1. How does buying a home compare to renting?
The best way to think of buying vs. renting is this: You’re either paying your own mortgage, or someone else’s. If you’re renting, you’re literally throwing away thousands of dollars each year on something that is temporarily yours to call home. On the other hand, if you’re making monthly payments on a mortgage, yes, somewhere around half of each payment is going to interest, but the other half is paying down the principal on YOUR home. For example, if you buy a home for $259,900, based on a 5 percent down payment with a 2.79 percent interest rate, a five year term and 25-year amortization period, your monthly mortgage payments would be $1,174. Of this $1,174, around $629 would go towards paying off your mortgage, while the other $545 would be your net interest cost. Therefore, if you are currently renting an apartment for $1,200, not only can you afford this home, but 53 percent of each one of your monthly payment would go towards paying down your mortgage rather than 100 percent of your rent costs paying off someone else’s.
While renting comes with the bonus of being generally free of most maintenance responsibilities and a long term commitment, it also comes with loss of opportunity to build equity and protection against rent increases. You may also be restricted when it comes to decorating, owning pets, playing instruments, or having visitors. Overall, when you rent you’re more or less at the mercy of the landlord.
On the contrary, owning a home has many benefits. First and foremost, when you make a mortgage payment you are building equity, and that’s an investment. On the flip side, owning a home also introduces you to new financial responsibilities such as insurance, real estate taxes, and upkeep. That being said, the pros that come with owning your home far surpass the cons.
2. How do I know if I’m ready to buy a home?
The best way to determine if you’re ready to buy a home is by asking yourself these important questions.
- Do you have steady employment that provides good, reliable income, or are steadily self employed with business income?
- Do you have a good record of paying your bills?
- Are you good at managing your money?
- Do you have few outstanding long term debts (i.e. student loans, credit cards, car payments, etc.)?
- Do you have money saved up for a down payment?
- Can you afford a monthly mortgage payment and additional living costs?
- Are you tired of paying someone else’s mortgage?
If you can answer “yes” to the majority of these, then chances are you’re good to go.
It’s crucial to have an idea of how much the move is going to cost you. To gain insight on how much you’ll need, use an online mortgage calculator to figure out the amount you’ll be able to comfortably afford based on income, debts and credit. Since the transaction will likely be your largest asset, there’s little room for error so it helps to speak with a qualified professional. Not only will this person help you get approved for a mortgage, but this way you’ll also know what price range you should be exploring in your house hunt. To find out what your budget is, contact Auxilium Mortgage.
3. How do I begin the home buying process?
Once you have determined that you’re ready to buy a home and have figured out how much you can afford on monthly mortgage payments, the next questions to ask yourself are about the home itself. Needless to say, it should be the right size, with the right layout, and in the right location. But how do you determine all these factors when your head is already spinning with excitement and nerves?
A great way to define what you’re looking for in a home is to weed out your wants from your needs. By making two lists, one to include things you cannot live without, your non-negotiable requirements, and the other featuring things you would like your home to include, but could live without, you’ll have a much easier time when visiting potential homes. Separating your wants from your needs will also allow you to know where you can compromise and keep you on budget. To begin your search for potential homes wander through different neighbourhoods, search online listings, and skim your local newspaper’s real estate section.
It’s also important to look to the future when buying a home, regardless of if it’s your first, second or fifth time buying. Since your new home may not be your last, try to anticipate how long you’ll live in it and buy based on plans for that period of time. Do you plan on having kids? Will you be starting a home-based business or housing a relative? Do you want a dog? These are all things to consider.
4. What should I look for when deciding on a neighbourhood?
Choosing your neighbourhood is as important as choosing the house itself. You need to do your research and decide where you want to be. If you’re planning on having a family down the road, find out where the good schools are located. If you’re somebody who doesn’t like to drive, consider the bus routes. If you’re a city person, find a nice area you’ll enjoy, whereas if the peaceful rural has your heart, shop around those areas. The point is, do as much homework as possible so you’re not having to quickly resell the house in a year or so. Let’s face it; you’d have to pay the transfer tax all over again, plus moving costs and face the hassle of moving.
