RE/MAX Hallmark REALTORS® deliver results. Homes come in every size, style and price range. Knowing what you can afford at the beginning of your search saves you time and disappointment later on. The following calculations outline the process financial institutions use to determine how much you can afford.
FIRST AFFORDABILITY RULE
Your monthly housing costs should be no more than 32% of your average gross monthly income. This percentage is known as your gross debt-to-income or gross debt service (GDS) ratio.
Housing costs include:
- your monthly mortgage payment (principal and interest)
- property taxes
- heating expenses
- 50% of condo fees (if applicable)
SECOND AFFORDABILITY RULE
Your monthly debt load should be no more than 40% of your average gross monthly income. This percentage is known as your total debt-to-income or total debt service (TDS) ratio.
Your monthly debt load includes:
The maximum amount you can afford to spend on a home depends on these numbers and the size of your down payment.
In addition to GDS and TDS ratios, financial institutions base their lending decision on your credit history, job stability and the amount of your down payment. Interest rates also affect the amount of financing you will be able to obtain.
*Please note that many lenders are prepared to exceed these guidelines.
It is important to be qualified or pre-approved for financing before you start looking for a home. This lets you and your RE/MAX Hallmark REALTOR® know what you can afford as well as providing a written confirmation or certificate for a fixed interest rate good for a specific period of time. To obtain pre-approval, contact your RE/MAX Hallmark REALTOR® or mortgage broker. The benefit of a mortgage broker is that he or she operates independently of the lender and therefore can assist you in finding the best financial product at the best rate from a variety of sources and usually at no expense to you.
The maximum amount of conventional mortgage is 80% of the purchase price. The amortization or length of time in which to repay the loan is usually 25-30 years. The term of the mortgage is the number of months or years, usually six months to five years, for which the rate of interest is set.
High Ratio Mortgages
For most people the hardest part of buying a home especially the first one is saving for the necessary down payment. With mortgage loan insurance, you can put as little as 5% down payment on homes up to 500,000.
Mortgage loan insurance, protects the Lender and, by law most Canadian lending institutions require it. The cost of high ratio mortgage loan insurance is in the form of a premium. The premium is calculated as a percentage of the principal and can be paid in a single lump sum or be added to your mortgage and included in your monthly payments.
Using Your RRSP To Purchase A Home
The Home Buyers’ Plan (HBP) allows each RRSP plan holder to borrow up to $25,000 from the plan to use towards the down payment of a home. Couples with separate plans can borrow up to $25,000 each up to a total of $50,000. Home buyers using this program have up to fifteen years to return the borrowed funds, interest free, to their RRSP. Using these funds towards the purchase of a home does not deregister the plan unless the monies are not returned as agreed. This allows participants to retain the tax advantages the RRSP offers.
Here Are The Major Guidelines For This Program:
- You are a first time home buyer or have not owned a principal residence in Canada during the past four years
- The RRSP must have been in existence for at least 90 days
- You must be a resident of Canada both at the time the funds are withdrawn and at the time the home is acquired
- A minimum of 1/15 of the amount is withdrawn has to be repaid annually
- Repayment of more than 1/15 of the borrowed amount in any particular year will be carried forward and can be applied towards a future year’s repayment
Not every RRSP is eligible under this program. Check with your investment firm to see if you qualify. Also, advise your lawyer well before closing that you will be using these funds.
The following is an estimate of the costs involved in the normal operation of a home in Ontario. Costs vary from one area of the province to another so these figures should be used only as a guide.
Property owners have the option of paying their property taxes in installments over the course of the calendar year. Mortgage companies may insist that they pay the property tax and collect it with your monthly mortgage payment. Realty taxes range from $1,000 to $25,000 a year depending on the size and location of the property. Taxes are reassessed on an ongoing basis.
Home heating will usually be provided by natural gas, oil or electricity. Costs vary depending on the type of fuel, size of home, amount of insulation, exposure and usage.
Costs vary greatly depending on usage, for example how many people you have in the home, the size of your home, and how many energy efficient cost measures you have undertaken (such as Energy Saver appliances). Usually billing is every second month, or you can go on equal billing and pay monthly.
