(PDF) omebuying Step by step A consumer guide and workbook 1 …… 2 · 2004. 1. 3. · Homebuying Step by Step was created to provide you with everything you need to know about completing

omebuying
Step by step
HA consumer guide and workbook
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This book, including any resources recommended, is providedforgeneral informational purposes only. Any reliance on, oractiontaken on, such information is at the sole risk of the user.This bookis not a substitute for professional advice.
Canadian Cataloguing in Publication Data
Main entry under title:
Homebuying step by step: A consumer guide and workbook
Prev. publ. under title: The complete guide to buying yourhome.
Issued also in French under the title: L’achat d’une maisonétape par étape (61143).
ISBN 0-662-26711-7
Cat. no. NH15-144/1998E
1. House buying—Canada—Handbooks, manuals, etc.2. Housebuying—Canada—Costs—Handbooks, manuals, etc.3. Homeownership—Canada—Handbooks, manuals, etc.I. Canada Mortgage andHousing Corporation
HD7287.55H65 1998 332.7’22’0971 C98-980136-5
© 1998 Canada Mortgage and Housing Corporation. All rightsreserved. No portion of this book may be
reproduced, stored in a retrieval system or transmitted in anyform or by any means, mechanical,
electronic, photocopying, recording or otherwise without theprior written permission of Canada Mortgage
and Housing Corporation. Without limiting the generality of theforegoing no portion of this book may be
translated from English into any other language without theprior written permission of Canada Mortgage
and Housing Corporation.
Printed in Canada
Produced by CMHC
CMHC–Your Housing Experts
Canadians are among the best-housedpeople in the world, and themajority owntheir homes. Part of this success is due toCanadaMortgage and Housing Corporation,(CMHC), the federal housingagency. Since1946, CMHC has helped to housegenerations ofCanadians. We’ve developedthe standards and practices required byagrowing housing industry and found newways to help Canadiansfinance homepurchases.
Today, more than one third of all mortgagesare insured byCMHC—but there’s more toCMHC than mortgage loan insurance.We’recontinually finding ways to build better, moreefficient andaffordable housing, and to makeinformation about it available toyou.
In fact, CMHC is Canada’s mostcomprehensive and objective sourceofinformation on housing, whether you’re ahomeowner, a potentialbuyer, a renovator, ora builder, or if you have specialhousingneeds.
Canada Mortgage and Housing Corporation supports the
Government of Canada policy on access to information forpeople
with disabilities. If you wish to obtain this publication inalternative
formats, call 1 800 668-2642.
I N T R O D U C T I O N 1
Once upon a time, buying
a home was relatively
straight-forward. Today,
however, buying a home
is a journey with many
twists and turns.
Homebuying Step by Step was created
to provide you with everything you need to
know about completing that journey
successfully. In this book from Canada
Mortgage and Housing Corporation, we take
you through the entire process step by step,
from the moment you decide to buy until the
moment the movers carry the first box
through the front door of your new home.
This isn’t a fairytale. It’s real life.
That’s why this book has been created as
a hands-on workbook. It provides you with
checklists and worksheets to assemble the
right information to make the right decision
for you.
Once upon a time, almost everyone
shared a common homebuying experience.
They bought the same kind of home in the
same kind of neighbourhood. Now the
options are more varied than they’ve ever
been. Urban, suburban or rural? New home
or resale? Condominium, townhouse,
rowhouse, detached house or mobile home?
Which is right for you? This book can help
you decide.
Once upon a time,
almost every home was
bought by a married
couple. Now homes are
being bought by the
widest possible range of
people in the widest possible range of
situations. Yes, newly married couples still
make many of the home purchases that take
place every year. But so do single people with
children, single people without children,
people in second marriages, same-sex
couples, common-law couples, even groups of
friends. Whatever your situation, this book
can help.
Once upon a time, buying a home was
less complicated. Now there are more people
to deal with and more points to discuss. What
questions do you ask your real estate
representative, lawyer (or notary in Quebec),
mortgage lender, builder and housing
inspector? Who are these people and what do
they do? This book makes it all plain. (You’ll
find a Glossary of homebuying terms on
page 42.)
Once upon a time, there weren’t as
many variables to consider when buying a
home. But this book wasn’t developed to be
used “once upon a time.” It’s here to be used
now. In the reality of today’s housing market.
Read it. Use it. And make your journey
toward your new home that much easier.
You’reYou’reon your wayon your way
home.home.
This book will walk you through the exciting journeytowardowning your new home.
Everything thathappens in thelarger housingmarket has an
impact on your home purchase. We help you track trendsinmortgage rates and housing prices and other key indicatorsthattell you the best time to buy. Page 10
Helps you figure out exactly whatfeatures you want and need inyourhome. Also, where you want thathome to be. We give youinformationand handy worksheets to help youdo that.
Page 4
There are a lot of people involvedwhen you buy a home. Here’saguide to who they are and whatthey do. We provide worksheetstohelp you choose the right people tomeet your homebuyingneeds.
Page 19
So you know what kind ofhome you want, but canyou afford it?
Practical information and practical worksheets help youcalcu-late how you can be house proud without being house poor.
Page 12
AdditionalHelpfulInformationCall us. Write us. Order our freecatalogues.Visit our Web site. CMHC hasvideos, books, reportsandother information about everyaspect of owning a home.Check usout.Page41
Did they say what you thinkthey said? Easy-to-understandexplanations of all the jargonyou’ll run up against inthehomebuying process. Look itup in the Glossary. Page 42
GLOSSARY
Table of…
There are more mortgagefeatures available today thanever before.What are youroptions? How do you get the bestmortgage for you? And,how canyou save money on yourmortgage? Page 24
Don’t let a down payment comebetween you and your home. Findouthow you could qualify to buy yourhome with as little as 5% downwithhelp from CMHC. Page 32
This is the moment you’vewaited for. You’ve found the
right place, you just hope you’reoffering the right price. Whatto
include in your Offer to Purchase andwhat to expect once youroffer’s been
made. Page 34
There are many smallsteps when it’s time toclose the deal.Here’s
information to help make surenothing falls through thecracks.Also, tips to makemoving day a smoothexperience.
Page 38
Home HuntingWorksheet
Take this handychecklist withyou when you gohome hunting. Itwillhelp yourecall thefeatures anddrawbacks ofeach propertyyou lookat.
Contents
Take advantage of our handy
SubjectIndexPages 45-46
Plus
Extra worksheets at the back of the GuideExtra worksheets at theback of the Guide
For most Canadians,
owning their own home is
a lifelong dream. It brings
with it pride of ownership,
security and the feeling of
control over which
improvements are made
and how much they cost.
There’s also the chance
your home will increase in
value, making it a sound
financial as well as a
lifestyle investment.
Save TIME,
DISAPPOINTMENT and
maybe even MONEY. WORK
OUT exact ly what YOUR
NEEDS ARE before YOU
start HOME HUNTING.
GETTING STARTED When buying ahome, you have to juggle threeimpor-tant factors—your prospective home’slocation, style and cost.For example,your goal may be to buy a single familydetached home inan urban neighbour-hood for $100,000. But you may haveto settle fortwo out of three. An urbansemi-detached home may be availableforyour price, or you may need to lookin the suburbs for the price andstyleyou want.
4 S T E P 1 • H O U S I N G N E E D S
L O C A T I O N
S T Y L E
C O S T
5 km
2.5 km
7.5 km
10 km
RECREATION
FIRE DEPARTMENT
HOSPITAL
DOCTOR/DENTIST
POLICE DEPARTMENT
SCHOOLS/PLACES OF WORSHIP
SHOPPING
WORK
TRANSPORTATION
Location, Location, Location Your choice of location dependsprimarily on whereyou work and whether you want to commute, andalsoon your family lifestyle.
Do you want to live near recreation facilitiessuch as a golfcourse or skating rink? How close areyour children’s schools? Ispublictransportation available?
Urban living usually offers thelargest range of home styles andoftenis closer to amenities such as restau-rants and theatres. Onthe other hand,you may get more for your money in the suburbs.
Suburban homes often have larger lots andlarger square footagethan urban homes in thesame price range.
While suburban homes can have the advantageof being newer,amenities like shopping or play-grounds may not be available yet ina newsubdivision.
If you’re considering moving to an unfamiliarneighbourhood, taketime to drive or walk aroundit, both during the day and in theevening. Makesome notes. It’s also a good idea to travel theroute
to and from your work. (See the Home HuntingWorksheet followingpage 6.)
There are many other factors you should consid-er when choosingthe location of your home. Forexample, have property values risenor fallen in theneighbourhood?
Future development can also affectproperty values and propertytaxes,so you’ll want to consider whetherthere are any changes tozoning pro-posed or any major developmentsplanned.
To do this, contact the local municipal office re-gardingplanning and zoning bylaws. Is a highriseoffice tower going in nextto your home? A newhighway? Zoning bylaws may also affect yourownplans, such as conducting a business from yourhome.
Some real estate representatives suggest that,if you’reconsidering the future resale value of yourhome, it’s wiser to buya modest home in the bestneighbourhood you can afford than the mostexpen-sive home in a modest neighbourhood.
Location isan investment
too.
Location isan investment
too.
S T E P 1 • H O U S I N G N E E D S 5
How close to home are the services you need?
Think about what kind of house you want…
Types of housing
Single family detachedA free-standing home which sitson its ownlot and is occupied byonly one family.
Semi-detachedA single family home that isjoined to another oneby acommon wall.
