Buying your first home is one of the most important investment and personal decisions of your life. It’s also one of the most complex transactions you may ever undertake.
Your first step involves deciding how you will approach your home search. Who will you work with throughout this process — and how will you work with them? Ask yourself, “Do I want a RE/MAX agent working with me or for me?” There is a difference! Meet Mike Douglas!
As a buyer, you have a choice in representation. Most buyers today choose to have a RE/MAX agent (like Mike) represent their interests in a real estate transaction. This is also known as Agency Representation (or fiduciary representation), which simply means that the RE/MAX agent you hire is legally bound to represent your interests. This involves the highest standard of care and extreme loyalty to you, the “client.” Some agents will work with you as a “customer,” which carries a different level of responsibility. Most real estate professionals require a client relationship because it allows them to provide the full range of services that buyers need and deserve. Your RE/MAX agent will discuss representation with you and will request your commitment in writing for this level of service.
As a first-time homebuyer, it’s important that you find someone you feel completely comfortable with, who you can trust, and who listens to you and respects your views. They have the market knowledge and expertise, but at the end of the day, it’s your home and your investment, so you must be able to work well with your agent. Experienced professionals….. Mike, understand and excel at this.
Like in so many professions, reputation and word-of-mouth are crucial. Indeed, for Mike Douglas, client and agent referrals account for about 70% of business. As you begin your search for your own personal agent, talk to family, friends, and colleagues who have gone through the home buying process. Mike the kind of guy they will recommend. Homeowners who’ve had a positive experience are only too happy to share this with you, much like they would a doctor, dentist, or auto mechanic.
As a first-time homebuyer, Mike is experienced in your market, but not so busy that he can’t give you due attention. He is skilled in understanding and responding to the specific needs of buyers. Your interests become his interests, and you’ll be working with someone who has gone the extra mile by completing specialized training in delivering the best representation services.
What Mike Douglas, Broker at RE/MAX Chay Realty Inc does for you:
There are many good reasons to work with a qualified real estate professional — especially a trained professional. In a formalized agency relationship, you can expect your Mike to:
Provide you with the highest standard of care and extreme loyalty to you as the client.
Understand your specific needs and wants, and locate appropriate properties.
Assist you in determining how much you can afford.
Help you get pre-approved for your mortgage.
Preview and/or accompany you in viewing properties.
How much can I afford?
Determining how much you can truly afford involves meeting with a mortgage representative. Mike can help you with this and help you to analyze your numbers to see how much of a loan you might qualify for.
Consider these calculations an estimate — a mortgage representative will take your preliminary calculations and see if they hold up to further scrutiny. It’s important to be honest with yourself when you do your own financial review. If you underestimated your household expenses to make your financial picture look brighter than it actually is, your mortgage representative will probably expose a more realistic view.
The mortgage representative will then come up with some close-to-final numbers, presenting you with a preliminary figure for pre-approval. Now you should prepare a thorough and realistic checklist of your current household budget, say, if you’re renting an apartment and your expected budget in your prospective new home. You’d be surprised how some new items — such as additional insurance or costs for general repairs — can add to your expenditures as a homeowner. Make sure you take all of these items into consideration when calculating your mortgage affordability.
The importance of not overspending
Real estate experts cite overbuying as one of the most common mistakes first-time home buyers make. Whether they got caught up in a bidding war or fell in love with a home they just had to have, many people spend more on their new home than they can afford. Months later they may realize that their purchase has left them “house poor” with no money left to contribute to savings, other necessities, or even rainy day funds. This further underscores the need to be honest and realistic with your mortgage calculations, as well as the importance of getting pre-approved for a mortgage, since it can actually protect you from going overboard. Mike can help you keep the budget in focus. Happiness is the goal!
Costs of Home Ownership
From deposits to moving expenses, and everything in between, buying your first home involves more than just saving for a down payment. That may be the largest cost, but there are other things you’ll need to plan and budget for.
This is the step you take when you’re ready to make an offer to purchase. Let’s say you’ve viewed a selection of properties with Mike, found one you like, and are ready to get serious about purchasing the property. At this point, you might need to put down a deposit; the amount depends on your area, the purchase price of the home, and your situation. If a deposit is required, it will be held in trust and will be deducted from your total purchase price and is considered part of your down payment. Mike can help give you strategic advice about this.
Generally speaking, the larger a down payment you’re able to make, the better, because that means you’ll have to borrow less. But you also don’t want to leave yourself so cash-poor you can’t cover all of the other costs that come with closing a sale.
