private home sellers buyers tips

Buying Tips

There are lots of books and Internet resources available for buying a home. One of the best sites we've found is the Royal Banks. Here are some of the highlights.

Before deciding to buy a home, you first need to determine exactly how much you can afford to spend each month.

Take into account the following factors:

The estimated monthly costs of all housing-related obligations
Your household income
Your current spending practices

The acceptable debt ratios for mortgage financing

Initial Costs

Initial costs of purchasing of a home can add up surprisingly quickly. Before we detail the various costs you can expect, get a fix on your current financial situation with our online Net Worth Calculator. This will help determine how much you have available to pay for both your down payment and initial costs. You may wish to print out the results for use elsewhere in this site as well as for your personal records.

Be careful not to overlook sale closing costs and extras associated with your actual home purchase. For a resale home, these extras can easily add another 1.5% to 2% on top of the purchase price. If buying a brand new home, that figure can rise to 2.5% - so be sure to plan for these fees so that you're not caught by surprise. Each of these costs is detailed below.

Inspection Fee

You'll want to have an inspection performed by a professional building inspector before finalizing your offer to purchase. The inspection may bring to light areas where repairs or maintenance are required and will assure you that the house is structurally sound. Usually the inspector will provide you with a written report. If they don't, then ask for one.

Mortgage Application Fee

Some financial institutions charge a mortgage application fee to process your application. If your request for a mortgage is turned down, most will return the application fee to you. This application fee is also charged by some institutions each time your mortgage is renewed.

Appraisal Fee

The financial institution extending the mortgage will hire an appraiser to ensure that the property you are buying meets its criteria for a mortgage. You are generally responsible for the cost of the appraisal.

Legal/Notarial Fees

You will be required to retain a lawyer or notary to act for you in the purchase and mortgaging of the property, and you will be responsible for payment of the legal or notarial fees and disbursements. Fees for these services may vary significantly, so shop around before making your decision.

Closing Costs

When buying a resale home, the purchase price is always payable "subject to the usual adjustments" at closing.

This means that any amount that the seller has already prepaid will be adjusted so that the homebuyer pays the excess amount back to the seller, and vice versa.

These adjustments can include:

Municipal property and school taxes
Monthly condominium maintenance fees
First and last month's rental for rental properties that may be in the home
Utilities, such as hydro, water and fuel oil, including GST.

Interest Adjustment Costs

Interest adjustment dates can be a potential cash flow killer so please take note of your lender's policy.

Most lenders expect the first mortgage payment one month after closing the purchase - however, if you close mid-month, some lenders expect the first payment at the beginning of the next month, two weeks before you would normally expect. Or they charge a pro-rated interest to make up the difference.

When arranging your mortgage, ask how interest is collected to the interest adjustment date. By asking the right questions, you can avoid a cash flow crisis on closing.

Land Transfer Tax

Sometimes known as the "Welcome Tax", most provinces levy a one-time tax based on a percentage of the purchase price of the property.

Property Insurance

All homes must have adequate insurance coverage against fire, and other risks of loss, theft and liability. You may find that insurance on your new home is more costly than your previous residence. Your mortgage lender requires that you provide your lawyer or notary with proof that your insurance is in place by the closing date.

Moving Costs

Whether the move into your new home is a do-it-yourself affair or you hire movers, there will certainly be costs involved. If you plan to move during the peak spring/summer months, you should contract for service two to three months in advance if possible.

Additional Costs

Depending on the type of mortgage you choose and the province in which you buy, there could be additional costs, i.e., default insurance premiums (for low down payment mortgages), plus the cost of a survey of the property. A new home warranty fee could also be required if you're buying a new construction.

New Home Costs

Most new home owners will likely need to buy certain items early on - kitchen appliances, tools, gardening equipment, cleaning materials, perhaps some new furniture, carpets or curtains. It's a good idea to tally up the costs of items you think you'll need in the short-term and factor these expenses into your initial costs

Let's review the financial obligations that as a homeowner, you must be prepared to assume on a monthly basis. Some of these expenses, like taxes, may not be billed monthly, so do the calculations to break them down into monthly costs.

By identifying these monthly expenses, you can better estimate how much a financial institution will be prepared to lend.

The Mortgage Payment

For most homebuyers, mortgage payments constitute their largest monthly outlay of cash. The actual amount of the mortgage payment can vary widely since it is based on a number of variables.

Property Taxes

These are typically billed twice a year at six-month intervals, and can be paid in two ways. They may be remitted directly to the municipality by you, in which case you may be required to periodically show proof of payment to your financial institution.

Alternatively, you may include a provision for the payment of your property taxes in your monthly mortgage payment (this provision is calculated at 1/12 of the previous year's tax bill). Some banks make this a stipulation. In either case, they will retain your tax contributions in a separate account (on which you earn interest), remitting on your behalf as required by your municipality.

School Taxes

In some municipalities, school taxes are integrated into the property taxes; in other municipalities, they are collected separately and are payable in a single lump sum. In the latter case, school taxes for the upcoming academic year are generally due at the end of the current school year.

Utilities

As a home owner, you'll be responsible for all utility bills (including heating, gas, electricity, water, telephone and cable), some of which may previously have been included in the cost of your rent.

Maintenance and Upkeep

You will also have to cover the costs of maintenance (including interior and exterior painting, roof repairs, electrical and plumbing, walks and driveway), lawn care and snow removal, and if you so choose, periodic renovations. A well-maintained property helps to preserve your home's market value, enhances the neighborhood and, depending on the kind of renovations you make could add to the worth of your property

What is net worth?

It's the difference between your total assets (what you own - savings accounts and bank deposits, stocks, government bonds, etc.) and your total liabilities (what you owe - existing mortgage obligations, car loans, other loans, credit card balances and unpaid bills). You will need all this financial info when you visit your financial institution to discuss a mortgage.

Your net worth statement will give you (and your lender) a snapshot of what assets you currently have that can be freed up for your down payment and closing costs. Simply take your asset column total and look at which assets are liquid, or can be freed up fairly quickly and easily. Then, deduct from this amount your estimated amount of sale closing costs, and leave yourself a reasonable financial cushion for the unexpected.

Now look at your new balance. This is the amount you have available for a down payment on a home. If it's not enough, and if you're a first-time home buyer, you may want to use a portion of your RRSP savings under the federal government's Home Buyers' Plan which allows you to cash in, penalty free, up to $20,000 of your RRSP to put towards the purchase of a home. If you are not a first-time home buyer, or if this still does not give you enough for a down payment - you may want to look at whether you have any non-essential assets -- like a second car - that you can use to make up the gap.

If you're just starting to think about home buying and have little saved towards your down payment or initial costs, consider saving a regular amount from each pay for this purpose. You can set up an automatic contribution plan for an RRSP and benefit from the tax savings while also saving for your home

The Royal Bank also offers many types of tools and calculators to help you with your purchase.

Tips courtesy of the Royal Bank. You can go to their website for more information by clicking on the link below.

Royal Bank Home Buying Centre

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