DuplexTwo units, one above the other.The owner may live in oneunitand rent the other.
Row- or townhouseOne of several single familyhomes joined bycommon walls.These can be condominium orfreehold units.
Link or carriage Houses, freehold orcondominium, joined bygaragesor carports which provide accessbetween the front and rearyards.Builders sometimes joinbasement walls so that linkhousesappear to be single familyhomes on small lots.
Highrise condominiumMulti-storey residential buildingcontainingcondominium units. Acondominium is not a type ofhouse but a form ofownership.
Mobile or manufactured A factory-built, single familydwellingthat is transported toyour chosen location and placedon afoundation.
New or Resale
There are advantages and disadvantages to both new andresalehomes. Here are some of the characteristics of boththat may helpyou make your choice.
New HomeADVANTAGES
� You may be able toupgrade or choose certainitems such assiding, finishmaterials, flooring,cabinets, plumbing andelectricalfixtures.
� The latest building code,electrical and energy-efficiencystandards will apply.
� A builder warranty is usually available in all provinces andtheYukon (but not the Northwest Territories). This can be importantifa major system, such as plumbing or heating, breaks down.
� Unless you are a builder, warranties do not apply to homesyoubuild yourself.
� There may also be incentives provided by the provincesandprospective borrowers should consult provincial orlocalauthorities in this regard.
DISADVANTAGES� Neighbourhood amenities, like schools orshopping, may notbe complete if the house is in a newdevelopment.
� There may be construction noise and traffic.
� There may be little to no landscaping or trees.
� The 7% GST applies to new housing. However, there is arebate,to a maximum of 2.5%, on homes which cost less than$450,000. Insome provinces, the GST has been replaced by aHarmonized Federaland Provincial Sales Tax known as the HST.
Resale HomeADVANTAGES
� It will probably bein an establishedneighbourhood.
� Landscaping isusually done andfencing installed.
� It may have upgrades such as a built-in swimming poolorfinished basement.
� There is no GST unless the house has beenrenovatedsubstantially, and then the tax is applied as if it were anewhouse.
DISADVANTAGES� Maintenance costs will likely be higher than fora new house.
� You may require a professional home inspector to checkforstructural or other problems, such as a leaky basement or faultyroof.
� You may need to redecorate, or even renovate.
6 S T E P 1 • H O U S I N G N E E D S
Ho
me
Hu
nti
ng
Wo
rk
sh
eet
Here’s a handyworksheet to help youevaluate the details
of the individualhomes that you view.
When you look at more than a few houses in a day,the specialfeatures can get blurred together:
Did the tidy little green house have the skylightsor did it havethe fireplace in the family room?
Don’t fill out a worksheet for every home you see—just thoseyou’re seriously considering. ThisHome Hunting Worksheet willassist your memoryand keep home features distinct.
Extra worksheets at the back of the GuideExtra worksheets at theback of the Guide
b CHAPTER TITLE
Here are
a few points
to consider.� Exterior condition
Look at the condition of the roof,eavestroughing, brick, mortar,paint, siding,decks and patios.
� Energy efficiencyWhat type of heating and insulation doesthehome have? Is the entire house insulated?
� Air qualityDoes the house smell clean and fresh? Checkforconditions and materials which will maintaina healthy indoorenvironment.
� Basement/crawlspace conditions Is it moldy? Look for waterstains, leaks orcracks.
� Structural problemsDoors and windows that stick and unevenfloorscan indicate problems.
� Test the water pressureby turning on the taps or flushing thetoilet.
� Is there parking?Does the home have a private orshareddriveway?
Home HuntingWorksheetAttach real estate listing informationsheet or fill inbelow.Address
Real estate representative Telephone
Type of home Square footage
Number of bedrooms Lot size
Additional structures on property
Occupancy date Asking price $
Air conditioning � Central � Window � Smoke detectors
� Heat recovery ventilator (HRV)
ANNUAL COSTSProperty taxes $
Garbage pickup $
Other $
Utilities
Heating type � Oil � Natural gas � Electric � Wood $
Electricity � 60 amp � 100 amp � 200 amp � Other $
Water � Municipal � Well $
Other $
Other $
TOTAL ANNUAL COSTS $
Chattel which remains with house
Make a comprehensive list (floor coverings, window drapes,appliances, etc.)
I
I
I
Neighbourhood
Distance to work Distance to spouse’s work
Public transportation � Yes � No
Adequate proximity to Schools � Yes � No
Shopping � Yes � No Playgrounds � Yes � No
Medical � Yes � No Hospital � Yes � No
Fire station � Yes � No Police � Yes � No
Place of worship � Yes � No
Other neighbourhood considerations
Existing environmental problems (noisy traffic, railway,flooding, etc.)
Future development plans
Be sure to indicate NORTH on your plan.
Extra worksheets at the back of the GuideExtra worksheets at theback of the Guide
Use the area below to draw floor plans.
E X T E R I O R
Finish � Brick � Siding � Wood
Condition � Fair � Good � Excellent
Roofing � Fair � Good � Excellent
Other
Windows � Wood � Vinyl clad� Aluminum
Condition � Fair � Good � Excellent
Number ofentrances � 2 � 3 � 4 � 5
Driveway � Paved � Gravel � Other
Garage � No � Yes � Heated � Not heated
Landscaping � Fair � Good � Excellent
Fencing � Wood � Chain link� Other
Patio or deck � Yes � No
Special features (e.g. pool, barbecue)
I N T E R I O R
Entrance area
Approx. size
Walls � Fair � Good � Excellent
FlooringTYPE
� Fair � Good� Excellent
Lighting fixtures � Yes � No
Special features
Living room
Approx. size
Walls � Fair � Good � Excellent
FlooringTYPE
� Fair � Good� Excellent
Lighting fixtures � Yes � No
Windows � Fair � Good � Excellent
Special features (e.g. fireplace)
Dining room
Approx. size
Walls � Fair � Good � Excellent
FlooringTYPE
� Fair � Good� Excellent
Lighting fixtures � Yes � No
Windows � Fair � Good � Excellent
Special features
� Den � Study � Family room
Approx. size
Walls � Fair � Good � Excellent
FlooringTYPE
� Fair � Good� Excellent
Lighting fixtures � Yes � No
Windows � Fair � Good � Excellent
Special features
Kitchen
Approx. size
Walls � Fair � Good � Excellent
FlooringTYPE
� Fair � Good� Excellent
Lighting fixtures � Yes � No
Windows � Fair � Good � Excellent
Cupboards & storage � Fair � Good� Excellent
Special features
Appliances included
Master bedroom
Approx. size
Walls � Fair � Good � Excellent
FlooringTYPE
� Fair � Good� Excellent
Lighting fixtures � Yes � No
Windows � Fair � Good � Excellent
Special features (e.g. en suite bathroom, walk-in closet)
Bedroom #2
Approx. size
See Also
(PDF) POWER AMPLIFIER SERVICE MANUAL · module en arriÈre. to prevent electric shock do not remove top or bottom covers. no user serviceable parts inside. refer servicing to qualified - DOKUMEN.TIPS
Walls � Fair � Good � Excellent
FlooringTYPE
� Fair � Good� Excellent
Lighting fixtures � Yes � No
Windows � Fair � Good � Excellent
Special features
Bedroom #3
Approx. size
Walls � Fair � Good� Excellent
FlooringTYPE
� Fair � Good� Excellent
Lighting fixtures � Yes � No
Windows � Fair � Good � Excellent
Special features
Bathrooms
#1 � � Bath/shower � Sink � Toilet
#2 � � Bath/shower � Sink � Toilet
#3 � � Bath/shower � Sink � Toilet
Special features
Basement
Approx. size
Walls � Fair � Good � Excellent
FlooringTYPE
� Fair � Good� Excellent
Lighting fixtures � Yes � No
Windows � Fair � Good � Excellent
Separate entrance to outside � Yes �
No
Special features
Utility room
Approx. size
Walls � Fair � Good � Excellent
FlooringTYPE
� Fair � Good� Excellent
Lighting fixtures � Yes � No
Windows � Fair � Good � Excellent
Special features
Additional for condominiums
Parking � Underground � Above ground� Balcony; size � Storage�Recreation room � Exercise room
Pool � No � Yes � Indoor� Outdoor
Lobby � Fair � Good � Excellent
Security and special features
General comments
PROS: CONS:
S T E P 1 • H O U S I N G N E E D S 7
Style When trying to decide what style ofhome to buy, it’s agood idea to draw upa master list of all the features you wantyournew home to have. The HomeFeatures Checklist onpage 8 can helpyou.Try to be honest aboutwhat you’re lookingfor. Your visionwilllikely change based onwhat’s available.
This may not bethe dream homeyou’d buy if you wonthe lottery,but ratherthe home that youand your family can afford now andthatwill meet your needs for the nextfew years.
Consider such questions as: Areyou starting a family or havingmorechildren? How many bedrooms willyou need? Will a home officeberequired?
If you think you’ll need morespace, consider buying a largerhomenow or one with the potential for ren-ovation or anaddition.
Consider compiling this list withthe help of your real estaterepresen-tative or builder, who can help youdecide which featuresare importantand suggest ones you have over-
looked. (For tips onchoosing the rightrepresentative foryou, seepage 20.)
Make sure yourreal estate represen-tative keeps a copy ofyourlist to help pre-screen the housesyou’ll look at.
This list should berevised as you look at
houses and see what is actually avail-able in your price rangeandpreferred locations. (You’ll find extracopies of the HomeFeatures Checklistat the back of the Guide.)
