First home buyers guide

Step 1 — Is Home Ownership Right for You?

Step 2 — How Much will it Really Cost?

Step 3 — What Should You Buy?

Step 4 — What Professionals Should You Call On?

Step 5 — Ready to Buy?

Step 6 — The Final Steps

Step 7 — Is There More to Homebuying?

Are you buying your first home, relocating, upgrading, or downsizing? Don't know where to start? Use the following Home Buyer's Guide to help you with your home buying education.

Step 1 — Is Home Ownership Right for You?

• Is Home Ownership Right for You?
• Do you enjoy moving often?
• Do you prefer using your savings for such things as vacations, retirement or starting your own business?
• Do you enjoy not having to worry about regular maintenance and repairs?

If you answered yes to any of these questions, you may not be ready to own a home yet. While you probably have a lot of good reasons for wanting to buy a home, you also have to consider your reasons for not wanting to.

Although buying a home almost always seems like a great idea, it is important to understand what homeownership involves. Of course, being a homeowner is something to be proud of but it also means having to invest money, time and energy and take on added responsibilities. So, before you decide to buy a home, make sure you're ready.

When most of us consider becoming homeowners, we immediately think of how wonderful it will be. It is true that there are a lot of good reasons for wanting to buy a home. It will give you Financial Security. If the housing prices rise, your home can provide you with some financial security. Also, you can decorate or renovate your home to meet your own personal tastes.
Although it is nice to think about the positive aspects of owning a home, it is important to consider the downsides as well. Owning your own house can represent a big financial stress.

Coming up with the mortgage payment can put a lot of stress on your personal finances. It also requires time and money to keep your house in good shape. Also, you may have to pay more each month for a house, than what you paid as a renter. Extra costs for maintenance and property taxes may add up.

Step 2 — How Much will it Really Cost?

Once you have figured out the home price range you can afford and the type of mortgage you qualify for, you will need to calculate all of the associated costs of the transaction to make sure you are financially ready.

Up-Front Costs

You will need to plan ahead to cover the many up-front costs of buying a home. Timing is important to help make sure things go smoothly.

• Appraisal Fee. Your mortgage lender may require that the property be appraised at your expense. An appraisal is an estimate of the value of the home. The cost is usually between $250 and $350 and must be paid when you contract for those services.

• Deposit. This is part of your down payment and must be paid when you make an Offer to Purchase. The cost varies depending on the area, but it may be up to 5% of the purchase price. If you wish to make a down payment of 5% and you give a deposit of 5%, then your down payment is considered to be made.

• Down Payment. At least 5% of the purchase price is usually required for a high-ratio mortgage and at least 25% of the purchase price is usually required for a conventional mortgage.

• Home Inspection Fee. Remember that this may be a condition of your Offer to Purchase. A home inspection is a report on the condition of the home and may cost over $200, depending on the complexities of the inspection. For example, it may be more costly to inspect a home that has large square footage, one that is expensive or one where contaminants such as pyrite, radon gas or urea-formaldehyde are suspected.

• Land Transfer tax. (Sometimes called a Land Transfer Tax, Deed Registration Fee, Tariff or Property Purchases Tax).You m ay have to pay this provincial or municipal charge upon closing in some provinces. The cost is a percentage of the property's purchase price and may vary. Check with your lawyer to see what the current rates are.

• Property taxes adjustment. To reimburse the vendor for pre-paid costs such as property taxes, filling the oil tank, etc.
• Property Insurance. The mortgage lender requires this because the home is security for the mortgage. This insurance covers the cost of replacing the structure of your home and its contents. Property insurance must be in place on closing day.
• Water Quality Inspection. If the home has a well, you will want to have the quality of the water tested to ensure that the water supply is adequate and the water is potable. You can negotiate these costs with the vendor and list them in your Offer to Purchase.
• Legal Fees and Disbursements. Must be paid upon closing and cost a minimum of $500 (plus GST/HST).Your lawyer/notary will also bill you direct costs to check on the legal status of your property.
• Title Insurance. Your lender or lawyer/notary may suggest title insurance to cover loss caused by defects of title to the property.
• If you feel you cannot cover all of the up-front costs, you can ask your lender for a loan. Remember that payment for this loan amount, based on a 12-month repayment period, will have to be included in your Total Debt Service ratio calculation.

Step 3 — What Should You Buy?