The minimum amount you can put down is 5% of the purchase price, assuming that you have made an offer to purchase and all conditions have been met. For example, a $300,000 property would require a minimum down payment of 5%: $15,000; however, if your down payment is less than 20%, which is the case for many first-time homebuyers, you will also need mortgage loan insurance. Mike can help.
Mortgage loan insurance
If your down payment is less than 20% of the purchase price of your home, you are required to have mortgage loan insurance, also known as high-ratio mortgage insurance. It protects your lender — not you — in case you default on your mortgage. Premiums are calculated as a percentage of the amount you put down, changing at the 5%, 10% and 15% thresholds but there is no break for anything in between. Premiums range from 0.5% to 3% and increase if you are self-employed.
So, to buy a $250,000 condo with a 5% down payment of $12,500, a premium of 2.75% on the borrowed amount of $237,500 would total about $6,500. You can pay this in one lump sum or, as many first-time buyers choose to do, you can add it to your mortgage loan amount. This type of insurance is mandatory for high-ratio mortgages, and is only offered through two carriers: CMHC and Genworth Financial.
One important note is that in Ontario and Quebec, the premiums are subject to provincial sales tax, which cannot be added to the loan amount. So, to buy that $250,000 condo in Ontario, it is your responsibility to pay the 8% sales tax on the $6,500 premium, or about $520.
Land transfer tax
Most provinces have such a tax, though it may have a slightly different name (such as property purchases tax), and the rates vary. Ontario uses a tiered system whereby the rate varies depending on the purchase price of the house. Mike or your lawyer can advise what the rate would be for your situation.
Your mortgage lender will likely require an appraisal to ensure the property is worth what you are offering. The reason is two-fold: it prevents you from borrowing more than a property is actually worth, which might apply in cases where multiple would-be buyers enter into a bidding war; and it protects the lender from lending out more than the home’s value, which becomes critical should you default on the mortgage. If a lender has to foreclose, they want to be able to recoup the entire loan amount, as well as the costs of foreclosing. The fee for such an appraisal is typically between $250 and $350.
You wouldn’t buy a used car without having a trusted mechanic perform an inspection for you, and a house is no different. Don’t even think about buying a home without first having a proper inspection done. In fact, your lender may insist on one to verify the condition of the home.
It’s an excellent way to learn as much as you can about the various systems in the home, from the furnace and plumbing to the electrical and roofing. The inspection may identify some repairs that are essential, which you and Mike can either negotiate into the purchase price or insist be completed before you proceed with the deal.
The cost of an inspection starts from $350.00 and depends on the size, condition, and age of the property. But this is money well spent, and is an expense that you simply cannot, and should not, avoid.
Your mortgage lender will require you to have property insurance in place on closing day. Since the property is actually the security against the loan amount, the lender wants to make sure insurance is in place to cover the cost of replacing the home, and its contents, should something happen.
The fees for insurance vary widely, since they depend on the value of the property. Insurance has become a very competitive business in recent years, with new companies entering the market, offering different products and options. Consider using the services of a broker, whose job is to find customers the best deal possible among the companies they represent. You may also be able to get a discount if you use the same company you have your other insurance policies with.
Mortgage life insurance
Mortgage loan insurance should not be confused with mortgage life insurance, which protects you in the event something happens to you. This type of insurance might be suitable for a young couple or family where there is only one breadwinner, for example. Costs are usually much cheaper than loan insurance. Obtaining life insurance instead of mortgage life insurance is the best bet.
Legal fees for buying real estate range in price, depend on your situation, and must be paid upon closing. When purchasing brand new condos, since such deals can involve more paperwork, the cost might be higher. Mike can offer suggestions for a local lawyer if you don’t already have a relationship with one.
Title insurance is yet another type of insurance you will require. Your lawyer will advise you of this type of protection, which insures you against any defects of title to the property. For example, if the previous owners undertook major renovations of the property without proper permitting, you would be protected against any costs required to bring the house up to code.
Typically, this one-time premium costs less than $500.
Moving expenses and services connections
When you’re totalling up all the costs of buying your first home, don’t forget to include moving expenses and connection fees or deposits for services, such as phone, electricity, and other utilities.
Moving expenses vary widely, depending on your personal circumstances and possessions. As a first-time homebuyer, perhaps you’re moving from an apartment, or even your parents’ home. If this is the case, you may not need the services of a moving company. You could choose the do-it-yourself route and enlist the help of family and friends. If so, ask them or Mike for a referral for a truck rental company they trust, as this is an area of your move that you want to go smoothly. Don’t be fooled by the price! Reliability is key.
