Buying your first home is very exciting, but it’s equally overwhelming. It’s always surprising to realize the number of professionals that are involved in this purchase. Not to mention getting in contact with each one, scheduling meetings, and actually getting the task at hand completed in an efficient time frame.
Earlier this month, 5 professionals came together who are involved in the home buying process – a realtor, mortgage specialist, lawyer, life insurance specialist, and a financial advisor to present at a home buyer seminar. The purpose of this seminar was to educate prospective home buyers on the process, and to hopefully make things simple and seamless when their time comes to buy their first home.
Here are some insights into each industry, and what you’ll need to know when you are thinking about buying your first home.
Real Estate – Dana Graham
Have your own agent
Having a real estate agent that you trust, and who is on your side is a very important for your first home purchase. Finding someone you trust by asking friends and family who they have used, and who they recommend will be a great starting point. Your agent will be able to schedule viewings for multiple homes, get you information on each home, including property sale history, property tax assessment and the permit information.
No – not the movie. The matrix portal is an online platform specifically for you and your needs. The portal can get very specific about what type of home you’re looking for and it sends it right to you – so you don’t have to do the leg work. If you’re looking for a finished basement, 3 bedrooms on the main floor, and an attached garage – you’ll get updates for just that.
As scary as it can be, it’s important to get a pre-approval for a mortgage so you know what you can afford. This might change the areas you’re looking in, and the criteria you’re looking for. It can also help you out at offer time, as we can shorten the deadline for your conditions – which will look more favorable to the sellers.
Consider the following conditions…
- Ask for a Property Disclosure Statement;
- Give yourself some time to get your mortgage approved; and
- Consider doing a home inspection.
It’s important to have your ducks in a row before putting an offer in on a home, because your city might have a lot of competition in the buying market. Have your realtor do a market assessment on the value of a home before you put in an offer, so you can see what similar homes in the area have sold for. This will help prevent over paying for a home in a multiple offer situation.
Mortgages – Jenna Riddell
If you are ready to take a leap and purchase a home, you should consider obtaining a pre-approval. This allows for peace of mind; you and your realtor will know exactly what you are approved for, with quoted payments and rates to ensure that you know what is reasonably affordable for your budget.
To receive an approval, your income, credit, and down payment must fit into the current lending guidelines in Canada. This helps your lending institution to determine the best mortgage type for you.
There are two types of mortgages based on your down payment – insured or uninsured.
An insured mortgage means you have a down payment of 5% or more, but less than 20% of the purchase price. There are three insurers – CMHC, Sagen, and Canada Guaranty. Your down payment total determines your maximum affordable mortgage based on the insurer’s guidelines for debt servicing. Your total housing costs and liabilities must fit between 35% and 44% of your gross income, depending on remaining factors, like credit.
Once you have accepted an offer on a home, the insurer must also approve the purchase based on your income, credit, and property value.
Example: for a purchase price of $325,000, the minimum down payment of 5% is $16,250. The purchase price less down payment is $308,750. Your mortgage team will finance your default insurance charges at 4%. Your new mortgage with the added fee is $321,100
An uninsured mortgage simply means that you have saved 20% of the purchase price for your down payment. If you are uninsured, the only approval required is from your lender. The lender must confirm the property value is sufficient with an appraisal. For this reason, your broker usually asks for a financing condition, for your protection in this transaction.
You can explore down payment options with regular savings, RRSP through the use of the Home Buyers’ Plan, or with a gift from your family. There may also be provincial and federal programs that work in your favor.
- Amortization: total length of time in which you pay off your mortgage, usually set at 25 years
- Term: the duration of the contract with your lender, wherein your rate is specified as well as all other conditions of your agreement. Often people will see a 5 year-fixed as the best option as it allows for longevity and certainty in the rate, but this is where we truly must tailor a solution to your needs. We must consider if you plan to heavily prepay your mortgage, if you intend on staying in the home for the long term and the features you need – including future access to your equity. This requires a deeper, customized discussion.
