Common questions for buyers:
As a “rule of thumb” you can afford to buy a home equal in price to twice your gross annual income. More precisely, the price you can afford to pay for a home will depend on six factors:
- Your income
- The amount of cash you have available for the down payment, closing costs and cash reserves required by the lender.
- Your outstanding debts
- Your credit history
- The type of mortgage you select
- Current interest rates
Lenders will analyze your income in relation to your projected cost of the home and outstanding debts. This will determine the size loan you can borrow. Your housing expense-to-income ratio is determined by calculating your projected monthly housing expense, which consists of the principal and interest payment on your loan, property taxes and heat (utilities). The sum of these costs is referred to as “PITH.”
First and foremost it is strongly recommended that you hire a professional person to inspect the home. Many inspectors belong to the Canadian Associated Home Property Inspectors (CAHPI). They attend seminars and stay abreast of the latest developments.
Secondly British Columbia require sellers to complete a Property Disclosure Statement revealing everything known about their property. Home sellers are required to indicate any significant defects or malfunctions existing in the home’s major systems. Review this form in detail prior to purchasing any home or condo.
There are always some sellers who for some reason must sell quickly, however in general, a very low offer in a normal market might be rejected immediately. In a strong buyer’s market, the below-market offer will usually either be accepted or generate a counteroffer. If few offers are being made, an outright rejection of offers becomes unlikely. In a strong seller’s market, offers are often higher than full price. While it is true that offers at or above full price are more likely to be accepted by the seller, there are other considerations involved:
- Is the offer contingent upon anything, such as the sale of the buyer’s current house? If so, such an offer, even at full price, may not be as attractive as an offer without that condition.
- Is the offer made on the house “as is,” or does the buyer want the seller to make some repairs before closing or make a price concession instead?
- Is the offer all cash, meaning the buyer has waived the financing contingency? If so, then an offer at less than the asking price may be more attractive to the seller than a full-price offer with a financing contingency.
Different sellers price houses very differently. Some deliberately overprice, others ask for pretty close to what they hope to get and a few (maybe the cleverest) underprice their houses in the hope that potential buyers will compete and overbid. A seller’s advertised price should be treated only as a rough estimate of what they would like to receive.
If possible try to learn about the seller’s motivation. For example, a lower price with a quick closing may be more acceptable to someone who must move due to a job transfer. People going through a divorce or are eager to move into another home are frequently more receptive to lower offers.
Some buyers believe in making deliberate low-ball offers. While any offer can be presented to the seller, a low-ball offer often sours a prospective sale and discourages the seller from negotiating at all. And unless the house is extremely overpriced, the offer probably will be rejected anyway.
Before making an offer, also investigate how much comparable homes have sold for in the area so that you can determine whether the home is priced right.
Buyers using a small down payment also have a reserve for making unexpected improvements. It may be more prudent to make a larger down payment and thereby reduce the amount of debt that must be financed. Once a buyer puts twenty percent or more as a down payment on their desired home, they will waive the requirement for mortgage insurance.
Mortgage loan insurance is typically required by lenders when homebuyers make a down payment of less than 20% of the purchase price. Mortgage loan insurance protects lenders against mortgage default, and enables consumers to purchase homes with as little as 5% down payment – with interest rates comparable to those with a 20% down payment.
To obtain mortgage loan insurance, lenders pay an insurance premium. Typically, your lender will pass this cost on to you. The premium payable is based on a percentage of the home’s purchase price that is financed by a mortgage. The premium can be paid in a single lump sum or it can be added to your mortgage and included in your monthly payments.
Mortgage insurance should not be confused with mortgage life insurance which guarantees that your remaining mortgage at the time of your death will not be a burden to your estate.
Title insurance is a form of insurance in favor of an owner, lessee, mortgage or other holder of an estate lien, or other interest in real property. It indemnifies against loss up to the face amount of the policy, suffered by reason of title being vested otherwise than as stated, or because of defects in the title, liens and encumbrances not set forth or otherwise specifically excluded in the policy, whether or not in the public land records, and other matters included within the policy form, such as lack of access to the property, loss due to unmarketability of title, etc. The title policy form sets forth the specific risks insured against. Additional coverage of related risks may also be added by endorsements to the policy or by the inclusion of additional affirmation insurance to modify or supersede the impact of certain exceptions, exclusions or printed policy “conditions.” The policy also protects the insured for liability on various warranties of title.
