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Costs and Considerations When Buying a Home
Beginning a home search is exciting and many people just jump right in without considering all the elements that make a home truly right for them. It is a complicated and personal process. With an unsuitable choice, you could lose money, waste time and effort relocating, or even put your family’s health in danger.
Choosing a Neighbourhood
Remember that you can renovate a house, but neighbourhoods take years to change and there is no guarantee they will change for the better! On the other hand, if you really love a certain part of town but it’s out of your price range, you may way to consider buying a less-than-perfect home then doing renovations. They can be quite expensive so try to make improvements that will be reflected in the value when you sell. These renovations have been found to have the greatest payback:
• kitchen 70%
• bathroom 68%
• interior paint 65%
• exterior painting 62%
Tips on Choosing a Suitable Neighbourhood
• When you find a locale you like, take a walk around it. See what it’s like from street level.
• Are the people friendly?
• Are there stores and recreation facilities nearby?
• Contact the local school board if you have children. Do local schools provide good education opportunities? If applicable, are there private/religious schools?
Figure Out What You Can Afford
Consider how much you currently need to live on and how much you actually have leftover every month. People have a tendency to create budgets that look nothing like reality – when I should have $400 leftover, for some reason I only have half that.
Consider these basic costs of buying a new home:
• A down payment of several thousand dollars is required
• Monthly mortgage payments can be 1/3 of the average person’s annual net income
• You may want to pay for a home inspection. Make it a thorough inspection of the home. Ask the inspector to check for asbestos, pest infestation and lead.
• Consider moving costs. This can range from a couple hundred to several thousand dollars depending on the distance of your move and the number of belongings.
Financing
The sort of home you can afford depends on several things:
• How much you have saved
• How much you earn
• Past earnings
• Your credit rating
If you are concerned about your credit rating, you can usually get a free copy of your rating report from a local credit bureau. Normally all that is required is a couple of pieces of photo identification. Remember, a few late payments or disputed bills can damage your record. Try to pay everything on time and don’t have more than two credit cards. Having a bad rating makes it difficult to get a mortgage, or you end up paying more for your mortgage as a form of insurance to the lender.
Pre-Qualification
Documents from a bank or other lender that indicate that you have the financing to back up an offer on a house verifies pre-qualification. This is a free service and most lenders are happy to sit down with prospective buyers to figure out how much they can afford. Having an accurate idea of a price range you can manage will save time in the bidding process. If there are several people making offers on your dream home, being pre-qualified can make your offer more attractive, since financing is not a question. However, keep in mind that lending institutions will base their final decision about a mortgage on the ability of the buyer to service the debt as well as the property. Most lenders say the two components go hand in hand – the buyer with the ability to repay a mortgage and the property as security in the event of default on payment.
By considering all these points, you can worry less about the process of buying and get busy finding your ideal home!
Pricing Too High
Starting out with too high of a listing price will add to the stress of selling your home.
Ideally, during the first few weeks, your home should be overflowing with activity. Listing agents will market and promote your home to other agents who are working with homebuyers, increasing your personal sales force.
If you have overpriced, chances are fewer agents will promote your home to their clients. As REALTORS®, it is their job to know the market demand and fair market value of a home. If your home was dramatically priced above market value, you will essentially be wasting your time.
Dropping Your Price Too Late
Your house could take longer to sell if you start with a high list price and then drop it later. By this point, your house has become “old news” and has lost the chance of overflowing activity that you would have received with a realistic price.
Even if you were to sell your home at an above market price to an uninformed buyer, that buyer will likely need a mortgage. Their lender may require an appraisal. If comparable sales and current market conditions do not support your sales price, the house won’t appraise and the deal will then fall apart.
If your home sits on the market a while, it is harder to get a good offer. Overpricing your home in the beginning, then dropping the price may look like you are desperate to sell and potential buyers may make lower offers. You could actually end up settling for a lower price than you would have normally received.
Of course, you want to receive the highest price for your home. If you start out with a list price that is too high, you likely interviewed other agents who didn’t get the listing.
If your listing agent engages in “buying” listings if your home didn’t sell in x number of days on the market, chances are they probably pushed through other agents to tell you what you want to hear. Now you’ve ended up with an agent who was good at selling you, but not good at selling your home and got paid the commission for it.
