| |
|
What Professionals Should You Call On?
Because purchasing a home is probably the biggest investment you will ever make, you'll definitely want a team of professionals working with you throughout the process.
The Real Estate Agent
No one will play a more important role in helping you find a home than your real estate agent. Your real estate agent's job is to:
- Help you find the ideal home.
- Write an Offer of Purchase.
- Negotiate on your behalf to help you get the best possible deal.
- Provide you with important information about the community, arrange and coordinate the home inspection and essentially save you time, trouble and money.
When the time comes to select a real estate agent, don't be afraid to ask questions — especially about any possible service charges. Vendors normally pay a commission to the agent but some agents charge buyers a fee for their services. Use the Checklist for Evaluating Real Estate Agents to help you choose your real estate agent. If you would like to know more about a real estate agent's ethical obligations, you can visit the Canadian Real Estate Association's website at or call your local real estate association.
The Lender or Mortgage Broker
If you haven't already gone through the mortgage pre-qualification process, you will need to find a good lender to assist you during the purchasing process and for as long as you have your mortgage.
Remember that many different institutions lend money for mortgages, such as banks, trust companies, credit unions, caisses populaires, pension funds, insurance companies and finance companies. It's a good idea to shop around and speak with more than one lender because terms and options will vary.
Some people find it helpful to use a mortgage broker. Mortgage brokers don't work for any specific lending institution. Their role is to find the lender with the terms and rates that will best suit the buyer.
To find a lender or mortgage broker, you can:
- Get a referral from your real estate agent, family members, friends or other professionals.
- Look in the Yellow PagesTM under Banks, Credit Unions or Trust Companies for a lender and under Mortgage Brokers for a broker.
- Contact the Canadian Institute of Mortgage Brokers and Lenders at 1 888 442-4625 or visit their website at .
The Lawyer/Notary
You need a lawyer (or a notary in Quebec) to protect your legal interests such as ensuring the property you are thinking of buying does not have any building or statutory liens or charges or work or clean-up orders associated with it. He or she will review all contracts before you sign them, especially the Offer (or Agreement) to Purchase. Having a lawyer/notary involved in the process will give you peace of mind and ensure that things go as smoothly as possible. Law associations can refer lawyers/notaries who specialize in real estate law (in Quebec, contact the ).
Lawyer/notary's fees range widely and depend on the complexity of the transaction. Shop around for rates and, when choosing your lawyer/notary, use the Checklist for Selecting a Lawyer/Notary to guide you.
Remember that a lawyer/notary:
- Should be a licensed full-time lawyer/notary.
- Should be local and understand real estate laws, regulations and restrictions.
- Should have realistic and acceptable fees.
- Can explain things in plain language.
The Home Inspector
You should consider having any home you are thinking of buying inspected by a knowledgeable and professional inspector.
The home inspector's role is to inform you on the property's condition. He will tell you if something is not functioning properly, needs to be changed or is unsafe. You will also be informed of repairs that need to be done and he/she may even be able to tell you where there may have been problems in the past.
Every inspection should include an evaluation of at least the following:
- Foundation
- Doors and windows
- Roof and exterior walls
- Attics
- Plumbing and electrical systems
- Heating and air conditioning systems
- Ceilings, walls and floors
- Insulation
- Ventilation
- Septic tanks, wells or sewer lines
- Any other buildings such as a detached garage
- The lot, including drainage away from buildings, slopes and natural vegetation
- Overall opinion of structural integrity of the buildings
- Common areas (in the case of a condominium/strata or co-operative)
There is presently no uniform certification and no requirement for home inspectors to take any courses or to have passed any tests. Anyone can say that they are a home inspector. However, a good home and property inspector generally belongs to a provincial or industry association such as the Canadian Association of Home and Property Inspectors at and l'Ordre des technologues professionnels du Québec at .
Home inspector fees are generally $200 and more, depending on the size and condition of the home. Use the to review your home inspection report.
The Insurance Broker
An insurance broker can help you with your insurance needs, including property insurance and mortgage life insurance. Lenders insist on property insurance because your property is their security for your loan. Property insurance covers the replacement cost of your home, so premiums may vary depending on its value.
