In our current market, it's important to take as much information as possible into account when making one of the biggest purchases of your life! Being resourceful, patient and doing as much research in advance as you can will go along way in avoiding costly mistakes when purchasing your new home. Here are six 'Golden Rules' I recently came across @ money.ca.msn.com. Enjoy.
1. Build your team You transaction will require a knowledgeable real estate agent, lawyer, and mortgage lender.
References from friends can help you pinpoint experts to surround yourself with.
2. Get a pre-approval This will lock in a mortgage rate for about 90-120 days. Keep in mind that pre-approvals are almost always subject to certain conditions that you will need to meet before financing is confirmed. To protect and give yourself a way out in case of any oversights, it is a good idea to have a condition for financing on any offers to purchase a house. This is especially true if we're no longer in a red hot real estate market that is seeing multiple offers and forcing buyers to remove conditions from their offers.
3. Set a budget and stick to it. It's hard not to let emotions take over during the home buying process. Your pre-approval amount is what the bank is willing to lend you and may not necessarily be an amount you can comfortably afford to pay, after taking into consideration your lifestyle needs. Do you have an active social life? Do you enjoy eating out? Are you planning on having kids? Are you saving for your RRSPs? When a bank provides an approval, they are based on CMHC guidelines, not the costs associated with your lifestyle.
For example, your financial institution will examine your gross debt servicing. Your monthly housing costs should not exceed 32% of your gross monthly household income. Housing costs include monthly mortgage payments, taxes, heating expenses and half of monthly condominium fees (if applicable). Your mortgage lender will also examine your total debt servicing ratio. This is your entire monthly debt load and it should not exceed 40% of your gross monthly income. This includes housing costs such as property taxes, heating costs and condo fees and other debts such as car payments, personal loans, and credit card payments.
4. Factor in closing costs Far too often people are surprised when they get the final statement of adjustments from their lawyers and are left scrambling to come up with thousands of dollars to cover the shortfall. On top of the purchase price, there are also land transfer tax and legal fees. For example in Toronto, in addition to the Provincial Land Transfer Tax, there is also a recently implemented Municipal Land Transfer Tax, which will add approximately 1% to the closing costs (first time purchases are eligible for a rebate up to a maximum of $3,725).
If it is a new development, you may also be responsible for development charges, such as Education levies and fees for enrolment in Tarion Warranty Corporationand installation of hydro meters. My advice? When negotiating the purchase of a new development, your agent should put a cap all these extra charges. For example, if you capped all your development charges and levies at $3,000, this is the maximum the developer could end up charging you upon closing, regardless of what the actual fees should be.
5. Title insurance Title insurance and identity theft coverage offer peace of mind and protection. Although real estate title fraud is far less frequent than other forms of identity theft, it is a violation that can have devastating and long lasting effect on its victims.
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