Cost Cost is such a big step, it has it’s ownchapter. (See Step3 on page 12.)
Diane and Hugh weremoving to Calgary and sawthis as anopportunity to buy a home before theystarted their family.Theirdream was a home with four bedrooms, a family room, a big yardand apreferred location.
The reality was thatthey couldn’t balance thathome and thatlocation with their budget. Then areal estate representativehelpedthem find a smallerhouse that they could afford in anidealneighbourhood.
They accepted lesshome than they had hopedfor, but stayed withinanaffordable budget. Thoseextra rooms could comelater.
Make a listof all the features
you want in your new home.
Be realisticand consider all
the options.
The word condominium refers to a type ofproperty ownershiprather than to a style ofhouse. � Condominiums can betownhouses,highrises or low-rises. They can be attractivetofirst-time home buyers because they aregenerally less expensivethan single detachedhomes in the same neighbourhood. Whencomparingcosts, make sure to includemonthly condominium fees.� When you buya condominium, you’reinvesting in something you own, butlikelyeliminating maintenance such as yard workand snow removal.Condominiums also canoffer extras you won’t get in a similarlypriceddetached home, such as security systems andrecreationfacilities.� Be prepared to pay monthly condominiumfees thatcontribute to the corporation’s
reserve fund and go toward covering thecollective cost ofproperty maintenance,repairs, replacements and insurance.� Whenbuying a condominium, many of thesame considerations as buying adetachedhome will apply. For example, the choice oflocation or thedecision between new andresale. � With a new condominium, you maybeable to specify upgrades or finish materials,while a resalecondominium is more likely tobe in an established location and mayhavelower condominium fees.� Before you buy a condominium, it’salsoimportant to consider some of their limitations.If a large yardis important to you, for example,a condominium is not a goodchoice.
A note on buying condominiums
Home
Features
ChecklistCompleting this list willhelp confirm in yourmindexactly what youwant and need in yournew home.
Be realistic, but don’tsell yourself short. If, asyou look athomes, you findyour dreams exceed yourbudget, you can alwaysmakerevisions.
The list will also helpyou focus on potentialfuture needs. Besure totake into consideration anyplans to start or expandyourfamily. That couldaffect the number ofbedrooms or location.
Determine whichfeatures are must-havesand which arenegotiable,perhaps using a highlightingmarker to indicatethedifference.
And, of course, makesure your real estaterepresentative has acopyof the list to prescreenhomes before you seethem.
8 S T E P 1 • H O U S I N G N E E D S
Sarita and Albert wanted tobuy a small home in Ottawa,as aninvestment and forthe personal freedom itoffered.
In order to maximizetheir resources, they madesome harddecisions aboutwhich features wereessential and whichwerenegotiable.
A deck, for example, didn’t have to be there. Itcould be easilybuilt later.But proximity to publictransportation was a must.
Being as practical andrealistic as possible, Saritaand Albertmanaged to finda home with which theywere very happy. And onethatcould expand shouldtheir needs change.
� Resale � New
Type of Home� Detached � Semi-detached� Townhouse � Duplex�Highrise � Low-rise
Type of ownership� Freehold � Condominium
Age of home
Lot size � Small � Medium � Large
Quiet street � Yes � No
Type of exterior finish� Brick � Wood� Aluminum siding � Vinylsiding� Combination brick and siding
WindowsGlazing � Single � Double � Triple
� Low-EConstruction � Wood � Vinyl � Metal
� Other
Insulation values Walls_________________Basement______________Ceiling________________
Foundation construction � Concrete� Concrete block � Preservedwood
Sewer � Municipal � Septicsystem
Water � Municipal � Well
Water heating � Gas � Electric � Oil
Electrical system � 100 amp � 200 ampOther______
� Fuses � Circuit breakers
Type of heating fuel� Oil � Gas � Electric � Wood
Heat recovery ventilator � Yes � No
Air conditioning � Central � Window
Extra worksheets at the back of the GuideExtra worksheets at theback of the Guide
When
considering the
right home for
you, it’s
important to
look beyond
the walls. The
environment
surrounding
your home can
be almost as
important as
the
environment
inside it.
S T E P 1 • H O U S I N G N E E D S 9
the next step?the next step?Ready for
Bedrooms � 1 � 2 � 3 � 4
Bathrooms � 1 � 2 � 3
Master bedroom en suite � Yes � No
Ground floor bathroom � Yes � No
Eat-in kitchen � Yes � No
Separate dining room � Yes � No
Separate family room � Yes � No
Fireplace � Yes � No
Woodstove � Yes � No
Spare room for den or home office � Yes � No
Basement for storage or workshop � Yes � No
Apartment for rental income � Yes � No
Deck or patio � Yes � No
Private driveway � Yes � No
Garage � Attached � Detached
Carport � Yes � No
Security features � Yes � No
Barrier-free � Yes � No
Close to (approximate km)
Work Spouse’s work
Public transportation Schools
Shopping Parks/playgrounds
Recreation facilities Restaurants
Places of worship
Police station Fire station
Hospital Doctor /dentist
Veterinarian
10 S T E P 2 • M A R K E T F O R E C A S T S
How do you develop an understanding of howthe housing market isevolving? The easiest answeris to take advantage of the informationoffered byCMHC’s Market Analysis Centre through anyregional CMHCBusiness Centre.
The Market Analysis Centre is there to give youa clear pictureof the current housing market. Localmarket analysis reports arepublished on a regularbasis. They provide information on recenttrends inhousing market conditions.
Your local CMHC market analyst can tell you ifit’s a buyer’s,seller’s or balanced housing market.
In a buyer’s market, the number of homes avail-able for saleexceeds the demand, so prices willeither stabilize or drop.
BY
understanding
THE HOUSING
MARKET,
YOU’LL have
a better SENSE
OF WHAT,
WHERE AND
WHEN to buy .
Buying a home—animportant lifestyle andinvestment decisionYouwant to buy at the best price
possible. You want your monthly
payments to be as affordable as
possible. You want your home to
increase in value as much as
possible.
To make sure all that happens, it’s important tolook beyond yourindividual purchase before youbuy. You need to look at largermarket conditions.What’s happening around you (house pricetrends,mortgage rate movements, new home construction)will have aninfluence on your purchase. The moreyou know, the more control youhave.
S T E P 2 • M A R K E T F O R E C A S T S 11
With fewer buyers and morehomes, you not only have moreoptionsto choose from, you also havegreater negotiating leverage.
You have more time to look for theright home and you canevaluate thechoices without feeling pressure to acttoo quickly.
Another major influence on yourdecision to buy is themortgageinterest rate. What rates are availablenow? Will they dropin the immediatefuture? Will they rise? If so, by howmuch?
Trying to answer these questionscan be difficult. Once again,CMHC’sMarket Analysis Centre can help. Itcan provide you with ananalysis ofthe mortgage market and an outlookfor future mortgagerates.
For those who need to see the bigpicture of Canadian housing,theMarket Analysis Centre produces aseries of national and localsubscrip-tion reports to provide you with acomprehensive housingview acrossthe country.
You can also use CMHC’s CMHC’sAffordAbility computer software.Itcan help first-time homebuyers,people renewing their mortgagesandmove-up buyers determine the homeprice and mortgage they canafford.
If you prefer to access the latesthousing information directlyfrom theweb, visit our Electronic Marketplaceatwww.cmhc-schl.gc.ca. Order ourmost popular reports on-line,andwe’ll e-mail them to you in PDF, Lotusor Excel formats—usuallyon the samebusiness day.
For any of these products, or forother information on thehousingmarket in your area, please call your regional CMHC businesscentreor visit our web site at www.cmhc-schl.gc.ca.
Hamid and Yvonne hadsaved $15,000 for a downpayment on a smallolderhome in the Saint Johnneighbourhood where theyhad both grownup.
They wanted to savemore, but they kept acareful eye onmortgage
interest rates, hoping theywould drop lower. Instead,rates beganto climb. Hamidand Yvonne called theirCMHC market analyst.
They learned what themortgage rate trends hadbeen over the pastfewyears. They also found outrates were expected to risein the nearfuture.
As a result, Hamid andYvonne decided to buy soon.
the next step?the next step?Ready for
At a glance, you can see how housing pricescan fluctuate.
These figures apply in a single geographic market. Similarfluctuationsappeared in other Canadian centres at differentlevels.
Mortgage rates are a critical factor in yourdecision topurchase. This chart illustrateshow rates can change quickly.
Median resale price by house type
SOURCE: TREB * thousands of dollars
$100
$150
$200
$250
*$300
ApartmentTownhouseSemiSingle
9695949392919089
Mortgage ratesMajor financial institutions
SOURCE: Bank of Canada Review.
5%
6%
7%
8%
9%
10%
11%
12%
13%
14%
15%
5-year
1-year
9695949392919089
CMHC’s Market Analysis
Centre offers timely homebuying information.
Homebuying costsThe Down PaymentIf you have a down payment of25% or more, youmay qualify for a conventional mortgage loanwhichdoes not require mortgage loan insurance.
A minimum down payment of 5% is required fora high-ratiomortgage. These types of mortgage loans–– for any amount in excessof 75% of the value of thehome –– are required to be insuredagainst default.(See Step 6 on page 32 for the details.)
The federal government and some provincesoffer incentiveprograms for homebuyers. Youshould consult an investment or taxadvisor regard-ing the value of these plans for yourparticularcircumstances.