Once you find an area you like, learn about it. Look into things like crime rate and demographics, as well as community groups and activities. Go for lunch in the potential neighbourhood, walk the streets and talk to the neighbours, you’ll get a much better feel for the area than if you just talk to the sellers. It’s also important to visit the prospective home several times, at different times. You don’t want to find out that what appears to be a quaint little spot in the mornings is run by rowdy hooligans come dusk.
5. How do I choose the right realtor?
The best way to begin your hunt for the right realtor is by asking family and friends if they know someone they would recommend. Having a realtor referred to you means you’ll know someone who has had a firsthand encounter with the individual, and can share their experience with you before you get started. Next, compile a list of several realtors and talk to each before choosing one. Realtors are key players in your quest for a home, as they can help you find the kind of house you’re looking for, in an area you like, with a price to match your budget. Moreover, they can also help with strategies during the bidding process. It’s important to look for a realtor who listens well, understands your needs, and knows the local area. Overall, you want to choose a realtor that makes you feel comfortable and can provide all the knowledge and services you need.
6. What should I be looking for when I walk through a potential home?
When you’re viewing potential homes make sure to cover all bases. Think about things like how much storage you currently have vs. how much you think you’ll need in the future. Does the house sport a decent size closet or linen shelf? How is the cupboard space, garage and basement? You don’t want to move into a place then go nuts trying to cram your things in.
Flush the toilets, turn on the taps and open the windows. Are these up to par? A thorough examination of the home will be performed by the home inspector, but it’s nice to know in advance when you’re considering.
Is it move-in ready? How much extra cash are you going to have to dish out in renovations, updates, and extras? Do you have the money to spare, or should you keep looking for something that already caters to your needs a bit more? These may seem like small details, but they’re important to consider as expenses add up quickly.
Take your time and think carefully about each house you see. Ask your real estate agent to point out the pros and cons of each home from a professional standpoint.
7. What questions should I ask when looking at potential homes?
Many of your questions should focus on potential problems and maintenance issues. Does anything need to be replaced? What things require ongoing maintenance? Why are the current owners selling? Be sure to ask any and all questions until you’ve covered all bases and feel you have a thorough understanding of the situation. Making a list of questions ahead of time will help you organize your thoughts and arrange all of the information you receive.
To best keep track of the homes you view, try to take photos of each house you view: the outside, major rooms, yard, and extra features that you like or see as potential problems. Don’t hesitate to return for a second look.
8. How many homes should I view before deciding on a winner?
When buying a home it’s important to look at more than one option. Comparing several homes will not only help you decide what it is you really want, but it will also open the door to opportunities you would not otherwise experience. You may even miss out on an amazing deal and the perfect home because you never took the time to properly scope the market. Think of it like dating, would you really want to marry the first person you went out with? Maybe you would, but either way you should keep an open eye when it comes to buying. It’s also important to “sleep on it.” Don’t rush a decision, always give it time to sink in and really consider what is at hand.
9. What should I look for during the final walk through?
If the home was furnished when you originally viewed it, by the time of your final walk through it will be empty, giving you the chance to view it with fresh eyes. During this time take advantage of the openness and direct your attention to things like the walls, ceilings, and any other areas that were previously hidden by furniture or décor. During this time also double check to ensure the seller has lived up to their word and fixed any problems discovered during the inspection. If any damage has not yet been dealt with, be sure to address the problem before closing the deal.
10. What does a home inspector do, and how does the inspection affect the price of the home?
A home inspector checks the safety of your potential new home. Focusing on the structure, construction, and mechanical systems of the house, this expert provides a realistic, unbiased evaluation of a home’s condition to make the buyer aware of any necessary repairs or potential problems. While sellers don’t always disclose all the details to prospective buyers, a home inspector can look beyond the fresh paint to find costly underlying problems.