Insurance is essential for all homeowners and is required by your mortgage company before it will release funds to close the deal. Premiums are based on the replacement cost of the building and start at around $350 to $700 per year.
Water & Solid Waste Management
Most properties in Ontario are now on water meters and are billed according to usage. As of November 1st 2008, you water bill will also include a fee for Solid Waste Management. Your Solid Waste Management fee will pay for garbage, recycling, green bin, litter prevention, landfill management and other diversion programs. These utility bills will be sent about three times a year.
A home inspection is strongly recommended for most residential properties and will usually be a condition of the offer. Your RE/MAX Hallmark REALTOR® can assist you in choosing your home inspector. This ranges from $350 - $500 depending on the size and value of the property.
You may wish to hire a termite inspector as well as a home inspector if you are buying in an area of the city where termites are known to be a problem. This could add $250 to $350 to the cost of your inspection.
When you apply for a mortgage, the lender will want to see an appraisal on the property to ensure that the price you are paying falls within the accepted rage of value for that type of property and that area of the city. The fee for this is usually between $250 to $350.
When you make an offer on a freehold property you will usually ask the Seller to provide a copy of the survey for the property. The purpose of this survey is to show the boundaries as well as the footprint of the building on the site. If there is no survey available, you may wish to hire a surveyor to prepare one at a cost of approximately $1,000 to $2,000.
Title insurance provides insurance against the future costs of remedying most problems with the title on your property. Ask your RE/MAX Hallmark REALTOR® to explain the benefits and cost of this service.
Condominiums have grown in popularity over the past three decades as an alternative form of home ownership. If you are considering this option, the following information should prove helpful.
A condominium can be an ideal starter home, since it may cost considerably less than single family homes in the same neighbourhood. However, a condominium can restrict your freedoms through a list of rules and bylaws governing how you may use the unit. It’s important be fully aware of the corporations bylaws before you buy.
How do Co-ops and Co-ownerships Differ from Condominiums?
In an equity co-operative the owner is not registered on title but receives a form of proprietary ownership. The corporation is registered on title and issues a share certificate to each owner. The corporation owns the property and the rights of occupation come from a separate agreement that sets out the exclusive right of each owner to occupy a certain unit.
This agreement also sets out the owner’s obligations to pay a proportionate share of the building’s mortgage, operating expenses and property taxes. Since responsibility for payment of taxes and mortgage in a co-op is joint, if one owner goes into default, the other owners must make up the shortfall or risk losing their equity.
Many older co-ops have no mortgage and Buyers must pay cash since most banks are reluctant to finance share certificates. However there are some institutions that provide financing for these types of properties.In a co-ownership, each Buyer has his or her percentage interest in the property registered on title. Possession of an individual unit in the property comes by way of a separate agreement which sets out each owner’s rights and responsibilities.
Mortgages are often available for this type of property through credit unions and trust companies. Have your RE/MAX Hallmark REALTOR® check with the Listing Agent. As a result of these factors, reselling a co-op or co-ownership is often more difficult than selling a condominium.
Make sure you work with a lawyer who is familiar with this area of real estate law.
How are Condominiums Owned?
Condominium ownership is generally divided between two or more parties, each of whom owns a portion of the structure separately and a portion of it in common. For instance, if you are an owner in a high rise apartment building where there are several other owners, you own a unit individually and it is legally registered in your name. You also own a proportionate share of the common areas in the development. These generally include the outside grounds, recreational facilities, lobby, stairs, halls and elevators, as well as the air conditioning, electrical and plumbing systems. Some common areas may be reserved for the exclusive use of specific owners such as roof gardens, balconies, parking spaces and storage lockers.As a unit owner, you are automatically a member of the condominium corporation. In essence, you’re a voting member of a self-governing community with one vote per unit.
What is Included in the Maintenance Fees?In addition to the costs associated with owning your own unit (mortgage payments, taxes and so on), you are also required to pay your shared cost of maintaining the common areas in a monthly maintenance fee. It’s important to know what is and is not included in your maintenance fee. For example, heat may be included while the cost of electricity may not be.