In addition, the policy provides protection in an unlimited amount against costs and expenses incurred in defending the insured estate or interest.
Before it issues a title policy, the title insurance company performs, or has performed for it, an extensive search, examination and interpretation of the legal effect of all relevant public records to determine the existence of possible rights, claims, liens or encumbrance that affect the property.
However, even the most comprehensive title examination, made by the most highly skilled attorney or lay expert, can not protect against all title defects and claims. These are commonly referred to as the “hidden risks.” The most common examples of these hidden risks are fraud, forgery, alteration of documents, impersonation, secret marital status, incapacity of parties (whether they be individuals, corporations, trusts or any other type), and inadequate or lack of powers of REALTORS® or fiduciaries. Some other hidden risks include various laws and regulations that create or permit interests, claims and liens without requiring that they first be filed or recorded in some form so that the potential buyers and lenders can find them before parting with their money.
It is strongly recommended that home buyers are prequalified or pre-approved for a loan as their first step in the process. By being prequalified, a buyer knows exactly how much house they can afford. They can make more informed decisions in the market place. This does not mean they will definitely get the loan because their credit reports, wages and bank statements still need to be verified before you can receive a commitment from the lender for the loan.
Almost all mortgage lenders prequalify people at no charge. Many of them will even do it on the internet. In order to be pre-approved, an application will be taken. For a fee, your credit report will be pulled, your employment and income will be verified, your chequeing and savings accounts will also be verified. In other words, all the necessary documentation will be completed in order for you to obtain a loan. The only things remaining will be for you to find a home, obtain an appraisal on it to prove its value to the bank and perform whatever inspections you may want on the property. This process considerably shortens the time frame to closing.
Compare the mortgage charts published in most newspapers.
Occasionally some lenders are willing to negotiate on both the loan rate and the number of points. This isn’t typical among many of the established lenders who set their rates. Nevertheless, it never hurts to shop around, know the market and try to get the best deal. Always look at the combination of interest rate and points and get the best deal possible. This is reflected in what is called the APR or Actual Percentage Rate.
The interest rate is much more open to negotiation on purchases that involve seller financing. Generally, these are based on market rates but some flexibility exists when negotiating such a deal.
Sales price increases in either type of housing are strongly tied to location, growth in the local housing market and the state of the overall economy.
Some people feel that buying into a new-home community is a bit riskier than purchasing a house in an established neighbourhood. Future appreciation in value in either case depends upon many of the same factors. Others believe that a new home is less risky because things won’t “wear out” and need replacement.
“Existing homes have been appreciating a little more than new homes but every once in awhile they’re at the same level and sometimes the new home prices go up a little quicker” according to the National Association of REALTORS® (NAR).
One of the things to consider is “how long do you plan to stay in this home?” For instance if you are being relocated for a job transfer for a two year contract, perhaps an existing home is the way to go. It would be difficult to recapture the monies invested in a new home that are required to finish it, such as; drapery, landscaping & appliances. You may be better off purchasing an existing home which has all of these finishings done for you.
Planning is the key to a successful renovation. To help you plan your renovation project, your RE/MAX® REALTOR® has information and easy-to-understand tips that can help you assess your requirements and learn the key questions before you get started.
Distressed properties or fixer-uppers can be found everywhere. These properties are poorly maintained and have a lower market value than other houses in the neighbourhood. It is often recommended that buyers find the least desirable house in the best neighbourhood. You must consider if the expenses needed to bring the value of that property to its full potential market value are within your budget. Most buyers should avoid extremely run-down houses that need major structural repairs. Remember the movie “The Money Pit?” These properties should not be tackled without the professional guidance and assistance of trades persons who are in the repair business.
CMHC provides mortgage loan insurance for the purchase of a home and the cost of any immediate renovations, or for refinancing where funds are used to make improvements which increase the market value of the property.
