BUYER’s Frequently Asked Questions
Why buying a home is a good idea?
As a general rule, homes appreciate about four or five percent a year. The average return may fluctuate year to year, and the percentage will vary from neighbourhood to neighbourhood, region to region.
Five percent may not seem like that much at first. Stocks, Treasury bills, and Bonds could appreciate much more, and you could easily earn over the same return with some of these very safe investments.
Wait, take a second look. Let’s suppose you bought a $1,000,000 house, and you did not pay cash for the home. You have a mortgage, too. Suppose you put as much as twenty percent down – which would be an investment of $200,000. With an appreciation rate of 5% annually, a $1,000,000 home would increase in value $50,000 during the first year. That means you earned $50,000 with an investment of $200,000. Your annual “return on investment” could be an exciting twenty-five percent. It’s all based on the neighbourhood where you are buying in GTA.
Of course, you are making mortgage payments and paying property taxes, as well as other costs. However, over time your return rate when buying a home is still likely to be higher than most any other investment available, beside you will still need to live somewhere, and if that’s not your own home, it would be a rental one. Therefore, you will still have rental payments to make.
Stable Monthly Housing Costs and an investment!
When you rent a home, you can certainly expect your rent to increase each year.
If you get a fixed-rate mortgage when you buy a home, you have a stable monthly payment amount for the term of the mortgage. Even if you get an adjustable-rate mortgage, your payment will stay within a certain range for the entire life of the mortgage – and interest rates are not as volatile now as they were in the late seventies and early eighties.
Remember, with owning a home, you are securing an investment, with renting and rent increases, you are not. Which makes more sense?
Some people are not that good at saving money, but owning a house is an automatic savings account. You accumulate savings in two ways. Every month, a portion of your payment goes toward the principal. Admittedly, in the early years of the mortgage, this is not much. Over time, however, it does accelerate.
Average appreciation on a home is approximately five percent, though it will vary from year to year. Over time, history has shown that owning a home is one of the very best financial investments one could ever make.
Freedom & Individualism!
When renting a property, you are limited on what you can do with improvements. You have to get permission to make certain types of improvements. It simply does not make sense to spend thousands of dollars painting, putting in carpet, tile or window coverings when the main person who benefits is the landlord and not you.
Remember, your landlord wants to keep his expenses as low as possible; he or she will not be spending much to improve the place, either. When you own a home, however, you can do almost any type of improvement. You get the benefits of any improvements you make, plus you get to live in an environment you have created.
Freedom of Space!
Indoors and outdoors, you will probably have more space if you own your own home. Even moving to a condominium from an apartment, you are likely to find you have much more room available – your own laundry and storage area, and also it could be bigger rooms.
Apartment complexes are more interested in creating the maximum number of income-producing units than they are in creating space for each of the tenants. If you are moving to a home for the first time, you are going to be very pleased with all the new space you have available. You may have to even buy more “stuff.”
What are my costs?
Purchasing a home involves one-time costs and monthly expenses. The largest one-time cost is the down payment. It represents a certain percentage of the total price of the property.
In addition to the actual purchase price, there are a number of other expenses that you might be expected to pay for.
These are listed below:
- Mortgage Application and Appraisal Fee – At time of application
- Appraisal Fee – At inspection
- Property Inspection (optional) – At inspection
- Legal Fees – Closing
- Legal Disbursements – Closing
- Deed and/or mortgage registration – Closing
- Property Survey (sometimes provided by seller) – When completed
- Land Transfer, Deed Tax or Property Purchase Tax – Closing
- Mortgage Interest Adjustment and Take Over Fee (if applicable) – Closing
- Adjustments for Fuel, Taxes, etc. – Closing
- Mortgage Insurance (and application fee if applicable) – Closing
- Home and Property Insurance – Closing and on-going
- Connection charges for utilities such as gas, water and electricity – Date of move
- Moving Expenses – Date of move
Other costs may include: Landscaping, Redecorating, Furnishings, Appliances repairs or replacement Typical monthly costs incurred with homeownership are mortgage payments, maintenance, insurance, condo fees, property taxes and utilities.
Why a Pre-Aproved Mortgage?
Having a pre-approved mortgage will give you the confidence of knowing exactly what you can spend on a home before you start looking. You will also be protected against interest rate increases while you look for your new home.
Your Mortgage Specialist will answer your questions and help you determine which financing terms and options are right for you. Your Mortgage Specialist and your agent work as a team to help you find the right home and select the best financing.