The MortgageA mortgage is security for a loan on the propertyyouown. It is repaid in regular mortgage paymentswhich are blendedpayments. This means that thepayment includes the principal (amountborrowed)plus the interest (the charge for borrowing money).Thepayment may also include a portion of the prop-erty taxes.
Possible Extra Costs After YouMove InMaintenance costs You maywant to start a sep-arate maintenance fund –– particularly ifyou’rebuying an older home –– by setting aside $500-$1,000 andadding to it regularly. This reserve canbe used to cover the costsof anticipated or unex-pected repairs or replacement of such thingsas theroof or appliances.
Buying a home involves many
financial considerations. Some
home buying expenses are one-
time costs and others are
ongoing commitments. In
addition, there are other costs
that you may not be aware
of or that you may forget to
factor into your calculations.
Check out the list on page 15. And
don’t forget the extra costs, such
as buying a lawn mower or new
curtains for your new home.
HERE
ARE
SOME
basic calculations
YOU CAN DO THAT WILL
help you determine
exactly HOW MUCH
HOUSE YOU CAN afford.
Affordability
12 S T E P 3 • A F F O R D A B I L I T Y S T E P 3 • A F F O R DA B I L I T Y
This table gives you an ideaof the maximum home priceyou canafford. Theseestimates take into accounthousehold income andthepercentage down paymentyou have. They assume amortgage interestrate of8%, average tax andheating costs in Canada,and the mortgageanaverage Canadian wouldqualify for based on a 32%debt serviceratio. Pleasenote that for loans greaterthan 90% of the value ofthehome, a maximumhouse price of up to$250,000 may apply, baseduponthe price levels in yourcommunity. Contact yourlender for themaximumprice in your area.
Renovation costs You may find a “fixer-upper” ––an inexpensivehome in need of repair. One generalrule is that renovation alwaystakes longer than, andcosts more than, you think. CMHC publishes alot ofhelpful information on renovation. Contact your localCMHCoffice to find out more or order our renova-tion catalogue. (Seepage 41.)
How Much Can You Afford?The shortest and best answer to thatquestion is:
it depends –– on a number of factors. The mostimportant are yourgross household income, yourdown payment and the mortgage interestrate.Lenders also consider your assets and liabilities.Your ownlifestyle and debt comfort zone also comeinto play.
If you understand these variables, you can exam-ine all youroptions. You can make the best choicefor you and even save money.AffordAbility, a newCMHC computer software program, can helpyouwork out all your down payment and mortgageoptions. (To purchasecall 1-800-668-2642.)
Meanwhile, use the table below and theAffordability Guide on thenext page to get an ideaof the maximum home price you can affordand themaximum you can afford to pay in monthly housingcosts.
Lenders follow these two simple rules to deter-mine how much youcan afford in monthly housingcosts:
The first affordability rule is that your month-ly housing costsshouldn’t be more than 32% of yourgross monthly income. Housingcosts include month-ly mortgage principal and interest, taxesandheating expenses –– known as P.I.T.H. for short. Ifapplicable,this sum also includes half of monthlycondominium fees and all ofthe annual site lease inthe case of leasehold tenure
Lenders add up these housing costs to determinewhat percentagethey are of your gross monthly income.This figure is your GrossDebt Service (GDS) ratio.
The second affordability rule is that yourentire monthly debtload shouldn’t be more than40% of your gross monthly income. Thisincludeshousing costs and other debts such as car loans andcreditcard payments. Lenders add up these debtsto determine whatpercentage they are of your grossmonthly income. This figure isyour Total DebtService (TDS) ratio.
Based on these ratios, lenders will advise you ofthe maximumhome price they think you can afford.
Keep in mind that most homebuyers today keeptheir debt ratioscomfortably below the maximumsprescribed above. The lower your debtload, themore affordable your home and lifestyle will be.
S T E P 3 • A F F O R D A B I L I T Y 13
Income, Home Price and Downpayment GuideHousehold 5% DownMaximum 10% down Maximum 25% down Maximumincome payment home pricepayment home price payment home price
$25,000 $3,000 $60,000 $6,300 $63,000 $18,900 $75,600
$30,000 $3,900 $78,000 $8,200 $82,000 $24,700 $98,800
$35,000 $4,800 $96,000 $10,100 $101,000 $30,300 $121,200
$40,000 $5,700 $114,000 $12,000 $120,000 $36,000 $144,000
$45,000 $6,600 $132,000 $13,900 $139,000 $41,700 $166,800
$50,000 $7,500 $150,000 $15,800 $158,000 $47,400 $189,600
$60,000 $9,300 $186,000 $19,600 $196,000 $58,800 $235,200
$70,000 $11,050 $221,000 $23,400 $234,000 $70,100 $280,400
$80,000 $12,500 $250,000 $27,200 $272,000 $81,500 $326,000
$90,000 $12,500 $250,000 $31,000 $310,000 $92,800 $371,200
$100,000 $12,500 $250,000 $34,800 $348,000 $104,300 $417,200
Figures are rounded to the nearest $100.
14 S T E P 3 • A F F O R D A B I L I T Y
Maximum monthlyhousing costs youcan affordGross Debt ServiceRatio
(GDS)
Your gross monthly salary* $
+ Your spouse’s gross monthly salary $
+ Other monthly income $
Total A $
x 32%= Maximum monthly housing costs you can afford B $
This maximum monthlypayment includes principal,interest, taxes,heating(P.I.T.H.), and if applicable allof the annual site leaseand50% of the condominium fees.
* Gross salary is income beforetaxes
Maximum monthly debtload you can affordTotal Debt Service Ratio(TDS)
Total monthly income A $
x 40% = Maximum monthly debt service load you can afford C $
– Monthly auto payment $
– Monthly loan payment $
– Monthly credit card/line of credit payment $
– Other monthly payments $
= Monthly income left for housing D $
If the home you want costs more permonth than you can affordright now(D), consider these strategies: loweryour expectations andbuy a cheaperhome; lower your non-housing debtobligations; and/orraise a largerdown payment.
Use these important formulas to determine how much you canafford to pay for housing.This is how lenders determine the maximummonthly costs you can carry.
Review the examples to see how you can settle on the best homeprice for you.
Example:Jane and Deepak have a grossmonthly income of $4,500.Theirtotal debt load should not exceed$1,800 ($4,500 x 40%). Theyhavea monthly car payment of $400, astudent loan of $200 andcreditcard payments of $150, for a totalof $750 in non-housing debtpay-ments each month. That meansthey would have no more than$1,050available for monthly hous-ing payments ($1,800 - $750). Thatislower than the $1,440 suggestedby their Gross Debt Servicecalcu-lation (B).
Maximum home priceyou can affordIt depends on how much yourdownpayment is and how much you cancarry in monthly debt service.Andthat depends on variables such asmortgage rates, your debtsandmonthly expenses, and personalpreferences. For a rough idea,take alook at the table on page 13.
Example:Jane and Deepak have a down
payment of $30,000. They want aconventional mortgage with25%down, so they estimate theirmaximum home price at $120,000.
That would leave them amortgage of $90,000. At 8%interest,amortized over 25 years,that means monthly mortgagepayments of$687.* Add monthlyproperty tax instalments of $200and monthlyheating costs of $120.Their total monthly housing costswill be$1,007. That is just belowthe maximum $1,050 allowedaccording totheir Total DebtService ratio calculations.
That’s too close for comfort forJane and Deepak. What ifmortgagerates go up when it’s time to renew?They decide to look fora homepriced at a maximum of $100,000.
That would leave them with a$70,000 mortgage and monthlymortagepayments of $535,* pluslower taxes of $150 and heatingcosts of$100. Now their totalmonthly housing costs will be $785.That makestheir Total Debt Serviceratio 34% instead of the maximum40%. Andthat gives Jane andDeepak a sense of financial comfort.
* Figures are rounded to the nearest dollar.
(AffordAbility, a new CMHC computersoftware program, can helpyou work out allyour down payment and mortgage options.To purchasecall 1-800-668-2642.)
Example:Jane’s gross monthly incomeis $2,500 and Deepak’sis$2,000 for a total of $4,500per month. They should payno morethan $1,440 ($4,500x 32%) for their monthlyhousing expenses.
Affordability Guide
Extra worksheets at the back of the GuideExtra worksheets at theback of the Guide
S T E P 3 • A F F O R D A B I L I T Y 15
Other costs to be aware of when you buyThis is a list ofpossible extra costs involved in buying a home. Some of them areone-time costs and others,such as condominium maintenance fees andproperty insurance, will be ongoing monthly expenses. Thegood newsis that not all of these costs may apply in your circumstances.
Don’t forget the taxThe 7% GST applies tonew housing.However,there is a rebate, to amaximum of 2.5%, if yourhome costsless than$450,000. There is noGST on resale housingunless the homehas beensubstantially renovated,and then the tax is appliedas if itwere a new home.In some provinces, theGST has been replaced byaHarmonized Federal andProvincial Sales Tax knownas the HST. Also inotherprovinces, provincial taxesmay be applicable.
Appraisal feeIf your loan is not insured,your lender may requireaproperty appraisal at yourexpense. A basic appraisalfor mortgagepurposes willprobably cost between$150-$250. Actual costshould beconfirmed as itmay vary with the locationand complexity.
Property taxesTaxes are always acertainty. If you haveahigh-ratio mortgage, yourlender may require thatyou have yourpropertytax instalments added toyour mortgage payments.