An inspector generally checks the five principle systems of a home: the roof and upper structure, plumbing system, heating system, electrical system, foundation and lower structure. They will also inform you of the presence of pests, problems with windows, ceilings, walls, floors, the roof, etc. It’s a good idea for the home to undergo an inspection before you sign a written offer, since once the deal is closed, you’ve bought the house. Another option is to include an Inspection Clause in the offer when negotiating for a home, as this will give you an out on buying the home if serious problems are found, or the ability to renegotiate the purchase price if repairs are needed. This clause can also specify that the seller must fix any problems before you purchase the house. Take advantage of these professionals, at the end of the day they can save you a lot of time, hassle and money.
11. How are pre-qualifying and pre-approval different?
A pre-qualification is an informal process that takes place before the home buyer applies for a loan to determine how much money they would be eligible to borrow. Based on your general information, the lender, broker, or bank can look at your income and debt to give you a rough idea on how much you can borrow. They will calculate your affordability by doing a Gross Debt Service ratio (GDS) and a Total Debt Service ratio (TDS).
While a pre-qualification is better than nothing at all, pre-approvals are more powerful. However, even pre-approvals do not guarantee you the loan. In short, a pre-approval is just that: a preliminary approval by the lender of the borrower’s application for a mortgage to a certain maximum amount and rate. Moreover, it will make realtors take you seriously when you show up for the viewing, and allows everyone involved to know how much you can afford so you don’t be wasting time looking at homes out of your price range. The best way to think of it is as an early green light on a loan, plus it puts you in a good negotiation position when you do find the home that’s right for you.
At the same time, unless the lender gives you a hard pre-approval by reviewing your application, looking at your credit history, employment documentation, credit check, etc. to ensure that your information is accurate, you are sitting in the dark. In fact, without a professional’s due diligence, you can do a soft pre-approval online by yourself. At Auxilium we don’t just do pre-approvals, we do hard pre-approvals. Contact us to learn more.
12. How do I make an offer?
You’ve finally found the home of your dreams and you want to make an offer to buy. How exactly do you go about doing so? Your licenced realtor will assist you in making an offer as they are well versed in doing so. However, since an offer is a formal, legal proposal, it’s important to also speak with a lawyer or notary to review your offer before submitting anything in writing, especially if you are purchasing privately (a property that is not listed for sale with a realtor).
Offers to purchase a home can also be made conditional, which means that the offer is conditional on certain subjects, for example, you being approved for a mortgage, or having a home inspection done on the home. If these subjects are not removed, meaning conditions are not met, you can change or cancel your offer, even if the seller has already accepted it.
An offer typically includes:
- Your name, the name of the person selling the home, and the address of the home
- The price you are offering, which may be lower than the asking price
- Any items in the home that you want to have included in the purchase price (i.e. light fixtures, blinds, etc.)
- Financial details such as the deposit amount (if required), details of your mortgage financing, etc.
- The closing date for the sale and the date you want to take possession of the home (usually 30 to 90 days from the date of the agreement)
- A request to the seller for a copy of a current land survey if available
- The expiry date (the date the offer ends), which is usually 48 to 72 hours from the time the offer is made
- Any conditions you want to make on the offer, such as making sure the house passes an inspection, or your being approved for financing
Remember that an offer must be an agreeable contract with the seller, and is more than just throwing a number their way. It’s also important to not get discouraged if your first offer isn’t accepted.
13. How much do I need for a down payment?
A lot of people are confused about how much cash they need for a down payment. In Canada, the minimum down payment required is five percent of the purchase price. Even if you’ve owned a house before, you can get in with five percent down as long as it’s your principal residence, you’re not self-employed, and you’re not stating the income.
This five percent can come from several different places, including:
- Savings: Doing a trial run of your budget is a great way to bulk up your savings account
- RRSPs and The Home Buyer’s Plan: The federal government allows each person purchasing the property to use up to $25,000 of their RRSPs, tax free.