What is a Reserve Fund?
In Ontario, at least 10% of this maintenance fee must be held in a reserve fund to pay for minor repairs on items like heating systems, roofs and plumbing. If you are considering buying a unit in an older building, be sure that the reserve fund is sufficient to pay for any anticipated major repairs. Newer buildings may not have have had time to accumulate a large reserve fund. Information on the status of the building’s reserve fund is contained in the Status Certificate.
You’ve found that perfect house! What do you do now? Your RE/MAX Hallmark REALTOR® will prepare and Agreement of Purchase and Sale, including any custom clauses you may require. Most Buyers will make an offer provided certain conditions are met. These may include:
Even if you have been pre-approved for a mortgage, the property will require an appraisal to assure the lender that the price you are paying falls within accepted market value. Once your financing has been approved you are required to provide written notice to the Seller in the form of a waiver of amendment before the expiry of the condition.
Condominium Status Certificate
This condition applies only to the purchase of a condominium. It allows your solicitor to review the condominium’s documents to ensure the corporation is financially sound and meets all the requirements of the Condominium Act. Under the Condominium Act, the property management company has up to 10 days to prepare the Status Certificate and can charge a maximum of $100 for the service.
This condition provides an opportunity to have the property inspected by a qualified person who will look for any major defects in the building prior to your entering into a firm agreement. Many Buyers choose to have a termite inspection done as well.
Fintrac (The Financial Transactions and Reports Analysis Centre of Canada)
As of June 23, 2008, for every Purchase and Sale in real estate, the Brokerage must obtain an Individual Client Information Record. This record sets out the Buyer/Seller name and address, and the nature of your principal business/occupation and date of birth. You will need to show a piece of identification that you confirm your identity. For example birth certificate, driver’s license, passport. For more information go to www.fintrac.ca
For the offer to be valid, it must contain a number of specific dates and times. Your initial offer will be valid for a specific period of time, usually until midnight of the same day or the following day, after which the offer is deemed to be void. This time frame is called the irrevocable period.
This is the date set for the transfer of ownership of the property negotiated between you and the Seller and can also be referred to as the closing date.
This is the period in which your lawyer must determine if there are any problems with the title of the property and is usually set 15 days prior to the completion date.
Fixtures are any items permanently attached to the property. For example, a bathtub, sink or toilet permanently plumbed in would be a fixture. Technically, anything nailed to the building is a fixture while items screwed in (because screws can be removed) are chattels. This is often an area of contention when buying a resale home. So be aware of this distinction and, if in doubt, put it in the offer.
Chattel, unlike fixtures, are not deemed to be part of the property and must be specified in the offer if you want them included in the sale. The following are some items you may wish to include in the offer: area rugs, ceiling fans, chandeliers and other light fixtures, draperies, wood burning stoves and accessories, microwave ovens, refrigerators, freezers, stoves and ovens, washers and dryers, window air conditioners, garage door openers, storage sheds, swing sets and other playground equipment, garden furniture, barbecues, central vacuums and equipment.
A deposit cheque must accompany the offer to the Seller. The amount of the deposit will vary depending upon the value of the property but usually represents between 5% and 10% of the purchase price.
Negotiating the Offer
After signing the offer, your RE/MAX Hallmark REALTOR® will register it with the listing broker. A time will be set for the listing REALTOR® and your RE/MAX Hallmark REALTOR® to meet and present the offer to the Seller. The Seller has a number of options available:•Reject the offer;•Accept the offer exactly as presented, making no changes;•Make a counter-offer back to you with whatever changes the Seller wants, such as price, closing or conditions. You then have the option of accepting the Seller’s counter-offer or making your own changes and signing the newly amended offer back to them. This is where your RE/MAX HallmarkREALTOR’s negotiation skills come into play.
The Role of Your LawyerYour lawyer’s job is the certify good and marketable title to the property, free of encumbrances, liens and judgments. Your RE/MAX Hallmark REALTOR® will deliver all documentation related to the sale to your lawyer.
