Naviga ting ALTOR ® with a RE Your REALTOR® can help you: • Navigate the home buying process • Assess mortgage products and REALTORS® are and paperwork from start to finish, different types of lenders to see ensuring everything flows smoothly what fits your needs. experienced in without any surprises. • Negotiate purchase price and • Find the right home, in the contract terms, such as date of everything you neighbourhood you want, at a price you can afford. possession, required repairs, included furnishings or equipment. need to know • Compare your property with similar properties that have sold over the • Direct you through complex contracts. past year. • Find qualified industry professionals, and do when • Get a feel for the neighbourhood such as real estate lawyers, home including schools, parks and other appraisers and home inspectors. buying a home. amenities. • Plan for closing costs and other • Find out if you are eligible for related expenses. government homeownership incentive programs. The following information is for information purposes only and is not legal2 Homebuyers’ Road Map advice or a substitute for legal counsel.
1. Assess Financial Readiness What do lenders require? However, keep in mind that the pre- Mortgage lenders use two calculations to approved amounts can overestimate what help determine your eligibility for a mortgage you can actually afford to pay. – your Gross Debt Service (GDS) ratio and Pre-approval does not guarantee you will be your Total Debt Service (TDS) ratio. approved once you actually apply if market Your GDS ratio is the percentage of your conditions, interest rates, or your personal Assess your present gross monthly income used for mortgage circumstances change.household budget and your payments, taxes and heating costs or - if Do you know your credit rating?annual income to determine you are buying a condominium - half of the Order a copy of your credit report to make if you are eligible for a monthly maintenance fees. As a general rule sure it does not contain any errors because mortgage and how much of thumb, your GDS ratio should not be more lenders will check it before approving youyou can comfortably afford. than 32% of your gross monthly income. for a mortgage. A credit report is a summary Your TDS ratio is the percentage of gross of your financial history and shows whetherAlso check out the Mortgage monthly income required to cover monthly or not you have had any problems in the housing costs, plus all your other debt past paying off debts. Affordability Calculator payments, such as car loans or leases, credit at www.REALTOR.ca. The Financial Consumer Agency of Canada card payments, lines of credit payments and (FCAC), a federal government agency, has any other debt. Generally, your TDS ratio tips on how to order your credit report for should not be more than 40% of your gross free and how to improve your credit rating. monthly income. Visit FCAC’s website at: Have you been pre-approved? www.itpaystoknow.gc.ca. Getting pre-approved for a mortgage before looking at properties gives you a more realistic expectation of what you can afford. Homebuyers’ Road Map 3
2. Consider Mortgage Options O What type of mortgage is best for you? What mortgage features are best for you? • Fixed rate mortgages: Your interest rate is locked in for a specified period called a • Portable mortgages: If you sell your term. Your payments stay the same for the existing home, you can transfer your mortgage’s term so you will not pay more mortgage to your new home while A mortgage is a loan, if interest rates increase over time. keeping your existing interest rate. You may be able to avoid prepayment charges generally used to buy a • Variable rate mortgages: Rate of interest by porting your mortgage.property. How much you pay you pay may change if rates go up or down. • Prepayment privileges: You can make lump- depends on how much you • Conventional mortgages: Require a sum prepayments or increase your monthly borrow (the principal), the down payment of more than 20% of the payments without having to pay a charge. property’s value. You are not required toloan’s interest rate, and how get mortgage default insurance with a This can help you pay off your mortgage long you take to pay it back quicker and save on interest charges. conventional mortgage. (the amortization period). How often can you make your • Closed mortgages: The mortgage cannot payments? be paid off early without paying a prepayment charge. • By switching from monthly payments toDo not be afraid to negotiate accelerated weekly or biweekly payments, interest rates and mortgage • Open mortgages: A mortgage that can you can pay off your mortgage faster. terms with different lenders. be paid off at any time during the term, Explore your options for mortgage payments without having to pay a charge. The and see how much interest you could save They are offering you a interest rate for an open mortgage may be by using FCAC’s Mortgage Calculator Tool at: product and talking to more higher than for a closed mortgage with the www.itpaystoknow.gc.ca. than one lender helps you same term. make an informed decision. 4 Homebuyers’ Road Map
What types of mortgage charges mightyou have to pay?You may have to pay charges if you prepaylarge portions of your mortgage early or ifyou break your mortgage due to unforeseenlife changes, such as marital breakdown,death of a spouse or relocating for a job.It is your right to know how lenders calculateprepayment charges. Read your mortgagecontract carefully and make sure youunderstand how charges will be calculatedbefore you sign.How much do you need for yourdown payment?A down payment is the portion of theproperty’s price not financed by themortgage. You will need a down paymentof at least 5% of the purchase price of thehome. For example, to buy a home for$200,000, you will need at least $10,000 asyour down payment. If your down paymentis less than 20%, you will need mortgagedefault insurance. Homebuyers’ Road Map 5
3. Mortgage Default InsuranceOFFER Are you planning to purchase a property with less than a 20% down payment? If yes, you require mortgage default insurance which generally adds 0.5% to 3% to the cost of the mortgage depending on When you buy a home the total amount borrowed.with less than a 20% down Mortgage default insurance enables you to purchase a home with a minimum payment, the mortgage down payment of 5% (10% for multi-unit needs to be insured dwellings) with interest rates comparable to those of a conventional mortgage. against default. This type Major providers of mortgage default of insurance protects the insurance include Canada Mortgage and mortgage lender in case Housing Corporation (CMHC), Genworth Financial Canada, and Canada Guaranty you are not able to make Mortgage Insurance Company.your mortgage payments. It does not protect you. 6 Homebuyers’ Road Map