- Gifts: If your family wants to give you money to use for your down payment, that’s perfectly fine, even if it’s the full five percent
- Flex equity: This allows you to borrow the down payment from a line of credit, credit card, or a personal loan.
- Vendor take backs: The vendor is willing to finance the property, which means the seller is willing to help with the down payment.
14. What is a mortgage?
A mortgage is a loan obtained to purchase real estate. The “mortgage” itself is a legal claim on the home or property that secures the promise to pay the debt. All mortgages have two features in common: principal and interest.
15. Are there special mortgages for first time home buyers?
There are several affordable mortgage options that can help first-time homebuyers overcome the obstacles that come with buying a home. At Auxilium Mortgage we’re able to help borrowers who don’t have the money saved for the down payment, are missing a portion of the five percent, have a poor credit history, have quite a bit of long-term debt, or have experienced income irregularities. If you’re a first time home buyer looking for more information, download our free First Time Home Buyer’s Handbook and contact us to setup an appointment.
16. What are fixed, variable, and blended rates, and which one is right for me?
Fixed rates never change over the life of the term, so this might be good for those who enjoy the security of knowing that their rate is guaranteed not to change for the term of the mortgage, but are willing to pay a slightly higher interest rate. If you have a fixed rate loan and interest rates drop significantly, then you may want to look into refinancing.
Variable rates are best suited to those who are comfortable with rate fluctuations. You may have the flexibility to accept possible increases in your amortization should the interest rate increase. Payments will stay the same if the prime rate changes, but more will be paid towards interest, thus lengthening your amortization period. You can also opt to have the payments increase interest to avoid an increase in amortization.
A blended, or half and half rate mortgage gives you the best of both worlds – a fixed and variable mortgage rate. Now if the prime rate changes, only your variable portion will change; your fixed portion will remain the same. So, if you are someone who prefers calculated risks – this may be is the one for you.
17. What is a credit score and how do lenders use them?
A credit score is a three digit number calculated from your data-rich credit report and is one factor used by lenders to determine your creditworthiness for a mortgage or loan. Your score can affect whether or not you are approved, as well as what interest rate you are charged.
18. How can I find out information about my credit score?
You can go online to either Equifax.com or TransUnion.com to check out your credit report and score. Although they have many different types of services, the free stuff doesn’t really tell you much. They’re a business and want to make money, after all. The fee is small, though, and it’s worth it to find out if your score is actually what you think it is.
19. What if I find a mistake in my credit report?
Typically, if your file’s straightforward you won’t find much inaccuracy, however, if you’ve had credit issues in the past you will see different reporting numbers. Even different lenders can see different things. For example, banks will see information that the consumer can’t see and sometimes we can’t see. Overall, a credit score is not a catchall for all things, but it’s a really good place to start and you need to stay on top of it.
Simple mistakes are easily corrected by writing to the reporting company, pointing out the error, and providing proof of the mistake. You can also request to have your own comments added to explain problems. For example, if you made a payment late due to illness, explain that for the record. Lenders are sometimes able to overlook issues due to legitimate problems.
20. How can I improve my score?
In today’s day and age, credit is king so yours needs to be stellar in order to get the best terms, the best rate, and the best offers. While there is no easy way to instantly improve your credit score, working towards maintaining good credit will improve your score. Ways to do so are paying your bills on time and not overextending the credit you do have. Overall it comes down to money management and organizational skills.
In cases of bad credit mortgages, at Auxilium we sometimes do a two-step mortgage process. It’s not a bad idea at times to look at a short-term mortgage with one lender just to get you into the market, to gain your footing, and get you re-established. A year or so down the road, we’ll take a look at refinancing the mortgage with a mainstream lender.
21. What factors determine the monthly mortgage payment?
22. What is included in the monthly mortgage payment?
The monthly mortgage payment mainly pays off principal and interest.