It’s tempting to choose the agent who tells you exactly what you want to hear. Instead, look for honest advice agents will give. This way you won’t be frustrated about why your house didn’t sell close enough to the price you had listed it for.
Planning Ahead for a New Home
There are countless advantages to purchasing a new home. You are able to build equity, enjoy pride of ownership, and truly make a home your own. If you are planning to buy property in the near future, preparing now can help you save time and money. Being prepared may also give you an advantage over other buyers. Here are a few tips to consider prior to your home search.
Know Your Bottom Line Before You Start Looking at Homes
I’m sure you’ve heard this before, but think about more than just knowing what price you are willing to pay. Consider the distance you’re willing to commute to work, the number of bedrooms and bathrooms you require and what you need in terms of local amenities. If you have children, you’ll likely want to consider schools and parks in the area. By determining your bottom line before you begin the search for a home you can avoid making snap decisions based on emotional responses to attractive home features.
Credit Check
Life happens, bad credit happens. But who wants to discover that they have a bad credit rating after finding the home of their dreams? Before meeting a lender, you can obtain a copy of your report which will give you an opportunity to take care of any unsettled debts. You can obtain a copy of your credit report from TransUnion or Equifax.
Avoid Major Purchases Prior to Buying a Home
Lenders tend to be uneasy when they see potential homeowners stretch their disposable income into buying a car or boat for example. Such purchases can make it difficult to obtain a mortgage or may lower the amount you can be approved for.
Anticipate Higher Interest Rates
Recalculate the above maximum monthly mortgage payment based on higher interest rates. Ask yourself if you can afford to pay a higher monthly payment without sacrificing other commitments.
Determine Your Cash Flow at the Time of Purchase
There are various fees involved with a real estate transaction which are outlined here. Moving from a rental suite, you should be prepared for expenses that may have been previously included with your rent such as heat, water, electricity or cable.
Your Paperwork Should Be in Order
Lenders will often need to see bank statements, pay stubs, and tax documents for the past two years.
Get Pre-Qualified for a Loan
Once you have a calculated budget you can live with, approach a lender to find out if you can get pre-qualified for a mortgage and how much you can spend on a home.
Buying a home is not only a lifestyle change, but it’s also an important investment. To make the most of your investment, plan ahead to find the right home and the best rates.
Do Your Homework: Home Inspections
The last thing you want to end up with after purchasing your home is unanticipated costly renovations. That’s why home inspections are such an important part of the home buying process. Choosing an experienced home inspector can be tricky, so it’s important to consult with others to help you find a reliable inspector with good references.
Contact several local home inspectors and interview them in advance to determine their qualifications.
Questions to Ask
1. How long has the inspector been in the business with a home inspection firm?
2. Is the inspector specifically experienced in residential construction?
3. What does the inspection include? Inspections should include visual inspections covering exterior, structure, garage, plumbing, heating, cooling, electrical, and interior insulation and ventilation. Extras can include radon testing, a pest infestation survey or inspection of septic system or wells. The inspector should provide you with a written report.
4. How much will it cost? Determine fees up front. Inspections can cost as little as $200 to as much as $1,000, depending on the size of the home and which inspection services are requested.
5. How long will the inspection take? The time depends on the size and age of the home; typically inspections take 2 to 3 hours. Anything less than that isn’t enough time to do a thorough inspection.
6. Does the inspector encourage the client to attend the inspection? This is an educational opportunity, and if an inspector refuses, you may want to look for a different inspector.
7. Ask what educational and/or training facility the inspector attended. Does the inspector participate in continuing education programs to keep his/her expertise up to date? It’s okay to ask to see their papers.
8. Does the company offer to do any repairs or improvements based on its inspection? This might cause a conflict of interest, and it’s not recommended to deal with these firms.
9. Do they belong to an association that will investigate consumer complaints?
10. Do they carry errors or omission insurance?
Costs and Value Benefits of Owning a Home
Buying a home is typically a very exciting time for most people, whether you’re a first time homebuyer or this is the fourteenth time.
Many people think of the basic costs like legal fees, GST (in some cases), property tax adjustments, the cost of movers, set-up fees for utilities, new window coverings, etc. If you’re a first-time homeowner you should also consider home maintenance costs like purchasing tools, a lawnmower, etc. You may also have to consider some major costs like replacing flooring, windows, or roofs.