If, however, you do contract a moving company, do your homework well in advance; get referrals from your RE/MAX agent and friends and do your own research. Rates and levels of service can vary widely among moving companies, as can insurance coverage, so give yourself lots of time to look into these matters.
Often overlooked are the costs of making sure your services and utilities — such as your phone, electricity, cable TV, and other connections — are up and running for move-in date. Make sure you call well in advance to make these arrangements, and ask about all associated fees. For example, some utility companies require deposits, or charge other fees for new customers with whom they have no billing history.
Making an offer you can afford
This is where the rubber meets the road — and where Mike earns his or her stripes. After weeks or months of planning, preparing and searching, you’ve finally found a home on which you’re ready to make an offer.
It’s an exciting time, to be sure, but also one where emotions can easily come into play, particularly if you’ve found a home you love and really want.
Mike will help you keep your emotions in check, balancing against the realities of the market.
If you’ve taken the important step of getting pre-approved for a mortgage, you know exactly how much you can afford, and are less likely to get caught up in a bidding war that will carry you above your price point.
Keeping your emotions in check
If you’ve done your research, received mortgage pre-approval, and looked at a good selection of houses with your RE/MAX agent, you’re going to feel well prepared and in control. Sure, you may really love this one house and desperately want it, but you should also remember that there are likely others just like it, or better, out there. And if that voice of reason doesn’t pop into your head at negotiation time, Mike will help caution you against letting your emotions get carried away.
Of course, the interest and potential competition for a property depends on market conditions. If it’s a buyer’s market, you hold the cards and you’ll be confident in knowing there are other options out there. If, however, it’s a seller’s market, acting fast to make an offer that you can afford and is acceptable to the seller is a combination of instinct, preparation, and Mikes years of experience.
Avoiding bidding wars
Several factors are at play come offer time: price, which speaks for itself; inclusions, which cover exactly what is included in the deal, such as appliances; and other conditions such as closing date. You want the best combination of those items that suit you, as does the seller.
Then there are human relations. If you make an offer the seller deems insultingly low, for example, there may be nothing you can do to bring them to the negotiating table. After all, this is their home you’re buying, and quite often sellers still have emotional attachments to their home, even though they’ve decided to sell. It’s the job of your RE/MAX agent — as well as the seller’s agent — to navigate these often complex issues for both parties.
One of the most important tools you have when it comes time to make an offer is the comparables Mike generates from the Multiple Listings Service, or MLS. These are excellent snapshot reports into the recent sales activity of similar — comparable — properties in the same neighbourhood. You can see important information such as original and adjusted asking prices, number of days properties were on the market, listing agent history, and actual selling prices.
Once you have this information, weighed against the details of the home you’re making an offer for, you will feel tremendously empowered to make an informed decision, and less likely to enter into a bidding war.
So you’ve made a successful offer to purchase with your RE/MAX agent on the home of your dreams — or at least taken that important first step toward home ownership. Now what?
Well, now there’s usually a bit of waiting, as closing periods typically take anywhere from several weeks to a few months. But there are some important things that need to happen right away.
Once your offer has been accepted, there’s often a conditional period, during which you take all the necessary steps with regard to financing, home inspection, and everything else that needs to happen before you officially seal the deal.
Your mortgage lender will need a copy of the offer to make sure everything is still in order and in keeping with your pre-approved level of financing and Mike will look after getting all documents to the appropriate parties, as needed.
And as we discussed in Costs from A to Z, this is when the home inspection takes place. You should accompany the inspector throughout this process, which takes about three hours, so you can learn as much as you can about the various systems in the home, from heating and plumbing to electrical and roofing. Importantly, the inspection may identify some repairs that need to be made, which may allow your RE/MAX agent to negotiate a lower purchase price or insist that the repairs be made at the seller’s expense before you proceed with the deal.
At the completion of the conditional period, with any adjustments or repairs made to your satisfaction, Mike will finalize the deal and your lawyer will process the paperwork, including the mortgage documents with your lender.
All of this would point to a final date of actual legal possession — the real closing day, when:
Your mortgage lender will provide the funds to your lawyer
You pay all the remaining closing costs
Your lawyer pays the seller and registers the home in your name
You have all your insurance in place
After that? Congratulations!
You’ve done it! Welcome home!