4. Research Government Programs OFFER • First-Time Home Buyers’ Tax Credit – a Government programs can change over $5,000 non-refundable income tax credit time. For the most up-to-date information, on a qualifying home. The credit provides refer to Service Canada’s website: up to $750 in tax relief to assist first-time www.servicecanada.gc.ca. buyers with purchase costs. For more information, check the Canada Revenue The federal government Agency’s (CRA) website: www.cra-arc.gc.ca.has assistance programs • Home Buyers’ Plan – a one-time to help homebuyers. withdrawal up to $25,000 from a Registered Retirement Savings Plan (RRSP) Research government by first-time buyers to help purchase or build a home. Generally, you have to repayprogram requirements to all withdrawals from your RRSP within 15 see if you are eligible. years. For more details, visit CRA’s website at: www.cra-arc.gc.ca. • CMHC Green Home program – when you use CMHC-insured financing to buy or build an energy-efficient home or make energy-saving renovations, you may qualify for a premium refund of 10% on your mortgage default insurance and a premium refund for a longer amortization period (if applicable). Check out CMHC’s website for more information: www.cmhc.ca. Homebuyers’ Road Map 7
5. Finding a Home OFFER Where do you want to live? What are the types of ownership? • Urban, suburban or country? Freehold • Will you need to commute? Do you need You own the land and house and are access to public transit? How much will responsible for everything inside and outside commuting cost? of the home.Finding your perfect home • Are there schools nearby? How will your Condominium ownership children get there?can be a long process. Your You own your unit and share ownership What type of home do you prefer? of common spaces. The condominiumREALTOR® will help identify • Single-family detached homes stand alone association is responsible for upkeep of the the right type of home on their own lot. building and common interior elements, for you and continually such as halls, elevators, parking garages • Single-family semi-detached homes are and the grounds. You pay a monthly fee research new listings in joined on one side to another home. to the condominium association to coverneighbourhoods that meet • Duplexes contain two single-family homes, maintenance costs. The fee varies but can your needs. one above the other. often include utilities, TV services and taxes. • Row houses (townhouses) are several You may also have to buy or rent your single-family units, located next to one parking space. Check out another and joined by common walls. Condos often have strict rules regarding www.howrealtorshelp.ca noise, use of common areas and renovations • Other types of homes include stacked to see how your REALTOR® townhouses, link or carriage homes, to units. Be aware of your condo’s rules beforecan make the home buying condominiums and co-op apartments. putting in an offer. process easier for you! 8 Homebuyers’ Road Map
Co-operativesSimilar to condos but instead of owning yourunit, you own shares in the entire buildingor complex with the other residents. Co-opresidents pay for maintenance and repairsthrough monthly fees and are subject to therules and regulations of the co-op board.Be aware that if you decide to sell or rent yourshares, the co-op board has the right to rejectyour prospective buyer or tenant. Read theco-op’s rules before making an offer.Check out www.REALTOR.ca to seepersonalized listings for a variety of differenthousing and homeownership types. Homebuyers’ Road Map 9
OFFER 6. Making an Offer What is an offer? The Financial Transactions and Reports An offer is a formal, legal agreement to Analysis Centre of Canada (FINTRAC) provides purchase a home and is legally binding once more information about the Act on its accepted by the seller. Offers to purchase a website: www.fintrac-canafe.gc.ca. home can be made conditional on factors such as financing or a home inspection. If After seeing many any of the conditions are not met, you can change or cancel the offer, even if the seller different homes, you has already accepted it. have finally found one Do you have your money ready?worthy of an offer! What You will need to present a deposit along with your offer. The amount varies based on the are the next steps? home’s purchase price and the market. Do you have up-to-date identification? The federal Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) requires REALTORS® to identify clients involved in the buying and selling of real estate. REALTORS® need to record your name, address, date of birth and occupation for their files which are kept for at least five years. They need to see valid government- issued ID.10 Homebuyers’ Road Map
FER 7. Closing and Related Costs How much land transfer tax will you Do you need a home inspection? have to pay? A home inspector assesses a property’s The land transfer tax is a one-time tax levied condition and can tell you if something is not by your province when you purchase a working properly, needs to be changed, or is property. The tax is based on a percentage unsafe. They may be able to identify where of the purchase price of the property, and there have been problems in the past, such as Closing costs are the varies from province to province. Some a leaking basement or termite damage. municipalities also charge a land transfer tax What other costs can you expect? legal, administrative (for example, Toronto). • Interest adjustments between date of and disbursement fees Have you budgeted for the associated closing and first mortgage payment legal costs? associated with buying • GST/HST on a new home or a home that’s Legal costs cover your lawyer’s fees or, been extensively renovated a home. Understanding in Quebec, your notary’s fees. These may • Service charges from utility companies for these fees will help you include: hook-ups on electricity, gas, internet and • Reviewing the terms of the offer telephone services budget more accurately. • Conducting a title search on the property • Appraisal fees Remember these are • Registering a new title • Moving costs • Obtaining relevant documents, such • Storage costs if you must leave your additional costs over as surveys and evidence of liens on the current residence before you are able to and above the price of property move into your new home • Checking the statement of adjustments for • Furniture and appliances the home. taxes, utility and fuel bills, and other costs • Real estate commissions that have been pre-paid by the seller at Now that you have arrived at your the date of closing destination, it’s time to enjoy your new home! Homebuyers’ Road Map 11
OFFER Homebuyers’ Road Map www.crea.ca www.itpaystoknow.gc.caThe trademarks REALTOR®, REALTORS®, and the REALTOR® logo are controlled byThe Canadian Real Estate Association (CREA) and identify real estate professionalswho are members of CREA.