Registering the Mortgage
The lawyer receives instructions from the mortgage company, prepares the draft mortgage document, forwards the draft to the lender, makes amendments if required and arranges for you to sign the documents. The mortgage company then releases the funds to your lawyer. Some lenders prefer to pay the property taxes on your behalf to ensure the taxes are never in arrears. In this case, the mortgagee will hold back a certain amount from the advance on closing to start a tax account. Your payment will include the taxes in addition to the regular principal in interest. Check with your mortgage representative to see how your taxes will be handled.
You are required to place fire insurance on the property. The coverage should be for at least the amount of the mortgage to be acceptable to the mortgagee. A guaranteed replacement clause is usually acceptable and must take effect on the closing date.
Statement of Adjustments
The closing balance to be paid by the Buyer is “subject to the usual adjustments.” The statement of adjustments is a system of credits and debits whereby amounts are added to or subtracted from the balance to be paid by the Buyer, depending on whether or not the Seller has paid certain items in advance.
A lawyer will usually charge between $750 and $1,000, plus disbursements, for a straightforward real estate transaction. This is payable prior to closing.
Land Transfer Tax
Payable by the Buyer on closing, the tax is based on the purchase price.
Day of Closing
The lawyers or clerks exchange documents and funds to close the transaction. You can expect to get access to your new home by late afternoon on that day, but check with your lawyer. Changing locks is recommended after closing as a safety precaution. If you have any dead-bolt locks on your doors, it is a simple matter to remove the cylinder and replace it with a new one.
Many Buyers do not fully understand the home buying process and what role a REALTOR® plays. The following are some of the most frequently asked questions that Buyers ask or don’t fully understand:
WHAT DOES IT COST AS A BUYER TO USE A REALTOR®?
The compensation that a REALTOR® receives typically comes from the Seller’s proceeds. In other words, there is no cost for a buyer to use a REALTOR® in a traditional REALTOR®/Buyer relationship. In a Buyer agency agreement, there may be some cost to the Buyer, but even these agreements are usually worded so that the REALTOR® is compensated from the Seller.
CAN MY REALTOR® GIVE ME INFORMATION REGARDING PROPERTIES FROM OTHER COMPANIES?
Yes, if that other company is a member of Multiple Listing Service® (MLS®) – which most real estate companies are. For Sale By Owner (FSBO) properties are not listed in MLS so a REALTOR® likely would not be able to provide information regarding them. However, with a Buyer Representation Agreement, your REALTOR® may be able to help you purchase a FSBO.
WHAT IF I FIND A PROPERTY ON MY OWN?
You should contact your REALTOR® and not the property owner or the REALTOR® listing the property. Having the address or the MLS number is very helpful and will assist your REALTOR® in gathering information regarding the property.
WHAT TYPE OF INFORMATION WILL MY REALTOR® NEED FROM ME?
A REALTOR® will need any type of information regarding the property you are looking for that is important to you. For example, number of bedrooms, garage size, price, location and number of bathrooms are common criteria. Other consideration include the school district, type of home (ranch, tri-level, etc.) and room sizes. Keep in mind that a search that is too specific may narrow your list of properties too much while one that is too broad may give you more properties to look at than you have time to go through!
CAN I GO TO A OPEN HOUSE WITHOUT MY REALTOR®?
You can go to open houses without your REALTOR®. However, you must inform the attending REALTOR® that you already have your own REALTOR® working for you.
HOW CAN I FIND OUT ABOUT NEW PROPERTIES?
Your REALTOR® should be able to accommodate your particular situation whether it be via email, phone calls, etc. Clients with email capability can receive automatic updates from the MLS system as soon as new listings are entered.
WHAT IF I AM UNHAPPY AND WANT TO SWITICH REALTORS®?
Let the first REALTOR® know that you are unhappy and the reasons why. See if you can work out the issues with them.
When purchasing real estate, a REALTOR® can be an invaluable resource if you remember your responsibilities:
- Work with just one REALTOR®
- Make sure you tell your REALTOR® everything
- Always tell other REALTORS® you are already working with a REALTOR®
- Have a Buyer Representation Agreement signed