Survey feeYour lender will require anup-to-date survey. Askthevendor to provide one asa condition of your Offerto Purchase, oryou willhave to pay to have onedone.
Property insuranceThis insurance covers thereplacement value ofthestructure of your homeand its contents. Yourlender will insiston thisbecause your home is thesecurity for yourmortgage.
Prepaid taxes orutility billsYou will have to reimbursethevendor on a proratedbasis if some bills havebeen prepaid beyondtheclosing date.
Land transfer taxThis applies in mostprovinces. It varies asapercentage of theproperty’s purchase price.It is usually about1%-4%.
Service chargesYou’ll be charged a fee tohook up new servicesandutilities, such as yourtelephone, at your newhome.
Lawyer (notary) feesEven a straightforwardhome purchase requiresalawyer to review the Offerto Purchase, search thetitle, draw upmortgagedocuments and tend tothe closing details.Lawyers’ fees foramortgage range widelydepending on thecomplexity of the dealbutwill probably be at least$500.
Mortgage loaninsurance premiumand application feeIf you have ahigh-ratiomortgage, your lender willrequire mortgage loaninsuranceprovided byCMHC or a privatecompany. The insurance will costbetween 0.5% and3.75% of the amount of thetotal mortgage(additionalcharges may apply) and canbe included in themortgage.The applicationfee will range from $75 to$235 depending upon howthelender processes yourapplication. (consult yourlocal lender forfurtherdetails)
Mortgage broker’sfeeA broker may charge afee to find you alender.
Moving costsThe cost of a professionalmoving company or arentaltruck if you moveyourself. Fees for aprofessional mover canrangefrom $50-$100 anhour for a van and threemovers. These costs maybe10%-20% higher at theend of the month and inthe summer.
Estoppel certificateA certificate that outlinesacondominiumcorporation’s financialand legal state. Thecertificateand supportingdocuments will cost youup to $50. (Does notapply inQuebec.)
Condominium feesCondominiums chargemonthly fees for common-areamaintenance, suchas groundskeeping andcarpet cleaning. Feesrangewidely dependingon the type of structurebut will probably beatleast a few hundreddollars.
Home inspection feeInspectors areunregulated in manyprovinces,so fees rangewidely, from about $150-$350 for a home pricedunder$300,000. Larger,more expensive homescost more to inspect.Atwo-hour inspectioncarried out by an engineerwho provides awrittenreport will cost closer tothe upper limit.Municipalities canalsosupply any availableinspection reports on theproperty for afee.
Renovation andrepairsA home inspection mayindicate that thehomeneeds major structuralrepairs such as a newroof. Don’t forgetto factorthese costs into the priceof the home.
Water quantity andquality certificationIf you’re buying ahomewith well service, you’llhave to pay a fee from$50-$100 tocertify thequantity and quality of thewater.
16 S T E P 3 • A F F O R D A B I L I T Y
Nowthat you know
your affordable price range,
these worksheets will
help you evaluate the
total cost of your new home.
Since purchase prices affect other costs as well,
use these worksheets to help you establish
the exact cost of differently priced homes in
your price range. This calculation includes closing
costs. Some can be included in your mortgage loan.
Most come out of your pocket.
Home Purchase Costs EstimateAddress
Purchase price $
GST/HST (if applicable) $
House insurance $
Legal fees and disbursements $
Land transfer tax $
Appraisal fee $
Estoppel certificate fee $
Furniture, appliances, drapes, tools, carpeting, paint, etc.$
Home inspection fee $
Interest adjustments $
Lawyer’s fees $
Condominium fee $
Mortgage broker’s fee $
Mortgage loan insurance application fee $
Mortgage loan insurancepremium* $
Moving expenses $
Property taxes (adjustments) $
Renovations/repairs $
Service hook-up fees $
Survey fee $
Utility bills (adjustments) $
Water quality and quantity certificate $
Other $
Total estimated cost $
*Can be included in your mortgage
Home Purchase Costs EstimateAddress
Purchase price $
GST/HST (if applicable) $
House insurance $
Legal fees and disbursements $
Land transfer tax $
Appraisal fee $
Estoppel certificate fee $
Furniture, appliances, drapes, tools, carpeting, paint, etc.$
Home inspection fee $
Interest adjustments $
Lawyer’s fees $
Condominium fee $
Mortgage broker’s fee $
Mortgage loan insurance application fee $
Mortgage loan insurancepremium* $
Moving expenses $
Property taxes (adjustments) $
Renovations/repairs $
Service hook-up fees $
Survey fee $
Utility bills (adjustments) $
Water quality and quantity certificate $
Other $
Total estimated cost $
*Can be included in your mortgage
Solomon wanted to investhis hard-earned money in ahome ratherthan payingrent.
After looking at severalsuburban homes, he decidedthat buying anurban condo-minium would give him moreof what he wanted forlessmoney.
He found acondominium with a full fitness centre in aMontréalneighbourhood heliked—for a lot less than ahome in the suburbs.
Solomon believes hisnew condominium willincrease in value overtime.And, he prefers not to worryabout exterior maintenanceand yardwork.
1 2
S T E P 3 • A F F O R D A B I L I T Y 17
Extra worksheets at the back of the GuideExtra worksheets at theback of the Guide
Monthly ExpensesChild care $
Groceries/lunches/eating out $
Clothes/personal/sundry $
Life insurance $
Public transportation $
Car: gas/oil $
Car repairs and service $
Car insurance and license $
Electricity/hydro (non-heat) $
Water $
Telephone $
Cable TV/video rental $
Entertainment, recreation, movies, sports, etc $
Beer, wine, liquor, cigarettes $
Newspapers, magazines, books $
Home maintenance and repairs $
Home insurance $
Furnishings/consumer goods $
Savings (bank account, RRSPs) $
Charitable donations $
Car loan/lease $
Line of credit $
Charge accounts/credit cards $
Other loans/payments $
Total monthly lifestyle expenses $
Payroll deductions:
Income tax $
Benefits/other $
Total monthly expenses $
Monthly income $
Subtract: Total monthly expenses _ $
Amount left for housing costs (P.I.T.H.)* $
* principal, interest, taxes, heat
Calculate
the impact
your
monthly
expenses will
have on the
maximum
house price you
should be
considering.
Remember, it’s onlyhuman nature todownplay how muchthingscost—but resist the impulse.
Be realistic. Because if the final
figure is underestimated,you could find yourself ina financialbind oncehouse payments start up.
Make sure you
don’t leave
yourself house
poor. It’s
important to
structure your
monthly
expenses so that
you can still
afford simple
luxuries, like the
occasional
vacation.
18 S T E P 3 • A F F O R D A B I L I T Y
the next step?the next step?Ready for
Extra worksheets at the back of the GuideExtra worksheets at theback of the Guide
You’ll need input from
your immediate family—“I
want my own room!” You’ll
get the inevitable but often
useful advice from relatives
and friends. And you’ll want to
have a team of professionals at
your service when buying your
home. You decide exactly who is on
your team, but there are a few
professionals without whom
buying a home is nearly
impossible.
For example, just about
every homebuyer needs a
mortgage, so
you’ll have to
find a lender.
Also, it’s a
practical and
useful idea to
have a lawyer (or notary in Quebec)
to protect your interests.
Friends, family or other profes-
sionals may be able to refer names
to you.
S T E P 4 • B U I L D I N G Y O U R T E A M 19
Kim and Win found thehome of their dreams—butthey thought theaskingprice of $125,000 was fartoo high. They made an offerof$90,000, with a depositof $2,000.
The vendor rejected theoffer outright, makingnocounteroffer.
Determined to realize their dream, Kim and Win tried again, thistime with areal estate representative.
They increased theiroffer to $105,000 and theirdeposit to$15,000 so thatthe vendor would know theywere really serious.
This second time aroundthey got the vendor’sattention!
A counteroffer for$110,000 was returned andthey sealed the dealwithin aweek.
Real Estate Representatives
A good real estaterepresentative should beable to save you timeandtrouble.
You can deal with thevendor’s real estate agent oryou can enlistone to work
on your behalf. There is no chargeto you if the realestaterepresentative takes his or hercommission from the vendor.If,however, you wish a salespersonto act exclusively for you,theremay be a cost involved. Makesure you are clear on who ispayingthe real estaterepresentative and you
understand yourobligations once you’vesigned an agreement. Whendiscussing yourneeds with arepresentative, be as
specific as possible about thekind of homeyou’re lookingfor andyourprice range. Ifyou’re notcertain, setaside some timeforyourrepresentative tohelp youdetermine these.
He or she willknow what is on themarket, in whichneighbourhoodsandat what price, andcan save you time byprescreeninghomelistings—screeningout the ones thatdon’t meet your
needs or budget. Then he or shecan make appointments for youtosee the homes that suit you.
A real estate representativecan also assist you in makinganOffer to Purchase. Represen-tatives are aware of currentmarketconditions, what priceoffers are realistic and whatconditions toinclude in anyoffers.
Builders/Contractors
You may deal with a builder orcontractor if you buy a newhome,have one custom built or requirerenovations to a resalehome.
To ensure a builder’scredibility and quality, askfor references,talk to othercustomers about the builder’swork or check with thenew homewarranty program.
If you’re buying a new homefrom a developer or builder,visitother housing developments thatthe company has built. Youcanalso ask builders or contractors ifthey are a member of alocalhome builders’ association, orask for a provinciallicensenumber to ensure your contractoris registered.
