOR CANADIANS
Geraldine Santiago
Self-Counsel Press
(a division of)
International Self-Counsel Press Ltd.
USA Canada
Copyright © 2012
International Self-Counsel Press
All rights reserved.
Foreword
When I bought my first home, I was not a realtor. I found the entire buying process difficult because I didn’t know what questions to ask, where I should look, or what documents I had to review and sign. I felt intimidated and frustrated. I depended solely on my realtor to give me advice and show me the way, but I wished I knew a little more about the buying process to give me the confidence in my own choices and decisions.
Buying a home is probably the largest investment you will ever make, financially and perhaps emotionally. Gaining knowledge about home buying is not only empowering, but it can also save you money. Visit real estate Web sites, read books about home buying, and attend seminars; get as much information as you can about the processes and costs of home buying before you get caught up in searching for a home. Becoming familiar with these procedures can make your home buying experience exciting and stress-free.
This book is intended to help home buyers become familiar with the many processes involved in buying a home, including obtaining a mortgage, searching for a home, drawing up a contract, closing, and possession. I hope this book will give you confidence in your own choices and decisions and make your buying experience a pleasant one!
What are Canadian home buyers paying for their homes?
Housing prices vary widely across Canada and change over time. They may even have a wide range within a single community, so don’t assume that a particular community might be out of your range. The following examples will give you some idea of the range of prices available in some of the nation’s larger communities.
In British Columbia, single-detached homes in a “blue chip” neighbourhood such as Vancouver’s West Side currently start at $400 000, while entry-level condominium units can be purchased for as little as $150 000 — although “leaky condominium syndrome” has put a damper on condominium sales along the British Columbia coast.
In West Edmonton, townhomes in Callingwood start at $115 000. In Calgary’s Mount Royal and Elbow Park neighbourhoods, prices for a single-detached home start at $300 000, while condominiums in the Beltline area can be purchased for as little as $110 000. Single-detached homes in the Greystone and Dundonald areas of Saskatoon start at $115 000, although new condominium lofts in the downtown core sell for less.
In Toronto’s Kingsway and Lawrence Park areas, prices start at $350 000 for a single-detached home; condominium apartments in the downtown core start at $100 000.
In Atlantic Canada, semi-detached homes in Moncton’s North End are available for $95 000, and single-detached homes in the same area start at $120 000. Single-detached homes in Halifax’s Hammonds Plains start at $140 000, and condominiums in the centre of the city can be purchased for $95 000.
1
Getting Financing
Getting financing to pay for the purchase of a new home is on the mind of every home buyer. Before searching for properties, you should see how much you can afford to spend. Going through a financial institution’s pre-approval process is a good way to determine your buying power. You will need to gather financial information about yourself, which will be detailed in an application. The financial institution will assess your income (employment income and earnings from assets, stocks, bonds, and so on) and assess your debts and expenses (car loans, credit card loans, student loans, rent, living expenses for yourself and your family). It will also assess your credit history and verify the amount of the down payment you can make. After making all these assessments, it will determine the amount of the loan for which you qualify.
What Is a Mortgage?
Obtaining a loan to finance the purchase of your new home will probably mean that you must fill out a document called a mortgage application. Your mortgage will set out the terms and conditions for the loan and its repayment. Mortgage payments consist of a principal sum (the amount borrowed) and interest (the cost to you of borrowing money). The best plan for any type of mortgage is to minimize the amount of interest you pay, and lenders offer several ways to help you do this. A larger down payment means that your home ultimately costs less because a smaller mortgage means less interest paid in the long term. Also, a mortgage with a shorter term means that although there are higher monthly payments, less interest will be paid.
What are the types of mortgage loans?
Conventional mortgage loan
A conventional mortgage loan allows you to borrow up to 75 percent of the purchase price or the appraised value of the property, whichever is less.
High-ratio mortgage loan
A high-ratio mortgage loan allows you to borrow more than 75 percent of the purchase price or the appraised value of the property, whichever is less. But you must pay a mortgage default insurance premium to protect the lender if payments are not made. This premium can be as much as 3.75 percent of the loan amount.
Insured mortgage
An insured mortgage allows you to put down as little as 5 percent of the property’s value and obtain a high-ratio mortgage equivalent to the remaining 95 percent. You must meet certain qualifications regarding your income and monthly debts.
Vendor take-back (VTB) mortgage
A vendor take-back (VTB) mortgage allows you a chance to purchase a property with the help of vendors who lend you a portion of the purchase price. Such a loan often comes with favourable or flexible terms, depending on the inclinations of the individual vendor. The loan may be open, which means that you can repay it any time without penalty. The vendor may charge an interest rate lower than the prevailing market rate, or the vendor may negotiate the term of the loan with you.
You can avoid a lot of red tape and administrative charges by obtaining a VTB mortgage. In a slow market, a VTB mortgage attracts potential buyers. On the other hand, if the market is hot, you won’t find many vendors who’ll offer to lend you money at favourable rates, unless their property is poorly located, in bad condition, or otherwise hard to sell. In general, vendors sometimes prefer the steady and consistent return of a mortgage secured by a familiar property to a riskier investment. They also prefer borrowers such as you, whom they know and trust, to faceless and nameless managers who manage many other types of investments.
Assumable mortgage
An assumable mortgage can benefit both the buyer and the seller.
An assumable mortgage allows buyers to assume the mortgage on the property they would like to purchase. Typically, a vendor will already have a mortgage on the home that you want to buy. Instead of going through the process of obtaining another mortgage, you can sometimes assume the existing mortgage from the vendor.
When