23. What are accelerated weekly or bi-weekly payments?
If you really want to tackle your mortgage faster and save interest, it’s wise to go with what is called an accelerated bi-weekly or weekly payment option. It’s not rocket science, and in fact, it’s quite simple. Under the accelerated bi-weekly program, you’re making 13 mortgage payments over the year versus 12. We all know that anybody who’s getting paid bi-weekly gets paid every two weeks, so, if you make 26 mortgage payments and divide it by two, that’s 13 months. That extra mortgage payment definitely has an impact at reducing the principal more quickly.
Most mortgage lenders are very generous with allowing you to put extra money against your mortgage as long as the increments are as little as a hundred dollars. Nowadays lenders will even let you double up or make lump sum payments. You’ll want to check if these lump sum payments are restricted to an anniversary date or if they can happen any time throughout the mortgage term.
24. What is mortgage insurance?
There are two types of mortgage insurance. The first is a policy that protects lenders against losses that result from defaults on home mortgages, and it’s required for borrowers making a down payment of less than 20 percent. If this insurance didn’t exist, lenders would not lend to that loan-to-value, which is the amount of the mortgage loan compared to the value of the property. Thus why insurance was created: To allow more people into the market.
Like home or auto insurance, mortgage insurance requires payment of a premium for protection against loss, and is used in the event of an emergency. If a borrower can’t repay an insured mortgage loan as agreed, the lender may foreclose on the property and file a claim with the mortgage insurer for some or most of the total losses.
The second kind of insurance insures your mortgage if something happens to you. Every institution, broker, and bank will offer this service to you and it’s always a good idea to double check prices and compare the options available. This type of insurance is a good idea because your mortgage is probably your single biggest liability, and if something were to happen to you, your partner, or both of you, you want to make sure that no one has to deal with that additional stress. Contact Auxilium Mortgage for more details.
25. I found the perfect home, what steps need to be taken to secure a loan?
If we have not already done a hard pre-approval for you, then the first step is to complete a loan application. This can be done online, over the phone, or in person. Regardless of which way we do it, we’ll need the following information.
- A letter of employment
- Your two most recent pay stubs
- Notice of Assessment (NOA)- this is provided by CRA after you file your taxes each year
- Your completed income tax return
- Proof of additional income- if you are currently receiving pension, alimony, child support, etc.
- Property Assessment Notice- you will receive from BC Assessment
- Property Tax Notice- your municipality sends you this each year for taxes due
During the application process we will order a report on your credit history, complete a credit application, and review your options. It’s that easy!
26. How do I choose the best loan for me?
Your personal situation will determine what type of loan is best for you. There are a few questions you can ask yourself to help narrow down your options.
- Do you expect your finances to change over the next few years?
- Would fluctuations in your monthly mortgage payments trouble you?
- Do you want to own more than one property in the future?
- Are you planning to live in this home for a long period of time?
- Do you wish to be free of mortgage debt as your children reach college or as you hit retirement?
Your answers to questions such as these will help us decide which loan best fits your needs
27. How do you determine the best loan amount for me?
We consider your debt-to-income ratio, which is a comparison of your gross (pre-tax) income to housing and non-housing expenses. Non-housing expenses include long-term debts such as car or student loan payments, alimony, or child support. We take those numbers and correlate an affordable mortgage amount, but more importantly, one that’s comfortable for you. Once again, this is something that is done during the hard pre-approval stage.
28. What happens after I’ve applied for my loan?
Once we have completed the application and gathered the supporting documents, we assess the best lender and submit your application to them. Response time is usually anywhere from one day to one week depending on how busy the lender is and the complexity of the application. If we require further information, the sooner you can provide it, the faster your application can be approved and subjects removed. Once we have an approval, we will set up an appointment to review it with you and ensure that you are satisfied.