Your lender may also suggest that you buy mortgage life insurance. Mortgage life insurance provides coverage for your family should you die before your mortgage is paid off. This type of insurance is often available through your lender, who then simply adds the premium to your regular mortgage payments. However, you may want to compare rates between both an insurance broker and your lender.
Be careful not to confuse property or life insurance with mortgage loan insurance, which may be required for high-ratio mortgages. (Refer to Step 7 for more details.)
The Appraiser
Having an independent appraisal done on a property before you make an offer is a good idea. It will tell you what the property is worth and help ensure that you are not paying too much. Your lender can also ask for a recognized appraisal in order to complete a mortgage loan.
The appraisal should include an unbiased assessment of the property's physical and functional characteristics, an analysis of recent comparable sales and an assessment of current market conditions affecting the property.
Appraisal fees may vary but you should not pay more than $250 – $350 in most areas for a typical single-family house.
Your real estate agent may be able to refer an appropriate professional.
The Land Surveyor
If the seller does not have a Survey or Certificate of Location, you will probably need to get one for your mortgage application. If the Survey in the seller's possession is older than five years, it will probably need to be updated. Remember that you must have permission from the property owner before hiring a surveyor to go onto the property. Ask your real estate agent to help co-ordinate this with the owner.
The Builder/Contractor
If you are buying a newly constructed home or require renovations to a resale home, you will have to hire a builder or contractor. Here are some things to keep in mind when choosing one:
- Ask for references and talk to other customers about the builder's performance.
- Check with the New Home Warranty program in the area.
- Visit other housing developments that the company has built.
- Ask builders or contractors if they are members of a local homebuilders' association or ask for a provincial license number.
If you are having a custom home built, remember that:
- You may want to hire an architect.
- Builders of custom homes usually work on either a fixed-price or a cost-plus basis. Authorize any changes to your contract by writing your name or initials beside the change.
On a final note, make sure your contract is as specific as possible about construction details, right down to the brand name or model number of any finishes. Make sure that you initial any changes to your contract. Use this handy worksheet when you assemble your Team of Professionals
TYPES OF MORTAGES
While a mortgage is fundamentally a loan that is secured against your home, there are many variations to the type of mortgage that can be used for various needs. Based on your goals and risk characteristics there may be a number of different mortgage products that will meet your needs.
Below you will find a sampling of the many different types of mortgages that you may be exposed to. While there are hundreds of other combinations - these are the ones you will most commonly hear about or come across. Trying to figure out which is appropriate for your situation may seem daunting, but we take great care to not overwhelm you during the process. For this reason, one of the first steps in our mortgage process is to arrange a consultation where we can discuss and review your financial goals in detail - and then go over some options of the type of mortgage that may be right for you.
Pre-Approved Mortgage
A Pre-Approved mortgage is a Free and No-Obligation deal that lets you know before you go looking for your home or signing an offer to purchase, how much you can afford to borrow based on your qualification and personal credit rating. We'll arrange for you the most competitive rates with longest rate guarantee period that goes up to 120 days - if rates go higher, your rate will not be affected, and if rates go lower, you get the lower rate. This protection is solely responsible for savings thousands of dollars for many people who obtained a pre-approval and the rates increased afterwards.
Too often in the past, the mortgage was left to the very end, but with our Online Pre-Approval or by simply e-mailing us, we can take care of this important process within hours. Once you are Pre-Approved, you can confidently negotiate an offer on a home. A seller also prefers to negotiate an offer of a purchaser who has been pre-approved. With more lenders, lower rates, and no-cost, no-obligation, make us your choice for your pre-approval.
Conventional Mortgage
A conventional mortgage is a loan that does not exceed 75% of the purchase price or appraised value of the home, whichever is less. This type of mortgage does not have to be insured against default.
