PLANNING TO BUY YOUR FIRST HOME and not sure where to begin? Here are six homebuying tips to help you prepare.
Get with the program
There are various government programs available to help you buy a home.
Home Buyers' Plan (HBP). The HBP allows first-time buyers to withdraw up to $25,000 from their RRSP to put toward a down payment on a home. You have up to 15 years to repay the funds.
First-Time Home Buyers' Tax Credit (HBTC) to help offset the costs associated with purchasing a home, such as legal fees, disbursements and land transfer taxes. The credit can provide up to $750 in federal tax relief. More information on these programs is available at cra.gc.ca
Become tech savvy
Mortgage consumers are becoming very tech savvy. In Canada Mortgage and Housing Corp.'s 2015 Mortgage Consumer Survey, 78 percent of respondents researched online, with 70 percent using a mortgage calculator to help determine their payments. And social media is playing a more important role - 20 percent used sites such as Facebook to learn more, 17 percent used a mobile device, and of those, 22 percent used a mortgage-related app. And all of these figures are growing.
Explore your options
First-time buyers can buy a home with as little as five percent of the purchase price as a down payment as long as the property is less than $500,000. Anything higher than that, and the minimum down payment for the portion of the price higher than $500,000 is 10 percent. So, assuming your price range is at the threshold, you'll need to come up with at least $25,000.
At that purchase price, depending on the market you're in, this could mean you'd then be looking at a townhome, semi-detached or even a condo, instead of a detached home.
Befriend a broker or a banker
Like many things in life, it's all about relationships. And whether you use a broker or a banker to secure a mortgage, you'll likely come to value the relationship. In the same CMHC survey, consumer loyalty strengthened the longer people stayed with their lender. But since we're talking about money, people are willing to switch lenders to get a better rate and save - a fact which is much more prevalent for bankers than brokers. And because brokers are able to offer products from multiple lenders, as opposed to bankers who offer only the products of their own institution, the market share held by brokers is growing notably, particularly among repeat buyers.
Check with the bank of mom and dad
If your parents are baby boomers who have had the good fortune of building equity over the years as they paid down their mortgage while the value of their property multiplied, well ... they may be in a position to help. Many buyers are hitting up the bank of mom and dad. In the last two years, 28 percent of the first-time buyers called on the bank of mom and dad to help finance their purchase; from 2010 to 2014, only 17 percent did.
Research, research, research
These days, with prices rising as they are and uncertainty in some markets, thorough research is an absolute must. Everything from your target area, desired housing type, builder or realtor, finances, how much you can afford, who you borrow from and the structure of your mortgage - take your time. Take months. Don't rush anything. Anything.
Courtesy: Wayne Karl Wayne Karl is an award-winning writer and editor with experience in real estate and business. Fundamentally speaking Wayne explores the basics you need.
Deeds, transfers, mortgages, charges, discharges and undertakings
FOR THE AVERAGE HOMEBUYER, there are some legal terms that require translation. The Government of Ontario keeps records of every piece of property in the province. These records are called the “title documents.” The document on file that says who owns the property is called the “transfer,” or “deed.” All of these documents are filed with the government — a process that is called “registering” the document. When a bank lends money and gets a record of this loan on the title, the document is called the “mortgage” or the “charge.” When the charge is paid off, a new document is filed with the government and it is called a “discharge.” If only part of the charge is paid off, a document called a “partial discharge” can be filed. There are many other documents, but these are a good starting point.
Usually, when a developer/builder starts a new project, he/she will go to a bank or other financial institution and just like you, arrange for a mortgage or charge. The difference, however, is that this can be a huge charge. As an example, the builder/developer may have a $50- or $60-million “blanket” charge applied to enable him/her to create and build the project. The next thing that happens is that the house or condo is built and sold, and it is time for closing.
In the Agreement of Purchase and Sale will be a clause that will relate to the discharge of that part of the blanket charge which affects the property you are buying. The builders’ lawyers (the good ones, in any case) add the clause that the purchaser will accept the promise (undertaking) of the builder’s lawyer to register the partial discharge in a reasonable period of time, BUT WILL GIVE ON CLOSING TWO IMPORTANT THINGS:
- a letter (“discharge statement”) from the bank or other financial institution (“mortgagee” or “chargee”) setting out how much money has to be paid to the chargee to obtain the partial discharge; and
- a direction from the builder to the purchaser, telling the purchaser to pay the amount of money needed to obtain the partial discharge directly to the chargee.
The clauses I will not accept stop with the purchaser being forced to accept the builder’s or the builder’s lawyer’s undertaking to register a partial discharge, without the other information.
Now, I do not believe the builder or the builder’s lawyers who do not include this information would give the promise without meaning it, but what about things out of their control? For example, if:
- the builder goes bankrupt
- the builder has a dispute with the bank
- some other party seizes the money from the builder
- the builder has an internal shareholders dispute and assets are frozen
- the lawyer goes to Argentina with the money
- the builder goes to Tahiti with the money
If we had followed a) and b), none of that would matter. My complaint is that it does not cost the builder anything to give this peace of mind and security to the purchaser. It is just usually the fault of a lawyer trying to prove how good he or she can be.
Watch for these tricky clauses and consult a lawyer, because only a lawyer can provide legal advice and care enough to catch these kinds of things.
Courtesy Jayson Schwarz LL.M. Jayson Schwarz is a Toronto real estate lawyer and senior partner in the law firm Schwarz Law LLP.
- YOU’RE PAYING YOUR OWN MORTGAGE INSTEAD OF SOMEONE ELSE’S. While part of your mortgage payment is the interest paid to the financial institution, and another part of your mortgage payment goes towards the equity in the property, think of this process as a forced savings program.
- IF THE VALUE OF YOUR PROPERTY GOES UP, YOU AS THE OWNER COLLECT THE REWARDS, NOT YOUR LANDLORD. That works in reverse too - if prices suddenly drop, your pocketbook will take the hit, should you decide to sell.
- JUST IMAGINE THE FREEDOM! You don’t have to ask for approval before painting the walls or upgrading the floors, you just do as you wish, be it buying new appliances, replacing old carpet or putting in hardwood instead, all making your home your own.
- WHERE ELSE CAN YOU PUT YOUR MONEY? The reason so many investors have made real estate a large part of their investment portfolio is that traditionally, the Toronto real estate market has been somewhat predictable and yielded better returns than many of the investment alternatives. However, such returns are not guaranteed.