Choosing a Location That Is Right for You even if the home you choose has everything you need, the location might not be appropriate. When deciding where to live, you should take the following things into consideration:

• Whether you want to live in a city, a town or even in an out-of-town location
• Where you work and how easy it is to commute
• Where your children will attend school and how they will get there
• Whether you need a safe walking area or recreational facilities such as a park nearby
• How close you would like to be to family and friends

• Personalized choices. You may be able to upgrade or choose certain items such as siding, flooring, cabinets, plumbing and electrical fixtures.
• Up-to-date with the latest codes/standards. The latest building codes, electrical and energy-efficiency standards will be applied.
• Maintenance costs. Lower maintenance costs because everything is new and many items are covered by a warranty.
• Builder warranty. A homebuilder's warranty is usually available in all provinces (except Nunavut and the Northwest Territories). This can be important if a major system such as plumbing or heating breaks down. This warranty does not apply if you build the home yourself.
• Neighborhood amenities like schools, shopping malls and other services may not be complete for years.
• Taxes such as the Goods and Services Tax (GST) (or, in certain provinces, the Harmonized Sales Tax (HST)) will apply. However, you may qualify for a rebate of part of the GST or HST on homes that cost less than $450,000. For more information about the GST New Housing Rebate program, visit the Canada Revenue Agency website at, http://www.cra-arc.gc.ca.
• Extra costs. You may have to pay extra if you want to add a fireplace, plant trees and sod, or pave your driveway. Make sure you know exactly what's included in the price of your home.

Resale Home :

• Easy access to services. Probably established in a neighborhood with schools, shopping malls and other services.
• Landscaping is usually done and fencing installed. Previously owned homes may have extras like fireplaces or finished basements or swimming pools.
• No GST/HST. You don't have to pay the GST/HST unless the house has been renovated substantially, and then the taxes are applied as if it were a new house.
• Possible redecorating and renovations. You may need to redecorate, renovate or do major repairs such as replacing the roof, windows and doors.

Building Your Own Home : Some people prefer the challenge and flexibility of building their own home. On one hand you can get exactly what you want in terms of size, design, location, quality of material, level of energy-efficiency, etc. However, you should expect to invest lots of time and energy.

Deciding on the Type of Home to Buy : There are many types of homes to choose from and each has its advantages and disadvantages. Think about your needs before making a decision. Don't forget to look beyond the walls. The environment surrounding your home can be almost as important as the environment inside of it.

• Single-family Detached : The most popular style and the most solid investment. It is a free-standing home which sits on its own lot thereby offering a greater degree of privacy.
• Semi-detached : A single-family home that is joined to another one by a common wall. It can offer many of the advantages of a single-family detached home and is usually less expensive to buy and maintain.
• Duplex : Two units — one above the other or side by side. The owner usually lives in one unit and rents the other.
• Row House or Townhouse : One of several types of single-family homes joined by common walls. It offers less privacy than a single-family detached home but still provides a separate outdoor space. These homes can cost less to buy and maintain.
• Modular Home : Also a factory-built home constructed in compliance with local building codes. The home is typically shipped to your location in two or more sections. It may or may not have a longitudinal sub-frame.
• Condominium : Refers to a form of legal ownership as opposed to a style of construction. Condominiums can be high-rise residential buildings, townhouse complexes, individual houses and low-rise residential buildings. Condominiums are also known as stratas in British Columbia or syndicates of co-ownership in Quebec.

Step 4 — What Professionals Should You Call On?

Because purchasing a home is probably the biggest investment you will ever make, you'll definitely want a team of professionals working with you throughout the process.
Moncton Real Estate Agent

No one will play a more important role in helping you find a home than your real estate agent. Your real estate agent's job is to:

• Help you find the ideal home.
• Write an Offer of Purchase.
• Negotiate on your behalf to help you get the best possible deal.
• Provide you with important information about the community, arrange and coordinate the home inspection and essentially save you time, trouble and money.

When the time comes to select a real estate agent, don't be afraid to ask questions — especially about any possible service charges. Vendors normally pay a commission to the agent but some agents charge buyers a fee for their services.

The Lender or Mortgage Broker
If you haven't already gone through the mortgage pre-qualification process, you will need to find a good lender to assist you during the purchasing process and for as long as you have your mortgage.

Remember that many different institutions lend money for mortgages, such as banks, trust companies, credit unions, caisses populaires, pension funds, insurance companies and finance companies. It's a good idea to shop around and speak with more than one lender because terms and options will vary.
Some people find it helpful to use a mortgage broker. Mortgage brokers don't work for any specific lending institution. Their role is to find the lender with the terms and rates that will best suit the buyer.