If you’re building a customhome, you may also want tohire anarchitect. Standardarchitect’s fees are 10% of
the total projectcost. Builders ofcustom homesandrenovatorsusually work oneither a fixed-price or a cost-plusformula.Your contract
should outline what the paymenttype is. All contracts withabuilder should be as specific aspossible aboutconstructiondetails, right down to the brandname or model number ofanyfinishes. Any changes to yourcontract should be initialledbyyou.
For more information, ask forthe CMHC publication How ToHire AContractor.
AppraisersYou may wish to have anindependent appraisal done ofaproperty before you offer a price.It can keep you from payingmorethan the market value. You canstill make an offer, conditionaloncompletion of an independentappraisal. If the appraised value
20 S T E P 4 • B U I L D I N G Y O U R T E A M
A good way to startlooking for any
professional is to askfor referrals from satisfied friends.
TEAM
FROM
WHAT
YOUR
TO EXPECT
MEMBERS
If you’re looking for a country home, anurbancondominiumspecialist is not the
right real estaterepresentative.
is lower than the asking price, youmay be able to negotiate anewprice. If your lender requires arecognized appraisal to completeamortgage loan, having onecompleted up front may save youtime andmoney.
The appraisal should include anunbiased assessment oftheproperty’s physical and functionalcharacteristics, an analysisof recentcomparable sales and anassessment of currentmarketconditions affecting the property.This information providesyou with anexpert second opinion as to theproperty’s marketvalue.
Real estate appraisal is anunregulated business in mostprovincesand a number of differentappraisal organizations exist.
LendersThe key to finding the right lender isto shop around.Many differentinstitutions lend money formortgages, includingbanks, trustcompanies, credit unions, caissespopulaires, pensionfunds, insurancecompanies and finance companies.
You can even find privatelenders listed in your localnewspaper.It will save you money tospeak with more than one lender ineachcategory because the termsand options of each will vary.
Some lenders, such as creditunions, deal only with members.Butdon’t be shy about approachingnew institutions. For example,ifyou’d like to get your mortgage at atrust company, you don’t needtohave a savings account there.
Mortgage BrokersMortgage brokers don’t usually lendmoney butrather put you in touchwith others who do.
For example, brokers are awareof private lenders that you maynotbe able to find on your own.
Brokers are independent, whichmeans that they are notaffiliatedwith any specific lending institutions.Their role is tofind the lender withthe terms and rates that will bestsuit you.
In some cases, the mortgagebroker will charge you a feeforservices. This charge is more likely ifyou have a poor credithistory andwill probably be a small percentageof the value of themortgage, forexample, 1%-2%. But, in mostinstances, the broker’sfees are paidby the lender.
Lawyers/Notaries
Hiring a lawyer (or notary in Quebec)is one way to ensure thatyour legalinterests are being protected whenyou buy your home. Yourlawyer willreview any contracts you need tosign, especially theOffer toPurchase.
If you make an Offer toPurchase that is accepted, yourlawyerwill be responsible formany of the closing arrangements.(See Step 8on page 38.)
Lawyers’ fees range widely anddepend on the complexity of thedeal,but will probably cost a minimum of$500 plusdisbursements.
You can check for a lawyerreferral service in your communityorcall the local law association for thenames of lawyers whospecialize inreal estate law.
Home InspectorsIt is always a good idea to have thehomeinspected.
An inspector should supply adetailed written report on howwell-built the home is, and whether anyrepairs are necessary andtheirestimated cost. The report shouldestimate the cost of repairsand thepriorities—what should get fixed first and how soon.
You can find a home inspectorthrough a local professionalassocia-tion of home inspectors or by askingyour real estaterepresentative.
Inspectors are unregulated in
most provinces, so you shouldinquire about theinspector’scredentials and ask for references.
Ensure that the inspector haserrors and omissions insurance.Thismeans that if, for example, you buya home that requires acostly repairthat the inspector didn’t report, thenthe inspectorcan be held financiallyresponsible for the cost of therepair. Homeinspectors’ fees canrange from $150-$350 for a homethat costs$300,000 or less.
If you have made a satisfactoryhome inspection a condition inanOffer to Purchase a home, theinspector’s fees are paid byyou.
With older homes, you may alsoask an inspector to checkfortermites, lead paint, asbestos orother problems.
Insurance BrokersAn insurance broker can provideyou with allyour insurance needs,including property insurance and
mortgage life insurance. Lendersinsist on property insurancebecauseyour property is their security foryour loan. Propertyinsurance coversthe replacement cost of your home,so premiums varydepending on yourhome’s worth.
Your lender may also suggestthat you buy mortgage lifeinsurance.This is often availablethrough your lender, who then simplyadds thepremium to your regularmortgage payments.
But lender-supplied insurancecan be more expensive than fromabroker. Don’t confuse property or lifeinsurance with mortgage loaninsur-ance which is mandatory for high-ratio mortgages. (See Step 6onpage 32.)
S T E P 4 • B U I L D I N G Y O U R T E A M 21
Ask them to specifyprecisely what
services you aregetting and how much
they will cost.
Ask to see a resume or portfolio,
depending on theprofession, and ask
for references.
Role
Name Company name
Address Telephone
Referral Fees
Strengths
Weaknesses
Role
Name Company name
Address Telephone
Referral Fees
Strengths
Weaknesses
Role
Name Company name
Address Telephone
Referral Fees
Strengths
Weaknesses
Role
Name Company name
Address Telephone
Referral Fees
Strengths
Weaknesses
22 S T E P 4 • B U I L D I N G Y O U R T E A M
Role
Name Company name
Address Telephone
Referral Fees
Strengths
Weaknesses
Role
Name Company name
Address Telephone
Referral Fees
Strengths
Weaknesses
Role
Name Company name
Address Telephone
Referral Fees
Strengths
Weaknesses
Use these
handy worksheets
when you
assemble your
team. As you consider
all the possibilities,
keep track of
what you consider
to be the strengths
and weaknesses
of each candidate.
S T E P 4 • B U I L D I N G Y O U R T E A M 23
Almost no
one buys a
home without
a mortgage.
What does
that mean?
What does it
cost? What
are your
options?
Read on.
the next step?the next step?Ready for
Role
Name Company name
Address Telephone
Referral Fees
Strengths
Weaknesses
Role
Name Company name
Address Telephone
Referral Fees
Strengths
Weaknesses
Role
Name Company name
Address Telephone
Referral Fees
Strengths
Weaknesses
Role
Name Company name
Address Telephone
Referral Fees
Strengths
Extra worksheets at the back of the GuideExtra worksheets at theback of the Guide
Make sure you have a mortgage
you can live with. There are lots
of options available that let you
customize your mortgage to suit
your financial goals and needs.
Mortgage BasicsMortgage payments are made up of a principalsum(the amount borrowed) and interest (the cost to youof borrowingmoney).
The best plan for any type of mortgage is tominimize the amountof interest you pay—and lenders offer several ways to help dothis:• A larger down payment means your home ulti-
mately costs less because a smaller mortgagemeans lessinterest.
• A shorter amortization, the period over which aloan isrepaid.
• A weekly or biweekly payment schedule, instead of monthly.
• Additional lump sum payments.
24 S T E P 5 • A R R A N G I N G Y O U R M O R T G A G E
BUYING
a home
USUALLY MEANS
taking out A
MORTGAGE.
THAT MEANS YOU
borrow MONEY
TO buy A HOME,
using THAT HOME AS
col lateral
FOR THE LOAN.
S T E P 5 • A R R A N G I N G Y O U R M O R T G A G E 25
You don’t have to get your mortgagefrom the same place you haveyoursavings or chequing accounts. Also,at the end of each term, youmay beable to change the options of yourmortgage, such as thepaymentschedule, the term, the rate, evenwho holds themortgage.
MortgageFeaturesPrepayment Ensure that you have some formofprepayment clause in your mortgagethat will allow you to paydownyour mortgagewith a lump sum, or anextra payment,withoutpenalty.
Portability This means you cantransfer the terms andconditionsof your mort-gage to your next home.For example, this mayallow youto keep a low interest rateif you sell one house and buyanother.
AssumabilityThis means you may be able toassume (take over) theexisting mort-gage on the property. It may haveattractive features,such as a lowerinterest rate than the prevailingmarket.
In turn, an assumable mortgagemay be a selling feature for youwhenyou decide to move on in the housingmarket.
Expandability This lets you expand the principal ona firstmortgage at the lender’sagreed-upon rate of interest. This canbe acost-effective way to finance ahome renovation.
Types ofMortgagesConventional MortgageThis mortgage is for anamountwhich does not exceed 75% of eitherthe appraised value of thepropertyor the purchase price, whichever is
lower. Your down pay-ment is a minimum 25%of the purchaseprice.
High-ratioMortgageWith this type of mort-gage, youcontributeless than 25% of the costof the home as a downpayment andas little
as 5%.A high-ratio mortgage requires
mortgage loan insurance. CMHCoffers it for a premium ofbetween0.5% and 3.75% of the mortgageamount (additional chargesmayapply). This premium can be addedto your mortgage payments orpaid infull on closing.
Second MortgageThis usually has a higher interest rateandshorter amortization than a firstmortgage. Secondary financingisoften used to make renovations to ahome.
Consider all the options
to helpcustomize a mortgage to fit your
needs.
You can achievemortgage freedom soonerby increasing thefrequencyof your payments.
By making paymentsevery two weeks, instead ofmonthly, a25-yearmortgage can be reduced to20 years.