29. What is an Appraisal Review?
Whenever a property has less than 20 percent down and is CMHC or government insured, the insurer will pay for the appraisal. However, when you have more than 20 percent down, a lender is more than likely going to ask for an appraisal, and that’s a cost you’re going to have to cover.
30. Do I need homeowner’s insurance?
Yes. Your lawyer or notary will require a paid homeowner’s insurance policy at closing, so arrangements will have to be made prior to that day. Since insurance agents are a great resource for information on home safety and they can give tips on how to keep insurance premiums low, involving them early in the process can save you money.
Be sure to shop around among several insurance companies and consider the cost of insurance when you look at homes. For example, newer homes and homes constructed with materials like brick tend to have lower premiums, while avoiding areas prone to natural disasters such as flooding can also save you money.
31. What type of legal representative do I need to complete the purchase of my home?
British Columbians are some of the lucky few in Canada who have a choice when it comes to selecting their legal representative to complete their purchase, sale, or refinance transaction. They have the choice between a lawyer and a B.C. notary public.
Both lawyers and notaries can assist in several aspects of the home buying process such as complex paperwork and legal contracts, overall their main goal is to make you aware of special considerations and assist you with the closing process. For a more in-depth understanding of what each roll entails, read Lawyer vs. Notary Public: What’s the Difference.
32. What is Property Transfer Tax?
If you’re a first time buyer in British Columbia and you’re purchasing a property under $474,900, there’s no property transfer tax. However, if this is not your first home, you’ll be paying one percent on the first $200,000, and two percent on every $100,000 thereafter. So, on a $500,000 house, you’re looking at $8,000 property transfer tax.
33. What makes up closing costs?
- Lawyer/Notary fees
- Property taxes/Levees and fees
- Interest adjustment (paid from closing to 30 days before first monthly payment)
- Title insurance
- Homeowner’s insurance policy (plus fire and flood insurance if applicable)
- Any documentation preparation fees
34. What happens prior to closing day?
At Auxilium we will thoroughly review your file 14 days before you take possession of your new property to ensure that your file is in order. During this time we will also make sure that your lawyer or notary has received instructions from us in order to ensure that your mortgage closes on time, without problems.
Around a week before your closing date you will need to meet with your lawyer or notary to sign the mortgage papers. Prior to the appointment, you must ensure that the following items are taken care of:
- The balance of your down payment funds must be accessible, as you will need to provide the lawyer/notary with a certified cheque to cover the down payment and other closing costs. Your lawyer or notary will contact you in advance with these details.
- House insurance with the loss payable to your chosen lender must be arranged.
- Have read the lawyer’s/notary’s paraphrased documents prior to your meeting as they are lengthy and you will not have time to read them while in their office
When meeting with your lawyer or notary, you’ll present your paid homeowner’s insurance policy or a binder and receipt showing that the premium has been paid. The closing agent will then list the money you owe the seller (remainder of down payment, prepaid taxes, utilities, etc.) and then the money the seller owes you (unpaid taxes and prepaid rent, if applicable). The seller will provide proofs of any inspection, warranties, etc.
Once you’re sure you understand all the documentation, you’ll sign the mortgage, agreeing that if you don’t make payments the lender is entitled to sell your property and apply the sale price against the amount you owe plus expenses. You’ll also sign a mortgage note, promising to repay the loan.
35. What can I expect to happen on closing day?
On closing day, your lawyer or notary will be in contact with your lender to ensure they are being funded. Once the money is received, they will begin the process of transferring the money to the appropriate parties, and registering the title in your name if you are purchasing. The lawyer or notary will work to inform you of their progress on that day, and in most cases transactions are completed by midafternoon.
Next up, move in time!
You can contact Auxilium Mortgage online at www.auxiliummortgage.com, by phone at 250-590-6520, or email firstname.lastname@example.org. The office is located at 307 Goldstream Avenue, and is open Monday to Friday from 8:30a.m. to 5:00p.m. If you have questions after regular hours, you can contact Kam at 250-686-4246. Weekend and evening meetings by appointment only.