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Home | Home Buyers | Home Sellers | Useful Articles | Calculator | Property Search O Buying a Home O Choosing a Home O Common Questions for Buyers Common Questions for Buyers Question 1: What price of home can I afford? The price you can afford to pay for a home will depend on certain factors:
Lenders will analyze your income in relation to your projected cost of the home and outstanding debts. This will determine the size of loan you can borrow. Your housing expense-to-income ratio is determined by calculating your projected monthly housing expense, which consists of the principal and interest payment on your loan, property taxes and other costs associated with home ownership. Your lender will determine your ability to pay your mortgage based on the following formula:
The acceptable ratios for both have generally been 32% and 40% respectively. Question 2: Fixed rate vs Variable rate, which is better? When deciding on your payment schedule, take into consideration the amount you can afford to pay at each interval and how long your mortgage term is. Mortgages can be offered for a 2, 3 or a 5 year term.
Fixed and Variable mortgage rates compared
Question 3: How do I find out about the condition of the home I'm considering? It is strongly recommended that you hire a professional Home Inspector to inspect the home. For more information, please see Home Appraisals and Home Inspections. Secondly some states require sellers to complete a disclosure form revealing everything known about their property. Home sellers are required to indicate any significant defects or malfunctions existing in the home’s major systems. A checklist specifies interior and exterior walls, ceilings, roof, insulation, windows, fences, driveway, sidewalks, floors, doors, foundation, as well as the electrical and plumbing systems. The form also asks sellers to note the presence of environmental hazards, walls or fences shared with adjoining landowners, any encroachment of easements, room additions or repairs made without the necessary permits or not in compliance with building codes, zoning violations, citations against the property and lawsuits against the seller affecting the property. Also look for settling, sliding or soil problems, flooding or drainage problems. People buying a condominium must be told about covenants, codes and restrictions or other deed restrictions, if the homeowners association has any authority over the subject property and ownership of common areas with others. Be sure to ask questions about anything that remains unclear or does not seem to be properly addressed by the forms provided to you. Question 4: How low can I consider offering? There are always some sellers who for some reason must sell quickly, however in general, a very low offer in a normal market might be rejected immediately. In a strong buyer’s market, the below-market offer will usually either be accepted or generate a counter offer. In a strong seller’s market, offers are often higher than full price. While it is true that offers at or above full price are more likely to be accepted by the seller, there are other considerations involved:
Question 5: How much of a down payment can I afford to put down?As a rule, if you put a down payment of at least 20% of the purchase price, you will avoid the need to obtain mortgage insurance from the Canada Mortgage and Housing Corporation, also known as CMHC. Typically, lenders require mortgage loan insurance for loans made to anyone that wishes to purchase a home with less than 20% of the purchase price. The Canadian Bank Act prohibits most federally regulated lending institutions from providing mortgages without mortgage loan insurance for amounts that exceed 80% of the value of the home or purchases with less than 20% down payment. Through your lender, CMHC Mortgage Loan Insurance enables you to finance up to 95% of the purchase price of a home. It may be more prudent to make a larger down payment and thereby reduce the amount of debt that must be financed. Once a buyer puts twenty percent or more as a down payment on their desired home, they will waive the requirement for mortgage insurance. Question 6: What is Title Insurance? Title insurance is a form of insurance in favour of an owner, lessee, mortgage or other holder of an estate lien, or other interest in real property. It indemnifies against loss up to the face amount of the policy, suffered by reason of title being vested otherwise than as stated, or because of defects in the title, liens and encumbrances not set forth or otherwise specifically excluded in the policy, whether or not in the public land records, and other matters included within the policy form, such as lack of access to the property, loss due to unmarketability of title, etc. The title policy form sets forth the specific risks insured against. Additional coverage of related risks may also be added by endorsements to the policy or by the inclusion of additional affirmation insurance to modify or supersede the impact of certain exceptions, exclusions or printed policy “conditions.” The policy also protects the insured for liability on various warranties of title. In addition, the policy provides protection against costs and expenses incurred in defending the insured estate or interest. Before it issues a title policy, the title insurance company performs, or has performed for it, an extensive search, examination and interpretation of the legal effect of all relevant public records to determine the existence of possible rights, claims, liens or encumbrance that affect the property. However, even the most comprehensive title examination, made by the most highly skilled attorney or expert, cannot protect against all title defects and claims. These are commonly referred to as the “hidden risks.” The most common examples of these hidden risks are fraud, forgery, alteration of documents, impersonation, secret marital status, incapacity of parties (whether they be individuals, corporations, trusts or any other type), and inadequate or lack of powers of REALTORS® or fiduciaries. Some other hidden risks include various laws and regulations that create or permit interests, claims and liens without requiring that they first be filed or recorded in some form so that the potential buyers and lenders can find them before parting with their money. Question 7: What steps should I take when looking for a mortgage? It is strongly recommended that home buyers are pre-qualified or pre-approved for a loan as their first step in the process. By being pre-approved, you will know exactly how much you can afford and make more informed decisions in the market place. Your lender will review your credit reports, wages, bank statements and other information before you can receive a commitment from them. Question 8: Is it possible to negotiate interest rates? Compare the mortgage charts published in online and newspapers. Occasionally some lenders are willing to negotiate on the loan rate based on your current position. This isn’t typical among many of the established lenders who set their rates. Nevertheless, it never hurts to shop around, know the market and try to get the best deal. The interest rate is much more open to negotiation on purchases that involve seller financing. Generally, these are based on market rates but some flexibility exists when negotiating such a deal. Question 9: Is it better to buy a new home or a resale? Sales price increases in either type of housing are strongly tied to location, growth in the local housing market and the state of the overall economy. Some people feel that buying into a new-home community is a bit riskier than purchasing a house in an established neighborhood. Future appreciation in value in either case depends upon many of the same factors. Others believe that a new home is less risky because things won’t “wear out” and need replacement. A new home may also include levies by the city, as well, a new home will require you to purchase appliances and upgrades which add to the cost of the home. A resale home may give you the opportunity to move in without having to worry about too much. Though it depends on many factors, it comes down to your current situation and personal preference. Question 10: Fixer-Uppers - Are they good or bad? Distressed properties or fixer-uppers can be found everywhere. These properties are poorly maintained and have a lower market value than other houses in the neighborhood. It is often recommended that buyers find the least desirable house in the best neighborhood. You must consider if the expenses needed to bring the value of that property to its full potential market value are within your budget. Most buyers should avoid run-down houses that need major structural repairs. Question 11: What is the relationship I have with my Realtor®? The degree of trust you have in an REALTOR® may depend upon their legal obligation of representation. An agency working with a buyer has three possible choices of representation. The REALTOR® can represent the buyer exclusively, called buyer agency, or represent the seller exclusively, called seller agency, or represent both the buyer and seller in a dual agency situation. Some states require REALTORS® to disclose all possible agency relationships before they enter into a residential real estate transaction. Here is a summary of the three basic types:
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