High-Ratio Mortgage - CMHC Insured / GE Capital Insured
A high-ratio mortgage is a loan that is above 75% and up to 95% of the purchase price or appraised value of the home, whichever is less. These mortgages must me insured against loss by either Canada Mortgage and Housing Corporation (CMHC), a Federal Government Corporation, or GE Capital, a private insurer. The premiums can be added to the mortgage amount or paid at closing, and are as follows:
- For Mortgages Up To 75% --- No insurance required
- For Mortgages between 75.1 and 80% --- Premium us 1.00% of the mortgage amount
- For Mortgages between 80.1 and 85% --- Premium is 1.75% of the mortgage amount
- For Mortgages between 85.1 and 90% --- Premium is 2.00% of the mortgage amount
- For Mortgages between 90.1 and 95% --- Premium is 2.90% of the mortgage amount (dropped from 3.25% in early 2005) and can be reduced to 2.75% with the new "Traditional Downpayment" program
Please refer to CMHC Borrowing Costs for an updated schedule of rates and exceptions. You may also call one of the Calum Ross team members for more information.
A little-known benefit of CMHC-insured mortgages:
When interest rates fall, many borrowers want to renegotiate their mortgages but few have the right to do so, unless their mortgages are fully open. But if you obtained a longer-term mortgage, insured by CMHC, you can prepay it on payment of 3 months interest penalty - a lot cheaper than the Interest Rate Differential (IRD), which is the difference between the mortgage rate and current rates, on the outstanding balance, for the rest of the mortgage term. For example, if the difference in the interest rate was 2%, and the outstanding mortgage amount was $100,000 (which is locked in at 8%) and it had 2 more years to go until maturity, the IRD penalty would be approximately $4,000, whereas the 3 months' bonus would be $2,000. (To help you with the payment of the penalty, we have "cash-back programs" that will give you up to 3% of the mortgage amount).
Also, if you obtained an insured mortgage after April 1'st, 1997, the premium you paid on the mortgage is now portable to another property (if you closed before this date, it is not portable, meaning that if you bought another home and your mortgage needed to be insured, you must pay the applicable premium again.) NOTE: This insurance is for the benefit of the lender against default. It is very costly and there is another way we can arrange a mortgage for you with a low down payment. That is with a 1'st mortgage and a 2'nd mortgage. For your unique situation, it may be less costly to consider this option. Banks, on the other hand, cannot offer you this option as they cannot provide secondary financing over 75% of the purchase price or value of the property.
First Mortgages
A First mortgage is the first debt registered against a property that is secured by a first "charge" on the property. If a default on the mortgage occurs, the first lender has first right on the property to recover the outstanding principal and interest costs, and any other costs incurred during the process. Second Mortgages: A second mortgage is a debt registered after a first mortgage has been registered. In most cases, the interest charged on the second is higher than the first, reflecting the higher risk to the lender, but over a short term, still more cost effective than paying the high cost of the CMHC/GE Capital insurance premium. They can be used to finance up to 90% of the purchase price or value of the home.
Open Mortgages
An open mortgage allows you the flexibility to repay the mortgage at any time without penalty. Open mortgages are available in shorter terms, 6 months or 1 year only, and the interest rate is higher than closed mortgages as much as 1%, or more. They are normally chosen if you are thinking of selling your home, or if you are expecting to pay off the whole mortgage from the sale of a another property, or an inheritance (that would be nice).
Closed Mortgages
A closed mortgage offers the security of fixed payments for terms from 6 months to 10 years. The interest rates are considerably lower than open, and if you are not planning on any one of the above reasons, then choose a closed mortgage. Nowadays, they offer as much as 20% prepayment of the original principal, and that is more than most of us can hope to prepay on a yearly basis. If one wanted to pay off the full mortgage prior to the maturity, a penalty would be charged to break that mortgage. The penalty is usually 3 months interest, or interest rate differential (I.R.D. - please refer to glossary for detailed explanation).
Fixed-Term Mortgages
With a fixed-rate mortgage, the interest rate is set for the term of the mortgage so that the monthly payment of principal and interest remains the same throughout the term. Regardless of whether rates move up or down, you know exactly how much your payments will be and this simplifies your personal budgeting. In a low rate climate, it is a good idea to take a longer term, fixed-rate mortgage for protection from upward fluctuations in interest rates.
The Adjustable Rate Mortgage (A.R.M.)