26 S T E P 5 • A R R A N G I N G Y O U R M O R T G A G E
OTHER IMPORTANT optionsAND choices THAT YOU’LL
WANT TO consider TO HELPcustomize
YOUR MORTGAGE.
MortgageOptionsAssuming an ExistingMortgageYou take over thevendor’s mortgageas part of the price you pay for thehouse.Assuming an existing mort-gage is quick and saves you money ontheusual mortgage arrangementfees, such as appraisals andlegalfees.
When you assume a mortgage,you don’t have to arrangefinancingfrom another lender and the rate onan existing mortgagemay be lowerthan the prevailing market rate.
Sometimes, if it is specified in theoriginal mortgage agreement,a mort-gage can be assumed automatically. Ifnot, you may have toqualify with alender first.
Vendor Take Back (VTB)MortgageThis means the vendor lends youthemoney to purchase the home. It’sbasically a second mortgage.
For example, on a home thatcosts $150,000, if the vendor hasanexisting mortgage of $70,000 that youcan assume and you have$40,000 fora down payment, the vendor maylend you the outstanding$40,000,which you pay back monthly.
The vendor may be able to offerthis loan at less than bankrates.Some vendors will sell this mortgageto a mortgage brokerinstead of hold-ing it themselves.
S T E P 5 • A R R A N G I N G Y O U R M O R T G A G E 27
Interest Rate Buy DownA vendor—usually a new-homebuilder—paysthe lender a lump sum to lower the mortgage interestrate by up to3% over a fixed term,usually one to two years.
A payment of $2,000–$3,000reduces your mortgage rate byabout 2%,increasing the mortgageamount for which you qualify.
New-home builders may offerbuy downs or discounts on themort-gage rate to encourage sales. Butvendor financing is usuallynotrenewable, so you have to be pre-pared to pay the going marketratewhen the mortgage is renewed.
However, the builder may add theamount into the price of thehomeand you may end up paying a highermortgage principal.
Rate of InterestInterest is the cost of borrowingmoney and ispaid to the lender.Mortgage interest rates are affectedby theprevailing market interestrates. Mortgage rates are either fixedorvariable.
A fixed rate is locked in so that itwill not rise for the termof the mort-gage.
A variable rate will fluctuate. Therate is set each month by thelender,based on the prevailing market rates.Your monthly payment isfixed to bethe same each month for the term ofthe loan, but thepercentage of eachpayment that goes toward the inter-est, and thepercentage that paysdown the principal, changes.
A variable rate can be a goodchoice if rates are high whenyouarrange your mortgage and then fallafterward. But if rates rise,you maywant to convert to a fixed rate. Bearin mind that this cancost you a cashpayment penalty.
If you select a variable rate, yourlender may restrict themortgageamount to 70% of the purchase priceof the home and requirea higherdown payment on either a conven-tional or a high-ratiomortgage.
Also, some lenders offer a pro-tected or “capped” variable rate.Thismeans your interest rate will not riseabove a predeterminedlimit.However, you usually pay a premiumfor this protection.
TermThe term of a mortgage is the lengthof time that certainfactors, such asthe interest rate you pay, are set at anegotiatedlevel.
Terms usually last anywherefrom six months to 10 years. Attheend of the term you either pay offyour mortgage or renew it,possiblyrenegotiating its terms and condi-tions.
Generally, the longer the term thehigher the interest rate. Manyexpertssuggest you select a long term if inter-est rates arerising. If rates arefalling, you may want to select a shortterm andthen lock in the rate whenyou think rates won’t go any lower.
Note that the term is not the amor-tization period.
The inspectionshowed that the homeneeded a new furnace,updatedwiring andplumbing, and othersubstantial interior andexteriorrepairs thatwould cost $60,000.
Corrado and Mariawithdrew their offer andkept on looking.
Corrado and Maria werepre-approved by theirlender for a mortgageof$100,000 and had saved$30,000 for a downpayment.
They found a “fixer-upper” and made an Offerto Purchase of$110,000,conditional on a homeinspection.
AmortizationThis is the amount of time over which the entiredebtwill be repaid. Most mortgages are amortizedover 15-, 20- or25-year periods. The longer theamortization, the lower yourscheduled mortgagepayments, but the more interest you pay in thelongrun.
28 S T E P 5 • A R R A N G I N G Y O U R M O R T G A G E
Monthly payment per $1,000 borrowed*Interest Cost per InterestCost per Interest Cost perrate (%) $1,000 rate (%) $1,000 rate (%)$1,000
6.0 $ 6.40 8.5 $ 7.95 11.0 $ 9.63
6.5 $ 6.70 9.0 $ 8.28 11.5 $ 9.98
7.0 $ 7.01 9.5 $ 8.62 12.0 $10.32
7.5 $ 7.32 10.0 $ 8.95 12.5 $10.68
8.0 $ 7.64 10.5 $ 9.29 13.0 $11.03
*Amortized over 25 years based on 10% down payment.
Example:Oliver and Janet can afford $800 per month for amortgage payment. If the pre-vailing mortgage interest rate is 6%,they will qualify for a mortgage of $125,000amortized over 25years. If the prevailing mortgage rate is 13%, they will qualifyfora mortgage of $72,600. The lower the interest rate, the higher themortgage forwhich they qualify.
Payment comparison over various amortization periods*A shorteramortization means savings on interest payments.This example isbased on a $100,000 mortgage at a 10% interest rate.
Amortization Monthly Total Total Interestperiod payment paymentsinterest savings**
paid
25 years $ 895.00 $268,500 $168,500 n/a
20 years $ 952.00 $228,480 $128,480 $ 40,020
15 years $1,063.00 $191,340 $ 91,340 $ 77,160
10 years $1,311.00 $157,320 $ 57,240 $111,260
*These are rounded numbers for illustrative purposes only.
**Assumes a constant interest rate for the entire amortizationperiod.
S T E P 5 • A R R A N G I N G Y O U R M O R T G A G E 29
Open MortgageThis means you can repay the loan, in part orinfull, at any time without penalty. Interest rates areusuallyhigher on this type of loan.
An open mortgage can be a good choice if youplan to sell yourhome in the near future. Mostlenders will allow you to convert to aclosed mort-gage at any time.
Many experts suggest taking an open mortgagefor a short term intimes of high rates and convert-ing to a longer term when ratesfall.
Closed MortgageA closed mortgage usually offers the lowestinter-est rate available. It’s a good choice if you’d like tohave afixed rate to work your budget around for afew years. However,closed mortgages are not flex-ible and there are often penalties orrestrictiveconditions attached to prepayments or additionallump sumpayments. It may not be the best choiceif you might move before theend of the term.
Schedule of PaymentsA mortgage loan is repaid in regularpayments,either monthly, biweekly or weekly. The more fre-quentpayment schedules can save you money byincreasing the amount paidtoward the total mort-gage each year.
The more frequent your payments in a year, thelower the overallinterest you pay on your mortgage.
Payment frequency*This example is based on a $100,000 mortgage,25-year amortization and a 10% interest rate.
Payment Total Interest Mortgage-interest savings** freepaid
Monthly $895.00 $168,500 n/a 25 yearspayment(12 per year)
Biweekly $447.50 *** $118,927 $49,573 18 years 10monthspayment(26 per year)
Weekly $223.75 *** $118,111 $50,389 18 years 9 monthspayment(52per year)
*These are rounded numbers for illustrative purposes only.
**Assumes an interest rate of 10% for the entire 25 years.***$895.00 extra paid annually
30 S T E P 5 • A R R A N G I N G Y O U R M O R T G A G E
Split or Multiple-rateMortgageWith this mortgage, you negotiateaportion of your total mortgage loanat one rate and term, andanotherportion at a different rate and term.In this way you cansplit your mort-gage into two, three or more terms.
There are many more mortgageoptions available, such as aconvert-ible mortgage. To find out more, talkto your lender.
Where to get amortgageMany institutions andindividuals lendmoneyfor mortgagesThese include insurance companies,banks, trustcompanies, caisses popu-laires, credit unions, finance companiesandpension funds. You can also checkyour local newspaper classifiedadver-tisements for a listing of privatelenders. If you have aSelf-directedRRSP, you may wish to investigate withyour lender thepossibility of borrow-ing some or all of your mortgage fromyourSelf-directed RRSP.
Mortgage brokers don’t usuallylend money but can find a lenderforyou.
New-house and new-condominiumbuilders may offer lower-than-currentmarket rates by buying down the inter-est rate charged bythe lenders so thatthey can sell their homes faster. (SeeInterestRate Buy Down on page 27.)
A buy down is usually only for ashort term, and is usually notrenew-able at the end of the term..
What a lender wants fromyouLenders want plenty offinancialinformation about you and your co-buyers to assess yourability to repaythe loan. This ability is based on yourGDS and TDSratios (see worksheetson page 14) and also on yourassets,liabilities, earnings, employment his-tory and your pastrecord of repayingloans. Specifically, your lender maywant thefollowing:• personal information—age,
marital status, dependents• details of employment, including
proof of income (T-4 slips, person-al income tax returns or aletterfrom your employer stating yourposition)
• other sources of income, forinstance, pensions or rentalincome
• current banking information• verification of your downpayment• consent to run a credit investigation• a list of assets,including property
and vehicles• a list of liabilities, for example,
credit card balances, car loans—the total amount you owe andyourmonthly payment amounts
• fees for an appraisal or for a copyof a valid appraisal reportif onewas recently done
• mortgage insurance fees if a high-ratio mortgage isrequired
• a copy of the property listing• a copy of the Agreement of
Purchase and Sale on a resale home• plans and cost estimates ona new
home• the condominium financial state-
ments, if applicable• a certificate for well and septic, if
applicable
Rohinton andRosemary are carefulspenders and carefulsavers withstable jobs,though they don’t havelarge incomes. With a totalmortgage of$100,000, the coupledecided to “split” theirmortgage.They locked in$75,000 of it for sevenyears at 10%, assuringthem ofno increase inpayments for that periodof time.