On the opposite side, some buyers may gain a cost-benefit from purchasing a new home. You could purchase in a development that has a fitness center or swimming pool – so no more gym membership or transportation fees.
Next, you’ll want to consider the location. Look at the location from many viewpoints by asking yourself “Where am I going to live relative to…?” That relative to should include work (yours and your spouses), leisure activities (children’s classes, golf memberships, night school etc.), children’s school or daycare, proximity to family, best friends or the old neighbourhood.
Life rarely goes according to schedule, so try to determine the likely disruptions to a perfect schedule:
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How often do you or your spouse have to work late or unusual hours?
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Is your commute very efficient?
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Does this mean your children may have to miss soccer practice or other activities they enjoy?
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Is the commute likely to leave you too tired by the time you get home?
It can sometimes be overlooked, but consider the value of your purchase in relation to the emotional costs associated with the purchase. When you buy a home you want to be satisfied on all counts.
Finding Your Home
How to Find the Right Home For You
You’ve gotten your finances sorted and you’ve now been pre-approved with a budget in mind, what should you do? Well, now comes the fun part. Searching for the house that’s right for you.
Wants vs. Needs
First I recommend to sit down and determine your wants vs. needs. This is a big one that will help you determine what is important to you and what you are willing to negotiate on. In an ideal world, you will be able to find a home with all of your wants and needs under budget, however, realistically, you may have to decide what you’re willing to give on. Use my Wants vs. Needs checklist found here to help you and come up with a better picture of what it is you are looking for.
Research
After we’ve determined what it is you are looking for, I will go through the current listings and see what is available that meets your criteria and email the possibilities to you. Do some research on your own as well, I recommend using Realtor.ca for a complete list of all current listings. Online searching is definitely the best way to search in today’s market. Maybe something catches your eye that you didn’t necessarily think would.
Going to See
Once we’ve narrowed down the list to some possibilities, we’ll go and have a look at the properties. Sometimes is hard to get an idea of floor plan and sometimes the pictures don’t do the home justice online so it’s best to have a look for yourself. I find that you usually can tell shortly after seeing the home if it’s something you can envision yourself in or not. More often than not I’ve found, you walk in and you will just know that it’s the one for you.
The Offer Process
Writing
Once you have found the place you’d like to call home, it’s now time to put in an offer. After deciding on things like possession date, the conditions you want placed on the purchase, what you’d like included with the house, and a price you are willing to pay for the home, I will take your deposit and submit the offer to the other agent. Once I’ve heard back if the offer has been accepted or not will determine what is to come next in the process. If it’s rejected or countered, we will handle the situation as it comes. If it’s been accepted, then we get to move on to the next step.
Conditions
Typically we have about 7 days to remove all of the conditions we’ve placed on the offer. Usually, we will have a financing condition, a home inspection condition, and reviewing the property condition disclosure statement. This statement is what the seller fills out when they list their home and they answer a number of questions as to their honest opinion of the condition of the home. It just gives us a better idea of the history of the home. Because you’ve already been pre-approved, the financing should be no problem. I will submit the accepted offer to your banker and if they require any other paperwork from you for your pre-approval to become approved, now is the time to get it to them. Lastly, the home inspection condition is an important one. I will arrange a home inspection through a trusted and certified home inspector to go and give you a better understanding of the condition of the home. He won’t say if the home passes or fails an inspection, that’s up for you to decide, he’ll just give us a clearer picture as to the issues and things that need to be addressed.
Condos
If you have purchased a condo, there is another, automatic condition that gets placed on the offer. This is called the Schedule C or the estoppel package request. This condition allows you to review the contents of the estoppel package given by the condominium corporation specifically for the unit you are interested in purchasing. In the package contains items such as the financials for the condo corporation, the insurance policy, bylaws, reserve fund study, information on parking, and any other pertinent information related to the unit. You will have 5 days to review the information package once it’s received, and once the time has elapsed, it is assumed that you are in agreeance and is automatically removed.
If you do not wish to proceed at this stage before the condition removal date, your deposit is refunded or my office will hang on to it and we can apply it to the next house we find. If you do wish to proceed with the purchase, then we remove conditions and congratulations are in order. You just bought a house!
Waiting to Move
What To Do in the Meantime
Now that you’ve purchased your new home—whether it’s your first home, one that you’ve downsized into, or one you’ve added to your investment portfolio, there are a few things to remember to do while you are waiting for your chosen possession date.