Finalizing your Mortgage – Once you’ve found the home you want to purchase, there are some documents you’ll probably be asked for in order to finalize your financing. They will include:
– A copy of the real estate listing of the property. If the home is still to be built, the mortgage lender will need to see the architect’s or builder’s plans and details on lot size and location.
– A copy of the offer to purchase or the building contract, if this document has been prepared.
– Documents to confirm employment, income and source of pre-approval. If you have a pre-approved mortgage, it’s a simple matter of finalizing a few details which your Mortgage Specialist will explain to you.
How do I make an offer?
When it comes time to make an offer, we can as your Real Estate Professional provide current market information and will assist you in drafting your offer. As your Real Estate Professional, we will communicate the offer, sometimes known as an Offer to Purchase, to the seller, or the seller’s representative, on your behalf. Sometimes there may be more than one offer on a property coming in at the same time. As your Real Estate Professional, we can guide you through this process.
Firm Offer to Purchase – Usually preferable to the seller, because it means that you are prepared to purchase the home without any conditions. If the offer is accepted, the home is yours.
Conditional Offer to Purchase – Usually means that you have placed one or more conditions on the purchase, such as “subject to home inspection”, “subject to financing” or “subject to sale of buyer’s existing home”. The home is not sold until all the conditions have been met.
Acceptance of Offer – Your Offer to Purchase will be presented as soon as possible. The seller may accept the offer, reject it, or submit a counter-offer. The counter-offer may be in reference to the price, the closing date, or any number of variables. The offers can go back and forth until both parties have agreed or one of you ends the negotiations.
What is a home inspection for?
Buying a home is one of the most important investment decisions you will make in your lifetime. As such, it makes sound financial sense to enlist the services of a qualified home inspection company to ensure your home is as solid and secure on the inside as it is on the outside.
A home inspection will determine the structural and mechanical soundness of your home. Your home inspector will identify existing and potential problem areas, suggest practical low-cost solutions, and provide estimates regarding costs for any work required. Shortly after the inspection has taken place, a report summarizing the findings is generally provided to the potential purchaser.
By commissioning a home inspection prior to purchase, you’re protecting both yourself and your investment, as well as buying a little peace-of-mind.
Home inspection costs often range according to size, age, and location of the home. Your sales representative can recommend a reputable home inspection service or arrange for a home inspector to visit your property.
Do I absolutely need Homeowner’s Insurance?
When you purchase a home, consider how you will protect your investment.
Most mortgage lenders insist on fire insurance coverage at least equal to the loan amount or the building value, whichever is less.
You should also consider a homeowner’s policy that combines fire insurance on the building and its contents with personal liability coverage. Consult your general insurance agent or broker for professional advice on home insurance.
Mortgage Life Insurance – Mortgage life insurance (MLI) is inexpensive coverage on your life which protects your family or beneficiaries by paying off your outstanding mortgage in the event of your death. For just pennies a day, you will have peace of mind knowing your beneficiaries will be mortgage free. MLI premiums are based on two factors: your age and mortgage amount. Your premium is added to your mortgage payment so there’s no extra paperwork, and it remains the same until your mortgage is paid off. Joint coverage for spouses is also available.
Dissability Insurance – Disability Insurance is important if your mortgage payments depend entirely or in part on your income. Disability insurance provides replacement income if an accident or illness prevents you from working.
Job Loss Mortgage Insurance – Recently insurance companies have started to offer Job Loss Mortgage Insurance. This insurance covers the mortgage payments in the event that you involuntarily lose your job.
What are Land Transfer Taxes?
Purchasers in most North American centers can add Land Transfer Taxes to their list of closing costs. Please be informed that Land Transfer Taxes could not necessary be applicable to your region or country. Your Real Estate Specialist is capable to require further information for you.
What do I need to do prior to Moving?
Use this helpful checklist as a reminder of the things you need to do before you move.
Book the movers. You can choose to have the movers pack everything, or just the breakables, or you can pack yourself. It’s a good idea to obtain estimates from several different companies.
If you own your present Home – Arrange to have your gas, water, and electric meters read on the day you leave and have the bills forwarded to your new address.
– Have your oil tank read and filled before your sale closes, and provide a receipt to your legal professional if required.
– If the water heater or furnace is rented, arrange for a transfer of the rental agreement to the purchaser.
– Disconnect your telephone, cable TV, and water softener.
If you rent your present Home – Give necessary written notice to your landlord and make arrangements for the return of any monies you have on deposit.
At your new Home – Make arrangements for the gas and electric utilities, water softener, telephone and cable TV to be connected on the day the sale closes.
– Get “Change of Address” cards from the post office and send out well before moving day.
