1. Where to start
Q.
I’ve already got a headache, where do I start when buying a home?
A.
Buying a home should be an amazing experience. The problem is how to squeeze in
time for likely the biggest investment of your life.
The
first place you want to start is figuring out what you can afford – a mortgage
pre-approval. Once you’ve determined your dollar range, you can then define
what you are looking for in a home.
Do
a bit of homework yourself by checking out MLS.ca. Then turn to a realtor who will
work with you to find the appropriate neighborhood.
2. Forever and ever
a renter
Q.
With all the chatter about how high housing prices have risen, there is no way
I can afford a home, is there?
A.
Of course you can. In the last week we sold a penthouse for $120k, a 2-bedroom
home in the Danforth for $230k and a condo in the Queens Quay for $295k. There
are always deals to be had. Didn’t your mother tell you to shop around?
Here
are some numbers; with a $36,000 income, you can get around a $200k mortgage
and $960 monthly payments. With a $48,000 income a $260k
mortgage ($1,250) and with $60,000, $320,000 ($1,500).
3. Becoming a
landlord, a good thing
Q.
My friends brag about their tenants taking care of their mortgage by renting
out a suite. What is this about?
A.
There are pros and cons to becoming a landlord (i.e. having an extra suite in
your home). Remember Mr. Roper from Threes Company? The cons are that you will
always be on call. The pros are that your mortgage payments will be paid in part
by your tenant ($300k mortgage- $1,500 payments less basement tenant of $750).
It all comes down to getting a good tenant.
4. Thoroughness of
the home inspection
Q.
My basement is backed up with water due to roots in the main pipe. Should my
home inspector be responsible for this?
A.
No - the home inspection is typically a visual inspection. At the time of
inspection, you do not own the house and therefore you are not allowed to do
anything that may damage it even for the purpose of inspection.
5. Hurdles to
getting a mortgage.
Q.
I really want to buy so that I can turn up the music and hammer in nails
wherever I want to. I’m a bit concerned about my credit rating. Are there other
options if I don’t qualify?
A.
Lenders look at 3 things: your credit history, job history and income. It’s
best to see if you can be approved on your own. If you can’t, then look to
perhaps buying with a friend.
Co-buying
is really popular in New York and London where prices are too huge to qualify
on your own. In fact, there are home dating sites there.
If
buying with friends, the key is covering off all potential issues in a legal
agreement. Your friends today might not be your friends tomorrow.
6. When to buy.
Q.
Is it a good time to buy with all the talk about housing prices coming down? I
definitely don’t want to get caught in a downturn like the US.
A.
Probably not if you plan on flipping in a year. If you can hold the property
for 3 or 4 years then you will be fine. Prices always trend up but there are
dips at times that last 3-4 years historically. Also, economists are suggesting
a 2% increase in house prices this year.
Two
things working in your favor today: longer period to repayment and the low
rates.
7. How long to
repay your mortgage
Q.
I have heard about amortization. Isn’t this the number of years to fully repay
your mortgage? The number of maximum
years has recently been extended from 25 years to 40 years. My parents have
told me how important it is to repay my mortgage as quickly as possible. So
what period should I select?
A.
With all due respect to your parents, I’m all for living for today. Go with the
40-year mortgage. Then as your income improves, make additional payments or
increase your payment. Just remember to be disciplined.
Your
parents do, however, have a point. You probably don’t want to take 40 years to
repay your mortgage as your will be paying as much in interest as you do in
principal.
8. How to select a
mortgage term
Q.
I’m becoming nauseated with buzzwords like ‘variable rate convertible mortgage’.
I need someone to stickhandle me through picking a
mortgage term?
A.
First off, ‘mortgage term’ simply refers to a period of time for which you
decide to commit to a mortgage rate. The maximum length is 10 years. If
interest rates are predicted to fall as it has been happening, the variable
rate is best as your rate fluctuates with the prime rate. If, however, rates
are predicted to increase, fixed rates are likely the best option.
It
really all comes down to making a decision that is comfortable and affordable
for you.
9. Pitfalls to
avoid
Q.