For the remaining$25,000 of their mortgage, they negotiatedaone-year term at a rate of 7%—expecting that rates would remainthesame or possibly drop.
This split mortgagemeans they can anticipatepaying off $25,000of their mortgage as soon aspossible—and celebrate a mini-mortgagegoal allthe sooner.
Approval ProcessA mortgage approval should take onlya few days,but it’s probably best toallow up to two weeks. During thisprocess,the lender will do a creditcheck and spot check other informa-tionyou have provided. In addition, anappraisal of the value of yourhomemay be obtained.
If required, a request for mortgageloan insurance is submittedto CMHCor a private insurer. The lender thenapproves or rejectsyour mortgageloan.
Pre-approval A pre-approved mort-gage is very common.Withpre-approval, your lender approvesthe amount of your mortgageand givesyou a written confirmation or certifi-cate for a fixedtime period before youstart looking for a home. The pre-approvalterm, usually lasting from 60to 90 days, also sets the mortgageratethe lender will offer to you. If rates godown in that period,the lender shouldoffer you the new lower rate.
Pre-approval gives you a headstart on house hunting, but yourfinalapproval is still subject to a review ofthe property and acredit review ofyour finances.
S T E P 5 • A R R A N G I N G Y O U R M O R T G A G E 31
the next step?the next step?Ready for
With the right mortgage—
one that’s flexible and tailored to your
financial situation—
you have the luxury of owning your home.
You also have the luxury of being able to
relax.
When you need a mortgage loan
that is more than 75% of the
purchase price of your home,
a mortgage loan insurance
is required. It protects
the lender and, by law,
most Canadian lending
institutions require it.
Having mortgage loan insur-ance means that if you, theborrower,default on your
mortgage, the lender is paidback by the insurer—CMHC or a
private company1. With the risk oflosing their moneyremoved,
lenders have the confidence to makemortgage loans of up to 95%of the pur-
chase price of the home (subject to priceceilings).
That means your down payment can be aslittle as 5% of the houseprice. With mortgageloan insurance, many Canadians who mightbeunable to obtain a 25% down payment can stillbuy a home.
What does mortgage loan insurance cost? There are two componentsan application feeand an insurance premium. The applicationfeetypically ranges from $75.00 to $235.00 andmortgage loaninsurance premiums range from0.5%-3.75% of the amount of your loan(additionalcharges may apply), depending on the size of theloan andthe value of your home. The premiumcan be added to your mortgageloan and paidoff as part of your regular mortgage payments,or paidoff in a lump sum at the time of purchaseto save interest chargeson the premium itself.
GET into YOURHOME sooner .
MORTGAGE
LOAN
INSURANCE
helps YOU do i t .PUT as l i t t le as
5% DOWN.
32 S T E P 6 • M O R T G A G E L O A N I N S U R A N C E
1 It should be noted that the protection provided to thelenderby the insurer does not relieve the borrower(s) ofthe obligationsunder his/her mortgage contract.
S T E P 6 • M O R T G A G E L O A N I N S U R A N C E 33
didn’t have a 25% downpayment saved, so theycouldn’t qualify foraconventional mortgage.
While looking forother options, they foundthey could be eligibleformortgage loan insurancethat would allow them tobuy with aslittle as 5%down.
Where can mortgage loan insur-ance be obtained? See yourlender,who can obtain mortgageloan insurance fromCMHC or a privateinsur-er.
CMHC will insuremortgages of up to 95%of the home’spurchaseprice or the market valueof the property, which-ever isless. (Restrictionsmay apply. Contact your local lender.)
Both new and resale homes areeligible. Here are some of thecriteriathat must be met:• The home must be in Canada
and must be your principal resi-dence.
• Housing payments, includingprincipal, interest, property
taxes, heating(P.I.T.H.), the annualsite lease in the caseofleasehold tenureand 50% of applica-ble condominiumfees, can’t bemorethan 32% of yourgross householdincome (GDS ratio).
• Your total debt load can’t be morethan 40% of your grosshouseholdincome (TDS ratio) .Other critera apply and are sub-
ject to change. For details, pleasecontact CMHC or your locallender.
Right now, over 3 million
Canadians ownhomes with
insured mortgages.
Ruth and Sidney lived in a rented Revelstokehome for sevenyears.
When the landlorddecided to sell the home,he offered the couplethefirst opportunity to buy it.
While his price wasfair, Ruth and Sidney
the next step?the next step?Ready for
Home, Affordable HomeLet’s face it, the sweetest home is one youcan comfortably afford. Whether you’re buying, renovating orsimplyrenewing a mortgage, making the most of yourmoney is achallenge. Wouldn’t it be nice tohave a personal financial guide atyour side tohelp analyze your home-financing options?Well, now youcan—with AffordAbility®, anew software program from CMHC,Canada’shousing expert.
AffordAbility lets you examine as many home-financing scenariosas you can imagine, inprivate and at your own pace. Just pluginyour personal financial information, change asmany variables asoften as you like and AffordAbility figuresout the impactinstantly. It’s so easy…
For a demonstration of this Windows™-basedprogram, visit CMHC’sweb site at www.cmhc-schl.gc.ca/afford
Call 1 800 668-2642 to order AffordAbility directly for $29.95(+taxes, shipping and handling)
Also available at leading software retailers across Canada.
34 CHAPTER TITLE
Making an offer can be an intense
experience. For instance, you may
decide that this is the perfect home
in which you will live happily ever
after. It’s a lovely dream, but it may
not come true—at least not in this
house. Try not to get ahead of
yourself by moving
into a house in
your mind’s eye
b e f o r e
the deal
is completed. Whenever an offer is
made, you have to be prepared for it
to be rejected.
Once you’ve found a home that
meets both your needs and your
price range, you can present the
vendor with an Offer to Purchase or
an Agreement of Purchase and Sale.
This offer or agreement is legally
binding. It should not be made
casually. You may want to have a
lawyer (or notary in Quebec) look it
over to ensure that your interests
are protected.
HERE’S how TOHELP
make sure ALLTHE DECISIONS
YOU MAKE
ARE good ONES.
AN
OFFER is morethan A LEGAL
DOCUMENT. IT’S
an emotionalEVENT.
34 S T E P 7 • P R E P A R I N G A N O F F E R 34 S T E P 7 • PR E P A R I N G A N O F F E R
Offer to Purchas
e
Page 2
� The Purchaser
shall not call fo
r the production
of any title de
ed, abstract, su
rvey or other ev
idence of title
except such as
are in the
possession or co
ntrol of the Vend
or. The Vendor
agrees that he w
ill deliver any e
xisting survey to
the Purchaser s
o soon as possib
le and prior
to the last day al
lowed for examin
ing title.
�This Agreement
shall be comple
ted on or before
the..................
........................
.day of................
........................
., 19.........on which
date vacant
possession of th
e real property s
hall be given to t
he Purchaser unle
ss otherwise prov
ided for herein.
� Until completio
n of sale all bu
ildings and equ
ipment on the r
eal property sha
ll be and remai
n at the risk of
the Vendor, an
d the Vendor
will hold all po
licies of insuran
ce effected on t
he property and
the proceeds th
ereof in trust fo
r the parties he
reto, as their int
erests may
appear. In the e
vent of damage
to the said bui
ldings and equip
ment before the
completion of
this transaction,
the Purchaser s
hall have the
right to elect to
take such proce
eds and comple
te the purchase,
or cancel this A
greement, where
upon the Purch
aser shall be en
titled to the
return, without
interest or dedu
ction, of all mo
neys theretofore
paid on accoun
t of this purcha
se. Vendor agree
s to furnish Pu
rchaser with
copies of existin
g fire insurance p
olicies within sev
en days of the da
te of acceptance
hereof.
� Unearned fire
insurance premi
ums, fuel, taxe
s, interest, ren
tals, and all lo
cal improvemen
t and water rat
es and other ch
arges for
municipal impro
vements to be a
pportioned and
allowed to the d
ate of completio
n of sale (the d
ay itself to be a
pportioned to th
e Purchaser).
Provided Purchas
er may elect not
to accept assignm
ent of fire insuran
ce in which case
no adjustment f
or insurance prem
iums.
�The deed or tran
sfer, save for La
nd Transfer Tax A
ffidavit, to be pre
pared at the exp
ense of the Vend
or in a form acc
eptable to the Pu
rchaser and
if a mortgage or
charge is to be
given back, it sh
all be prepared a
t the expense of
the Purchaser in
a form acceptabl
e to the Vendor.
� Provided that t
his Agreement s
hall be effective
only if the pro
visions of Secti
on 49 of the Pl
anning Act, as
amended, are co
mplied with.
The deed or tra
nsfer shall conta
in the statement
of the Vendor a
nd the Vendor’s
solicitor referre
d to in section 4
9 (21a) of the P
lanning
Act, 1983 as ame
nded.
The Vendor rep
resents and wa
rrants to the P
urchaser that t
he buildings on
the property
have not been,
and will not be
at the
date of complet
ion, insulated wi
th urea formald
ehyde foam insu
lation. This war

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