• Available for Purchase or Refinance Transactions
• Used when the loan includes improvement costs that are less than or equal to
• 10% of the property’s estimated as-improved value.
• One easy transaction – once application is approved, Approved Lenders can
Remodeling a home improves its livability and enhances curb appeal, making it more saleable to potential buyers. Some of the popular improvement projects are updated kitchens and baths, enlarged master bedroom suits, home-office additions and increased amenities in older homes.
The resale market is often difficult because you are competing with new construction. You need to give your home every competitive advantage you can if you are selling an older home.
Home offices are a relatively new remodeling trend. Adding one to a house often recoups 58 percent of the costs, according to a survey found in a report called “Cost vs. Value Report” in Remodeling Magazine.
The incidence of foreclosures is cyclical, based on national and regional economic trends.
Buying directly at a legal foreclosure sale can be risky and dangerous. The process has many disadvantages.
A RE/MAX® Sales Representative is well versed on how Foreclosure Sales work. They will be able to guide you through the process. In particular, most Foreclosure Sales are sold “As Is”. This means that the lender who is selling the property has no knowledge of the condition of the property and will not be responsible for any defects.
It is important to secure a property inspection and seek legal advice as to ramifications of purchasing a Foreclosure property.
Be sure to find out who your real estate REALTOR® is representing before you tell them too much. The degree of trust you have in a REALTOR® may depend upon their legal obligation of representation. An agency working with a buyer has three possible choices of representation. The REALTOR® can represent the buyer exclusively, called buyer agency, or represent the seller exclusively, called seller agency, or represent both the buyer and seller in a dual agency situation. Your RE/MAX® REALTOR® will disclose all possible agency relationships before they enter into a residential real estate transaction. Here is a summary of the three basic types:
- In a traditional relationship, REALTORS® and brokers have a fiduciary relationship to the seller. Be aware that the seller pays the commission of both brokers, not just the one who lists and shows the property, but also to the sub-broker, who brings the ready, willing and able buyer to the table.
- Dual agency exists if two REALTORS® working for the same broker represent the buyer and seller in the same transaction. A potential conflict of interest is created if the listing REALTOR® has advance knowledge of another buyer’s offer. Therefore, REALTORS® practice “Limited Dual Agency” where both the buyer and seller agree in writing to be represented by the same firm under certain conditions. Under this type of representation the Brokerage agrees to deal with the Buyer and Seller impartially. Further the Brokerage will not disclose to the buyer that the seller will accept less than the list price, or disclose to the seller that the buyer will pay more than the offer price, without express written permission.
- A buyer can hire an RE/MAX® REALTOR® who will represent their interests exclusively. A buyer’s REALTOR® can perform enhanced services for the buyer, such as preparing a market analysis on the home they are buying as well as independently verifying information provided by the Sellers REALTOR® All information provided to the buyer’s REALTOR® shall remain confidential and will not be relayed to the Seller’s REALTOR®.
How REALTORS® help:
Home buying can be a daunting and complex process. But with a REALTOR® at your side, it doesn’t have to be. Remember, a REALTOR® works for you and is there to look after your best interests. So take a few minutes and learn how a REALTOR® can help you find what you’re looking for.
• RE/MAX® REALTORS® cooperate well with other REALTORS® in the process of buying a home.
• RE/MAX® REALTORS® prefer to work as a buyer-broker while assisting you in buying a home rather than as a Sub-Broker of the REALTOR® who is working for the Seller. We want to work for your best interest, not the Seller’s. Most corporations request we represent their employees as buyer-brokers. They know sometime in the future they may be buying your home when you transfer again. Buyer-brokers help keep their relocation costs down because their employees have made smarter purchases. Things a RE/MAX® REALTOR® can do as a Buyer-Broker that they can not do as a sub-Broker:
• Prepare and interpret market analysis done on the property you are buying. (Determines if the price and terms of the listed property are correct)
• Analyze and compare the “Pluses and minuses” of different properties you are considering buying.
• Discuss the salability of different neighbourhoods. (What neighbourhoods hold their property values better.)
• Tell you any information discerned about the motivation of the Seller.