– Have the post office forward your mail to your new address.
– Cancel any contracted services and pre-authorized cheques.
– Inform gardening, dry cleaning, garbage pick-up, newspapers, magazines, diaper and other home services. Arrange for service at your new address.
– Obtain a letter of introduction from your current branch to help establish new accounts. Transfer trust or bank accounts and securities.
– Cancel or transfer social, athletic, civic, religious or business affiliations and memberships.
– Arrange for transfer of medical, dental, prescription and optical records.
– Change the address on your driver’s license(s) effective the day of the move.
– Collect all items out for cleaning, repair or storage. e.g. fur coats, dry cleaning.
– Make special arrangements for the moving of perishables, such as plants.
– Make special arrangements for the moving of your pets.
– Dispose safely of all flammable liquids as it is illegal for movers to carry them.
Why hire a legal professional?
A legal professional is there to represent your interests and to process the legal documentation required. As your Real Estate Professional, we can provide you with the names of legal professionals who specialize in real estate.
The legal process differs from province to province, state to state and finally country to country. Your lawyer will advise you on the steps to be taken before the keys to your new home are presented to you.
BUYING A HOME AND RESALE VALUE
There are many things that should be considered when buying a home. Since most homebuyers expect to buy a bigger and better home in the future, resale value is an important factor in decision-making. You use the proceeds from selling one home to buy the next.
“Location, Location, Location“
It is just about the most common catchphrase in real estate literature. Your agent may even mention it to you when you ask for advice about buying a home. However, what does it actually mean? And, why repeat it three times?
Mostly, “location” is repeated to emphasize that it is extremely important to the resale value of your home. The idea is to buy a house that will appeal to the largest number of potential future buyers. A careful choice of location can minimize potential negative influences on future resale value, and maximize positive influences. Focusing on resale value requires you to make several different “location” choices. The first choice you have to make is “community?” At the very least, you should narrow your choice down to just a few local good communities
Local Community, Town or City
Before you can actually select a house, you need to choose what city or community you would like to live in.
Many factors come into play that you should pay attention to, not only for yourself but because you intend to eventually sell the home to someone else. Carefully choosing your community is the first step in “location, location, location” and can help maximize your future potential resale value.
When choosing a community for purchase, it makes the most sense to buy in a city with a viable and stable economy.
Five, ten, or even fifteen years from now, when you want to sell your home you can have a reasonable expectation that your community will still be a desirable place to live.
In addition to residential neighborhoods, there should be a healthy mixture of commercial and business districts. These not only provide jobs to the local residents, but also add an income source that the city can use to upgrade and maintain roads and city services. In fact, you should take a drive and see how well the community is maintained. You have probably heard of “pride of ownership” when referring to an individual home or an automobile. Look to live in a city that demonstrates community pride, as well.
Local Government Services
In addition to community pride, check on the services provided by local government. One example would be the local library system. Are there several library branches? Do they stock a good selection of books, including recent best sellers?
You should also look into local crime statistics and see how the city compares to the national average and other local communities. Is the police force effective and responsive to community needs? Are fire stations located strategically around the community so that they also can respond quickly in an emergency?
Even if you do not have school-age children and do not intend to have children, you must pay attention to the local school system. That is because when you sell the property, many of your potential buyers will have concerns of this nature.
You will want to know if the local schools are overcrowded. Take a drive around and see if there are auxiliary trailers outside the local schools. Call up the local school district and see if elementary aged children always attend the school closest to their home. If not, ask why. Are there enough schools to support the local population? If not, are there plans to build new schools? How will building new schools affect local property taxes?
Property taxes may be higher in one town than another nearby city. This can sometimes affect whether potential homebuyers view a community as a desirable place to live. Often, they will choose not to purchase in a community with higher taxes, though this decision is not always justified. Higher property taxes often mean newer and more modern schools, well-maintained roads, and community services.
In addition, you will often find that the “cost per square foot” of homes is lower in cities that have higher property taxes. This means you can buy a bigger house for less money. Since the mortgage payment may be lower, but the property taxes a bit higher, the monthly housing costs may be approximately the same in each city. However, many agents and prospective buyers have a bias against a community with higher property taxes. If resale value is important to you, make property taxes a consideration when choosing the location of your new home.
The Local Neighborhood
The term “local neighborhood” refers to an area wide enough to cover your residential area plus nearby stores such as the “neighborhood grocery store.” You want to be sure all essential shops and services are located nearby. This would include grocery stores, gas stations, dry cleaners, and convenience stores.
There should also be fairly convenient access to local highways, major traffic routes, and mass transit.
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