Insured
You will need to ensure that your home has fire insurance set up for the property effective whatever the date of possession will be. I always recommend shopping around to a few insurance providers as their rates can vary greatly. Bring a copy of your feature sheet with you as they will need to know the specifics of the property. Also, bring a copy (or ensure that one gets sent) to your lawyer. If the lawyer doesn’t have confirmation that your insurance is in place, your possession day will be delayed.
Finances
Talk with your mortgage lender and arrange a day to go in and sign paperwork, if applicable. They’ll likely need to see you one more time to sign the mortgage commitment while your actual mortgage documents get signed at the lawyer’s office.
Legal
If you haven’t already chosen a lawyer, you will need to do this now. I can provide you with suggestions if you need. Your mortgage lender and insurance company will also need to know who you are hiring so they can send all the required documentation to them. Once your possession date comes closer, your selected lawyer will contact you to arrange a time to come and meet and sign paperwork. For information regarding the costs associated with the lawyer fees, click here.
Change of Address
As your date nears, you can start setting up your utilities and changing your moving addresses (if applicable). I recommend having Canada Post forward your mail for a year and then you can change anything you might have missed once it comes in. For a more complete list of who to contact before your move, please visit and download my Moving Checklist.
The Big Day
Once you have seen the lawyer, please notify me so I know things are on track. Then we can arrange a time to do the walkthrough on possession day to make sure that the home is what you remembered and I hand over the keys. Possession is typically at noon the day of but we can meet anytime after that, whatever works best for your schedule. Usually the walkthrough is quite short and we just do a quick look of the home to ensure that everything that was supposed to stay is there and anything that wasn’t is gone.
After that, you can now enjoy because the house is now yours to move in and make your own.
After The Sale
What to Do While You’re Waiting to Move
Now that your house is sold, now what? Life can return to normal with no longer ensuring that the house is spotless at all times and making sure your schedule is flexible for showings. Hooray!
Paperwork
I’ll ensure that your paperwork is submitted to your lender and lawyer of choice in a timely fashion. They will be in contact with you when they are ready for you to sign any paperwork if applicable.
House Hunting
If you are wanting to buy something now that your house has sold, now is the time to start looking. In most cases lenders will need to know that you have a firm sale on your house before buying another. If you are relocating to a different area, I can refer you to an agent in a different area through my trusted referral network.
Contact
Contact your utility providers, property managers (if applicable), and insurance company to notify them of your upcoming move and possession date.
Possession Day
On the day of possession, your home should be in the same condition it was when the buyer had seen it. Ensure your house is clean and all keys and openers remain as well as any other items negotiated in the contract. Also ensure that there isn’t anything unwanted left behind for the new owners.
For a more detailed list, please check out my moving checklist.
The Finances
Mortgage Pre-Approval
The pre-approval step is an important one. After all, it will dictate how much you can spend and will allow you to determine how much you want to spend. Those sometimes are two different numbers. By getting this step out of the way, you are able to make educated decisions based on your financial situation.
Deposit
Once you have decided that you want to make an offer on a property, a deposit is needed to hold your interest in the home. Typically a $5,000-$10,000 deposit is required and the cheque is needed at the time the offer is made. The deposit cheque is deposited once the offer has been accepted and is held in the Century 21 Fusion trust account. This money also counts towards your downpayment and will be forwarded to the lawyers closer to possession day. If you decide not to remove conditions on the home during the conditional period, your deposit will be returned or can be held on to and applied to the next property you find.
Shopping Around
I usually recommend going to talk to your bank and also a mortgage broker to see what the best interest rate is they have to offer you and what other incentives or programs they might have that fit your needs. Remember that a 0.5% difference in interest rates means that for every $100,000 of mortgage amount, you are paying an extra $26 a month. Do the math and this equates to over $7,800 per $100,000 extra in interest costs over the length of the mortgage. Interest rates are important. Also noteworthy – don’t allow too many lenders to pull your credit score. Every time it’s pulled, your credit rating is affected negatively.
Down Payment
A typical down payment for first time buyer’s is 5% of the purchase price. Ensure you have enough money saved ahead of time so you can proceed with finding a home that’s right for you. If you want to avoid paying CMHC insurance fees (which can be substantial), have at least 20% saved up.