To find a lender or mortgage broker, you can:

• Get a referral from your real estate agent, family members, friends or other professionals.
• Contact the Canadian Institute of Mortgage Brokers and Lenders

Lawyer/Notary
You need a lawyer (or a notary in Quebec) to protect your legal interests such as ensuring the property you are thinking of buying does not have any building or statutory liens or charges or work or clean-up orders associated with it. He or she will review all contracts before you sign them, especially the Offer (or Agreement) to Purchase. Having a lawyer/notary involved in the process will give you peace of mind and ensure that things go as smoothly as possible. Law associations can refer lawyers/notaries who specialize in real estate law.
Remember that a lawyer/notary:

• Should be a licensed full-time lawyer/notary.
• Should be local and understand real estate laws, regulations and restrictions.
• Should have realistic and acceptable fees.
• Can explain things in plain language.

Home Inspector
You should consider having any home you are thinking of buying inspected by a knowledgeable and professional inspector.
The home inspector's role is to inform you on the property's condition. He will tell you if something is not functioning properly, needs to be changed or is unsafe. You will also be informed of repairs that need to be done and he/she may even be able to tell you where there may have been problems in the past.
Every inspection should include an evaluation of at least the following:

• Foundation
• Doors and windows
• Roof and exterior walls
• Attics
• Plumbing and electrical systems
• Heating and air conditioning systems
• Ceilings, walls and floors
• Insulation
• Ventilation
• Septic tanks, wells or sewer lines
• Any other buildings such as a detached garage
• The lot, including drainage away from buildings, slopes and natural vegetation
• Overall opinion of structural integrity of the buildings
• Common areas (in the case of a condominium/strata or co-operative)

There is presently no uniform certification and no requirement for home inspectors to take any courses or to have passed any tests. Anyone can say that they are a home inspector. However, a good home and property inspector generally belongs to a provincial or industry association.
Home inspector fees are generally $200 and more, depending on the size and condition of the home.
Insurance Broker

An insurance broker can help you with your insurance needs, including property insurance and mortgage life insurance. Lenders insist on property insurance because your property is their security for your loan. Property insurance covers the replacement cost of your home, so premiums may vary depending on its value.
Your lender may also suggest that you buy mortgage life insurance. Mortgage life insurance provides coverage for your family should you die before your mortgage is paid off. This type of insurance is often available through your lender, who then simply adds the premium to your regular mortgage payments. However, you may want to compare rates between both an insurance broker and your lender.

Home Appraiser
Having an independent appraisal done on a property before you make an offer is a good idea. It will tell you what the property is worth and help ensure that you are not paying too much. Your lender can also ask for a recognized appraisal in order to complete a mortgage loan.

The appraisal should include an unbiased assessment of the property's physical and functional characteristics, an analysis of recent comparable sales and an assessment of current market conditions affecting the property.

Appraisal fees may vary but you should not pay more than $250 – $350 in most areas for a typical single-family house.
Your real estate agent may be able to refer an appropriate professional.

Builder/Contractor
If you are buying a newly constructed home or require renovations to a resale home, you will have to hire a builder or contractor. Here are some things to keep in mind when choosing one:

• Ask for references and talk to other customers about the builder's performance.
• Check with the New Home Warranty program in the area.
• Visit other housing developments that the company has built.
• Ask builders or contractors if they are members of a local homebuilders' association or ask for a provincial license number.
• If you are having a custom home built, remember that:
• You may want to hire an architect.
• Builders of custom homes usually work on either a fixed-price or a cost-plus basis. Authorize any changes to your contract by writing your name or initials beside the change.

On a final note, make sure your contract is as specific as possible about construction details, right down to the brand name or model number of any finishes. Make sure that you initial any changes to your contract.

Step 5 — Ready to Buy?

Making an Offer to Purchase
Once you have found the home you would like to purchase, you need to present the vendor with an Offer to Purchase or an Agreement of Purchase and Sale. As your home is probably your biggest investment, it would be wise to work with your real estate agent and/or a lawyer/notary in preparing your offer. Remember that the Offer to Purchase or Agreement of Purchase and Sale is a legal document and should be carefully prepared.

Any offer or agreement will typically include:

• Your legal name, the name of the vendor and the legal civic address of the property.
• The purchase price offered.
• The chattels that will be included in the purchase price (e.g.: window coverings, appliances or a satellite dish). Whatever items in or around the home that you think are included in the sale should be specifically stated in your offer.
• The amount of deposit.
• The closing day (date you take possession of the home) — usually 30 to 60 days from the date of agreement. It can also be 90 days or longer.
• Request for a current land survey of the property.
• Date when the offer becomes null and void.
• Any other conditions that go with the offer, including property inspection and approval of mortgage financing.

The process of making an offer, receiving a counteroffer and then revising it again is not uncommon. The whole process can seem like a roller coaster ride — exciting, but stressful. It's all part of making the deal work best for you and the vendor.

Home Inspection
It is always a good idea to have the home you are buying inspected by a knowledgeable and professional home inspector. The inspector will go through the property and perform a comprehensive visual inspection to assess the condition of the house and all of its systems. When you receive the home inspection report, you and your real estate agent will have to discuss how required repairs may affect the sale price that was agreed upon.