The Adjustable Rate Mortgage (A.R.M.) provides a lot of flexibility, especially when interest rates are on their way down. The rate is based on prime minus 0.375% and can be adjusted monthly to reflect current rates, and for the first 3 months of the mortgage, a large discount on the rate is given as a welcoming offer. Typically, the mortgage payments remain constant, but the ratio between principal and interest fluctuates. When interest rates are falling, you pay less interest and more principal. If rates are rising, you pay more interest and less principal, and if they rise substantially, the original payment may not cover both the interest and principal. Any portion not paid is still owed, or you may be asked to increase your monthly payment. This mortgage is fully convertible at any time without any cost to you, if you choose a 3 year term or greater, and offers a 20% prepayment privilege at any times throughout the year. While traditionally, banks offer variable mortgages up to 75% of the purchase price or the value of the home, we can go up to 90% with this product.
Secured Lines of Credit
Use the equity in your home that you have built up to purchase investments (where interest costs would be deductible against the earned income), finance home renovations, buy a car, or any other reasonable needs, with rates as low as prime. They can be arranged up to 75% of the purchase price or value of the home, and should you need more, we can arrange another secured line of credit as a Second mortgage up to 90%. Accessing the available credit is as simple as writing a cheque, or using the issued credit and/or debit card. You do not have to draw the money until you need it, and once you make a withdrawal, you can pay of your balance at any time or make monthly payments as low as interest only. As you pay down the balance, you have that much more available credit (revolving credit).Being a secured product, there are the normal legal and appraisal fees that are applicable. From time to time, there are promotions where a lender will cover for part or all of these costs.A word of caution:Although these lines are very flexible and versatile products, great caution and care should be taken. It is very easy and very tempting to use it for everything whereas normal restraint would have been exercised, and suddenly, there are thousands of dollars more that have to be repaid.
Equity Mortgages
These are mortgages that are assessed on the equity of the home (market value minus the mortgage amount). They can be as high as 75% of the purchase price or value of the property and if more is required, we can look at a small Second mortgage. These are generally offered to applicants that do not meet the normal income and/or credit qualifying guidelines. You may have little or no income verification, self-employed, and/or your credit may be less-than-perfect.
Multiple Term Mortgages
If you wanted the lower rates of a short term mortgage but wanted the security of a long term, why not choose both. Yes, "build your own mortgage" product. You can split your mortgage in to as many as 5 parts, all having different terms, rates, and amortizations, but one total monthly payment. This way, you are spreading the risk. But, be prepared to be "hands-on" and watch the market very carefully here. This is not for everyone, as the time and stress levels are quite high. The 6 Month Convertible Mortgage
When rates are on their way down, or you may feel that they will in the near future, a 6 month convertible mortgage offers you the short term commitment at fixed payments, with an added advantage that while within the term, the mortgage is fully convertible to a longer term from 1 year to 10 years. At the end of the 6 month period, the mortgage becomes fully open, where one can renew with the existing lender or transfer to another lender. Even though it is offered at many financial institutions, there are differences from one to the next.
All-Inclusive-Mortgage (A.I.M.)
The AIM mortgage takes care of everything automatically. For Purchases, it includes: Solicitor's legal fees and standard disbursements to close the purchase and mortgage; Title transfer; Title Insurance from LandCanada for the clients; CMHC application fee or Appraisal fee; 1% Cash-Back to cover Land Transfer Tax; Registration of Deed and Mortgage. For Refinances, it includes: Legal fees and standard disbursements to prepare and close the mortgage; Title Insurance from LandCanada; CMHC application fee or appraisal fee; 1% Cash-Back; Registration of new first mortgage; Registration of discharge of existing first and second mortgage. The minimum term available is a 5 year term.
Bridge Financing
Bridge financing refers to a special, short-term loan needed to cover the time gap when two properties, both firm sales, are involved and the closing dates don't match. The property being purchased closes before the one that was sold. There is a small set-up fee charged by the lender to have the bridge loan arranged, plus the cost of the interest as now you are carrying both properties for a short time. The rate charged on the bridge loan is about 2-3% above the bank's prime.
|
|