RRSP’s
The Government of Canada has a program where qualifying first time buyers can withdraw their RRSP’s and use that money towards their downpayment. It’s called the Home Buyer’s Plan and information on the program can be found here.
Calculating
Use the mortgage calculator link below to figure out different scenarios based on differing purchase prices. You can find out how much of a downpayment is required and what your payment will be along with details on a payment schedule, and you can add in any other costs that you may have. Using an affordability calculator online is a good way to help you work backwards and will calculate a purchase price you are comfortable with based on all other criteria imputed. Click here to access the Mortgage Calculator.
Costs Associated With Your Purchase
Buying a home can be overwhelming, especially when large amounts of money are involved. Here’s what you can expect with costs associated with your purchase.
Inspections
If you’ve decided to hire a home inspector, it will cost you around $400. I can arrange any other inspections as well and depending on what they are, the costs will vary and all will be your responsibility to cover.
Real Estate Fees
As a buyer, you don’t pay for my services. My commissions get paid through the seller of the house you’ve chosen. Once you decide to sell your home, you will then be responsible to pay for both sides of the commission.
Legal
Lawyer fees can vary but here’s what you can expect in fees for a typical purchase:
$800-$1000 + GST + PST for lawyer fees
+ $3/$1,000 of your purchase price for the land titles transfer
+$150 for mortgage registration
+ ~$150 for misc expenses like tax search, courier charges, postage, photocopying, etc.
If you would like a more accurate total, please contact your lawyer and they can let you know a closer approximation of what your total fees will be.
Surveyor’s
A surveyor’s certificate is a piece of paper that shows the outline of your home and any outbuildings (usually a garage) that are within the property lines. It will have dimensions to the buildings and also the lot size with the legal description. Often the seller will have a current surveyor’s certificate available and it gets handed down to the next owner. If it’s not available, or the seller never had one to begin with, you can purchase title insurance for your property. The lawyer requires either one and will make arrangements in ordering one if a certificate is not available.
Taxes
Often the seller pays their property taxes monthly to the City. If your possession date doesn’t fall on the first of a month or if the seller pays their taxes annually instead, there will be an adjustment that will need to be made. For example, if your possession is the 15th and the seller has paid their taxes for that month, you will be responsible in reimbursing them for 1/2 of the month that had already been paid. The lawyer will adjust the amount owing and charge you for any difference.
Hook Ups
If you are setting up new utility accounts, often the service providers will charge you a hook up fee. These will vary for the provider.
Movers
Hiring movers or any other moving expenses you might incur are also something to make note of so you don’t end up with any surprises.
Repairs
If there are repairs that are needed to be done shortly after moving in, plan for that expense as well. Often those things get added to the to do list and never quite get done until you’re ready to sell.
Knowing what the costs will be upfront will make the entire process less stressful and gives you a better idea so that you can be prepared.
While Your Home is Listed
Things to Know While Your House is For Sale
Now that your home is for sale, what do you do in the meantime? Here’s a list of a few points to remember and take note of so you’re not feeling helpless throughout the process.
Be Flexible
Be as flexible as possible with showing times. Make it easy for buyers to come and view your home so you don’t miss out on a potential sale. I realize that there are circumstances when this doesn’t allow but being as flexible as you can without too much of an inconvenience to your schedule will have it’s benefits.
Open Houses
I leave the decision of whether or not to do an open house up to my sellers. I’ve found that in some instances, an open house was useful and resulted in a success. However, more times than not, an open house hasn’t resulted in anything other than the neighbours coming over to visit. I leave that decision entirely up to you.
Be Reachable
I will need to contact you for showings and any offers we get and I will need to be able to get ahold of you on short notice. If you are going away, I’ll also need to know that.
Keep Clean
Try to keep your house as clean as possible during times of showings and open houses. We want to eliminate the objections a potential buyer might have and if your house shows great, then it’ll be that more attractive to buyers.
Updates
Throughout the time when your house is for sale, I will send you weekly updates in regards to the number of viewings your home has had on certain websites as well as any new comparable houses for sale and ones that have just sold. This will help keep you informed about the market in your area and help you make an informed decision about price reductions. I will also follow up with agents when a showing has occurred and what the feedback has been so you know what, if any, improvements can be made on your part.
These few things will help you reach your goal of selling your home for the most money and in the least amount of time.