Mortgage Approval
A pre-approved mortgage certificate is not a guarantee of being approved for the mortgage loan. Even if you have a pre-approved mortgage certificate, you must still meet your lender during the conditional offer period to get a final mortgage approval. To ensure that the process goes smoothly, make sure you bring:

• A copy of the property listing
• A copy of the signed Offer to Purchase

Your lender will update/verify your financial information, the property and other information required to complete the mortgage application. Your lender may require an appraisal and/or a survey. Title insurance may also be required. Your lender will also inform you on the various types of mortgages, terms, interest rates, amortization periods and payment schedules available.

Term
Your lender will also inform you on the term options for the mortgage. This is the length of time that the agreed-upon mortgage contract conditions, including interest rate, will be fixed. It can vary from six months to ten years. Choosing a longer term (e.g.: five years) gives you the chance to plan ahead and protects you from interest rate increases while you adjust to homeownership. Weigh your options carefully and don't be afraid to ask your lender to work out the differences between a one, two, five-year term or longer term.

Amortization
This is the amount of time over which the entire debt will be repaid. Most mortgages are amortized over 15, 20 or 25-year periods. The longer the amortization, the lower your scheduled mortgage payments, but the more interest you pay in the long run.

Payment Schedule
A mortgage loan is often repaid in regular payments, either monthly, biweekly or weekly. Payment schedules that are more frequent can save some interest costs by reducing the outstanding principal balance more quickly than with monthly payments. The more payments you make in a year, the lower the overall interest you have to pay on your mortgage.
Keep in mind that mortgages may have important payment features that can save you money and let you be mortgage-free sooner.
Once the Offer is Accepted

Once all the conditions of the offer are fulfilled or dropped, it is time to start thinking ahead and making arrangements:

• Give notice to your landlord if you are renting.
• Start looking at moving options — hiring a professional or doing it yourself.
• Make necessary address changes (utilities, services, post office).
• Arrange for property insurance.

An offer will usually include a clause that allows the buyer to revisit the property a couple of times before closing (after all the conditions are fulfilled) so that he/she can:

• Measure for window treatments.
• Measure for special-sized furnishings.
• Bring in a tradesperson for a renovation or remodeling estimate.
• Arrange for these visits in advance to make sure your real estate agent is available.

Step 6 — The Final Steps

The Closing of Your Home
Closing day is the day when you finally achieve your goal — you take legal possession and finally get to call your new house your own. You are sure to feel great relief and satisfaction but remember that the home buying process isn't over just yet. There are quite a few things that need to be done on closing day:

• Your lender will provide the mortgage money to your lawyer/notary.
• You must provide the balance of the purchase price to your lawyer/notary along with the closing costs.
• Your lawyer/notary pays the vendor, registers the home in your name, provides you with a deed and the keys to your new home.

Step 7 — Is There More to Homebuying?

Finding and purchasing your home can be an exciting and overwhelming process. You may be relieved once you finally take possession of your new house but be aware that the financial responsibilities of homeownership are just beginning.

Make Your Mortgage Payments on Time
Whether monthly, biweekly or weekly, be sure that you always make your mortgage payments on time. Making late payments (delinquency) may result in late charges and negatively affect your credit rating. Failing to make payments can even lead to more serious consequences like foreclosure.

A good way to prevent late payments is to have the amount automatically deducted from your account every month and to put at least three months' worth of mortgage payments in savings for emergency situations. If you are having trouble making payments, discuss the situation with your lender.

Costs of Operating a Home
Besides your mortgage, property taxes and insurance, there are many other ongoing costs related to operating your home. They include maintenance and repair, costs for services such as security alarm services, snow removal services and gardening services (if you wish to pay for these). If you have a condominium or strata, some of these expenses may be included as part of your monthly maintenance fee.

Saving for Emergencies
Even if you know how to do repairs yourself, there are costs involved. Every building has a life cycle, which means that all parts of a building age and require major repairs or replacement at some point. For example, you might know that your roof will have to be replaced in a few years simply because of its age. Repairs like these are expected and can be planned for. However, many repairs are unexpected and can sometimes be costly.

Set aside an emergency fund to deal with unexpected problems ranging from major repairs to illness and job loss. A good guideline is saving 5% of your take-home pay and putting it in a special account.

Living Within Your Budget
Prepare a monthly budget and stick to it. You should monitor your spending every month and evaluate your progress in meeting your financial goals. If you continue to spend more than you are bringing in, you must find ways to cut back. If you are having trouble sticking to your budget, don't hesitate to ask a professional money manager for help.