This conversation will rely heavily on your personal situation. If you’re ready to customize this discussion for your needs, let’s talk.
Law – Haley Welicko
One of the most important professionals you will meet with during the home buying process is a real estate lawyer. Your real estate lawyer will ensure that title to the property is transferred into your name, and ensure that any existing liens, mortgages and/or outstanding property taxes are paid off. They will also prepare all of your mortgage documents to register at the Land Titles office. Your real estate lawyer will be responsible for collecting all of the closing costs associated with the transaction, such as land transfer taxes, title insurance, and legal fees.
There are many different closing costs associated with buying a home. These vary greatly depending on the purchase price and type of property you are purchasing.
Land Transfer Taxes
|Value of Property
|Land Transfer Tax
In addition to land transfer taxes, you will also need to pay Land Titles registration fees. As of January 2021, in Manitoba, the fee is $109 per registration. If you’re registering for both a Transfer of Land and a Mortgage, the cost is $218.
Property Tax Adjustment
- Due on closing
- Property tax is due on June 30th of each year
- If you take possession on July 1st, the seller would have already paid the property tax in full. You will owe the seller a credit for your share (approximately 50%) of the 2021 property taxes
- If you are taking possession before June 30th, you will be responsible for paying the tax bill in full, and the seller will owe you a credit for their portion of the taxes
- If the seller is registered with the TIPP program, the property tax adjustment will not be as significant
Some other closing costs to consider:
- Legal fees
- Deductions from your mortgage – appraisal or application fees
- Title Insurance – protection against fraud and title defects. Price can vary depending on property value. In most cases the range is $150-$700
Life Insurance – Leilah Perchaluk
It’s mandatory to have home insurance on your property, but more than often, life insurance is overlooked. You might find a similar product that the bank offers, called ‘mortgage creditor insurance’, but when given the option, always opt for personally owned life insurance. Here’s why…
You own and control the policy
It’s important to be in control of your policy. You choose when and how the insurance proceeds will be paid out. Through your lending institution, your creditor will own the policy and may make things difficult for you long-term. Being in control of what happens when you or a family member passes away is crucial
The coverage stays the same over time, while maintaining a level premium
Creditor mortgage insurance is tied to the length of your mortgage. While your mortgage balance decreases over time because of your payments, your premiums on your insurance stay the same. This doesn’t seem right. Personally owned life insurance will have steady premiums, with a steady coverage amount. This won’t change.
You choose who and how to use the insurance proceeds at time of death
Creditor mortgage insurance has one beneficiary, and that’s themselves. You and your family will not benefit from the insurance proceeds, only in the way that you get to keep your home. Personally owned life insurance allows for you to choose who gets the insurance proceeds if death occurs. The money can be used for anything, not just paying off the mortgage.
The policy stays with you
When your mortgage ends, so will your mortgage insurance. With personally owned life insurance, you get to choose the length of your policy, and how long it stays with you. Your mortgage is most likely not your only financial liability, so having insurance in place to cover other things is important.
When you are sitting at your lending institution, ready to sign on the dotted line, make sure you think about all of your options. It might lead you to a more informed decision, which will benefit you in the long run.
Finances – Andrea Dempster
One of the most common questions I receive when people are going through the home buying process is, “what is the best platform to save for a down payment?” The answer is – it depends. There are 3 main ways to save…
- A bank savings account;
- TFSA; and
- RRSP through the Home Buyers’ Plan (HBP).
The Home Buyers’ Plan is an important tool that allows you to access up to $35,000 in your existing RRSP, tax deferred and interest-free. This is meant to put towards your home purchase which can be a valuable way to increase your down payment.
Which route to take is usually a more in-depth and personalized conversation about saving habits, spending habits, and your timeline for the house purchase.
It’s important to plan with one eye on the present, and one on the future. Implementing a strategy that fits your current situation, that can adapt to any changes in life, and one that will meet your long-term financial goals will help you when you begin the home buying process.