Financing

Ensuring that your financial matters are in good shape is essential when contemplating a move. Before you begin looking for your dream home, determine how big you can dream! As the largest investment you will likely ever make, it is vital to understand the costs associated with the purchase of a home. Nicole will provide full disclosure regarding the expenses you will incur – from the initial purchase, to moving fees, to ongoing costs. In the meantime, here’s a quick list of expenses you can expect:

[table] [tr] [td]Cost of buying a home[/td] [td]= One time costs[/td] [td]+ Monthly costs[/td] [/tr][tr] [td][/td] [td]Down payment[/td] [td]Mortgage[/td] [/tr][tr] [td][/td] [td]Legal fees[/td] [td]Utilities[/td] [/tr][tr] [td][/td] [td]Title insurance[/td] [td]Maintenance[/td] [/tr][tr] [td][/td] [td]Inspection fees[/td] [td]Insurance[/td] [/tr][tr] [td][/td] [td]Property transfer[/td] [td]Property taxes[/td] [/tr][tr] [td][/td] [td]Taxes[/td] [td][/td] [/tr] [/table]

You will be required to pay a minimum of 5% of the purchase price which will make up your down payment. This money should be easily accessible and will be forwarded to the bank as your financing is arranged. For the remainder, a mortgage will likely be required. Before you can begin your house-hunt, it is a good idea to visit your lending institution and receive a ‘pre-approval’ for the outstanding funds required to purchase a home.

Remember… the bank may be quick to lend money, but don’t forget that you will need to repay them… with interest. Nicole will help to ensure your budget aligns with your spending habits and help you carve out excess if need be to bring your home ownership dreams to reality.

Understanding the calculation:: There are plenty of online mortgage calculators that will quickly spit out a value for which you will be approved. Here is some terminology to explain how this number is generated:

Principal # 1: GROSS DEBT SERVICE RATIO Your monthly housing costs (including mortgage principal, interest, property taxes, and heating) should not exceed 32% of your gross monthly income.
Principal #2: TOTAL DEBT SERVICE RATIO Your monthly housing costs and all other debt payments (loans, credit cards, leases) should not exceed 40% of your gross monthly income.

Calculating your income and debt payments will form a basis to determine how much money a bank will loan you.

Be sure to ask Nicole to refer you to an excellent mortgage specialist who can further explain these principals, answer your questions, and confirm your preapproval.
Mortgage Jargon: Your mortgage specialist should unpack the terms and lingo associated with your mortgage preapproval. Here’s a head-start to help you understand what we’re talking about…

Term: The amount of time for which the bank has agreed to lend you money (usually 6 months to 5 years) before renegotiating a new term.
Amortization: Length of time required to completely pay off the mortgage, often as long as 25 years. The longer it takes to pay off the loan, the more interest will be paid.
Interest rates: Interest is the cost of borrowing, and the rate indicates the percentage of your total debt that will determine the amount of this cost. Rates fluctuate and can have a great impact on how much you can borrow – the more interest you are set to pay, the less principal you will be approved for.
Fixed vs. Variable rate: A fixed interest rate will remain the same over your mortgage term, regardless of how the prime rate might fluctuate. This option is for those who would prefer to know the exact amount of each payment. A variable rate changes with the prime rate set by the Bank of Canada – it’s a riskier decision since your payments will increase if rates go up. However, if you’re willing to take the gamble, you could save money as long as rates stay low.
Down payment: This is the amount of money you will pay on your home purchase upfront – the larger your down payment, the smaller your mortgage will be. A minimum of 5% of your borrowed amount is required to be approved for a mortgage… so – if you’re purchasing a $250,000 home, $12,500 is required up front.

First time Home Buyers:: If you have never before purchased a home, you will be eligible for some great rebates and incentives. You could withdraw up to $25,000 from an RRSP without paying income tax to cover some of your home purchase costs. You may also qualify for the Land Transfer Tax rebate, exempting you from a portion of the tax due upon transferring the property. Ask Nicole about these and other government programs that could help you save money.

Getting the green light:: Obtaining your preapproval will require full disclosure with your lender. Be prepared to provide documentation proving your income. Other information may also be necessary to supply including: letter of employment (indicating position, pay, years employed), information regarding your assets (car, investments) and liabilities (loans and debts), a gift letter if a portion of your down payment has been given to you, banking information, lawyer information. Listen carefully and ensure that you present all the documentation required – if something is missing, your preapproval will be conditional and could hold things up when you need your financing to be confirmed at the time of a purchase!

Secondary Expenditures:: Of course, there are the obvious expenses when purchasing a house, but there are plenty of ancillary costs to consider too. Nicole will outline the fees you will likely incur, but here are some examples of charges that may apply over and above the cost of your new home:

Application Fee: Some mortgage lenders charge this fee to process your application
Appraisal Fee: This may be charged by your lender if your home requires an appraisal by a third party professional
Land Survey Fee: If a survey is required of the property in question, this cost may become your responsibility.
Home Inspection: Money well spent to review the systems and structure of your home, this is a fee you will incur once your offer has been negotiated.
Home Insurance: Legally required by mortgage lenders as well as for your protection. Shop around for rates.
Title Insurance: Protects you from fraud and errors surrounding the right of ownership to your land. Your lawyer can help explain these details further.
Legal Fees: Due upon closing to your lawyer for his or her disbursements – searching the title, drafting the deed, transferring ownership, preparing your mortgage, and delegating adjustments
Adjustments: Your share of items such as utilities, or taxes based on when you took possession of your home. If the previous owner paid these items for the year, he or she will require a credit for the portion of time you will be responsible for the property.
Maintenance and Utility Costs: If work is required on your home, it is your responsibility to ensure the costs will be covered. Plan ahead for the roof that needs replacing or the grass seed required. Utilities will also be ongoing expenses – water, heat, hydro will all be necessities to factor into your monthly budget.
Land Transfer Tax: Payable to the provincial government, calculated as follows: 0.5% on first $55,000, 1% on value between $55,000-$250,000, 1.5% on value exceeding $250,000, 2% on value exceeding $400,000
GST/HST on new homes: Although resale homes are not subject to this tax, this tax will be payable if you build a new home. Consult with your lawyer for more information. HST will also be payable on lawyer’s fees and real estate fees.

Other Expenses to Consider:: Appliances, Garden Equipment/snow removal equipment, window treatments, Decorating materials, Hand Tools, Humidifier, Moving Expenses, Renovations/Repairs, Condominium Fees.

Nicole will ensure that nothing comes as a surprise to you. As the process unwraps itself and you get closer to finding the perfect place to call ‘home’, Nicole will ensure that you are educated and informed about what to expect. She will guide you through each step of the way to ascertain that you feel comfortable and confident in your decision.