I have heard horror stories from my friends about the home buying process. I
don’t want to share the horror stories. What are some common pitfalls to avoid?
A.
Be prepared. There are many costs involved when buying a home. Some estimate
having extra cash on hand of 1.5% of the total value of your home. I suggest
2%. These costs include land transfer taxes, adjustments in utilities and
property taxes, inspection fees, legal costs, etc.
Also,
don’t forget that you will need between $2,000 and $10,000 as a deposit to
accompany your offer to purchase.
10. Getting extra
dough for renos
Q.
Can I get extra money from the lender for renovations to my new home?
A.
Yes - the renovations must be approved by the lender (they don't consider a 10k
plasma TV as increasing the value of their collateral) and must be submitted at
the time that the mortgage is being requested.
11. Obligation to
the bank
Q.
My friend also bought a house and is closing around the same time but he has a
better rate can I still get that rate even though I have signed the papers at
my bank?
A.
Absolutely - you can always shop around until it is logistically impossible for
the new lender to meet the funding dead line - typically 5 - 10 banking days.
You accept the mortgage when you sign at the lawyer’s.
What
you sign at the bank or mortgage broker weeks before closing is a commitment
from the lender to you that if all conditions are fulfilled then they will
forward the money, with this interest rate, for this amount, on the closing
date.
12. Condition of my
home when taking possession
Q.
The front door was damaged by the sellers’ movers when they moved out and we
discovered it the next day when we moved in OR the washing machine isn't
working and we didn't test it during home inspection because it wasn't part of
the inspection. What should I do?
A.
Technically the house is supposed to be in the same condition on closing as it
was when the offer was accepted. Unfortunately, there is no easy answer.
Experienced
realtors will include clauses that protect homebuyers such as viewing a day
before closing. These clauses should be part of the initial agreement of
purchase and sale.
Once
the deal closes the only remedy, if you can't agree amicably, are the courts.
Then the onus is upon you to prove when the damage occurred, before or after
closing.
13. Transferring of
utilities.
Q.
Do I have to let the utilities know that I am moving into the house and that I
will be the holder of the new account?
A.
Yes – you do – the lawyer cannot open a utilities account on your behalf.
14. Essentials in
your home.
Q.
Is there any wisdom you can share about selecting a home?
A.
You might not be at the stage of buying your dream home yet. So be realistic.
Choose a home that will meet your current needs and a bit more. Also, don’t
choose a home with so many unique features that you love but the problem when
it comes to resale is that you are the only one that loves them. Focus your creativity
on decorating.
Also,
be very cognizant of the neighbors – knock on their doors. Check out the
neighborhood on weekends and weeknights. Ensure that you are close to schools,
public transport and shopping.
15. Mortgage
Insurance versus Life Insurance
Q.
Do I need insurance and what type? My lender is pushing me to buy mortgage
insurance.
A.
Home insurance is mandatory, as your lender wants to be protected against fire.
Pass on the mortgage insurance and go for increasing your Life Insurance. Life
Insurance pays out to your estate rather than the bank and the amount does not
decrease as your mortgage decreases.
16.
Once I take possession
Q.
Any advice for when I move in?
A.
The first thing you want to do is buy some champagne, turn up the music high and
dance.
You
deserve it!
Also,
remember to change your address and the locks. Although it might be nice for a
while not to get your bills, you don’t want to see what it will do to your
credit rating.
Don’t
forget setting a budget for new home purchases.
I
know I’m taking out the fun but believe me the Ikea receipt can become
outrageous.
Invite
your friends and neighbors over to show off your new home.
17.
University students can earn a degree
and a financial return
Q.
Is it possible that I can sink my monthly rent into a mortgage?
A.
Of course, but you will need an investor. Here’s what I suggest … talk to your
parents about this great investment you have come across … a property that has
huge upside potential. You realize that they are getting less than 3% through
the bank and you feel that this is so unfair. So, why not be financially astute
and invest in real estate. For a 50% stake in the property, you are willing to
manage the property – i.e. rent it out to your friends.
Isn’t
it great being the children of wealthy baby boomers?