Buying

What can I afford?

The price you can afford to pay for a home will depend on six factors:

  1. Your income
  2. The amount of cash you have available for the down payment, closing costs and cash reserves required by the lender.
  3. Your outstanding debts
  4. Your credit history
  5. The type of mortgage you select
  6. Current interest rates

Lenders will analyze your income in relation to your projected cost of the home and outstanding debts. This will determine the size of the loan you can borrow. Your housing expense-to-income ratio is determined by calculating your projected monthly housing expenses, which consist of the principal and interest payment on your loan, property taxes and heating expenses. The sum of these costs is referred to as "PITH." Monthly homeowner association dues, if you're purchasing a condominium or townhouse, and private mortgage insurance are added to the PITH.

Your housing income-to-expense ratio should fall under 32%. Also your entire debt load known as total debt service TDS should not be more than 40% of your gross monthly income. Entire monthly debt load includes PITH plus all other payments (car loan or lease, credit card payments, lines of credit payments, etc.).

Here is a great tool from the CMHC for you to calculate what you can afford:

Calculate how much you can afford

Once you have done your homework, go to a financial institution and arrange to meet with a Mortgage Representative to obtain a Pre-Approval Certificate. It is important to do so in order to make sure there are no surprises once you put an offer on a house and have to get approval for financing.

Where to buy?

Now that you have determined the price range that you are able to afford, it is time to narrow down the area you would like to live in.

Some factors to consider are:

  1. How far do you have to travel for work?
  2. How good are the schools in the area?
  3. How close are you to public transportation?
  4. How close are the amenities (parks, shopping, restaurants, movies, etc.)
  5. What type of development is happening in the neighborhood (new subdivisions)

Start by making a list and prioritize all the things you want in the location of your new home. What are you looking for? Decide on what style of house you are looking for, for example a bungalow, a two storey, a split level or a high rise condo to name a few. Once we meet, we will go over a wish list of all the things you are looking for in your new home, based on that list I will start the search and we will go on to viewing homes.

New home or Resale home?

You can buy a new home (that no one has lived in before) from a builder or build your own with a builder, or you can purchase a resale home which was previously owned and occupied.

Here are some things to consider when deciding on new or resale:

New home:

  1. A new home has an up-to-date design and reflects the latest trends
  2. You can choose certain features and finishes such as flooring, cabinets, plumbing and electrical fixtures. Also keep in mind you may have to pay extra for trees, sod, paved driveway, etc.
  3. There is HST on new homes, but there are some rebates available.
  4. New homes have warranty that cover many maintenance items. But all conditions of the warranty should be reviewed.
  5. Neighborhood amenities of a new subdivision may not be completed for years (schools, shopping malls and other services).

Resale home:

  1. The home already exists, so you can see what you are buying
  2. The neighborhood is established and all services are existing
  3. Landscaping and fencing is usually done, driveway is already in place. Some extras may be finished basements, pools, etc.
  4. There is no HST on resale home
  5. There may be a need for decoration, renovation or major repairs such as replacing the roof or windows.
Do You Want a New Home or a Previously-Owned Home?

Making an offer

Once you have found a home that meets your requirements, we will move forward with putting an offer on that property. I have extensive contract and negotiation experience and will work with you in developing an offer price, based on recent sales of similar homes in the same neighborhood. I will ensure to get just what you want for fair market value.

Once we have a conditional agreement, the property will be temporarily off the market until the conditions are met. The typical conditions can include financing, inspection, and other clauses more specific to each property. All these final details are handled and inspections are performed to ensure the property is perfect for you.

When the conditions are met, the property is sold firm, at this point all documents are forwarded to your lawyer who will prepare the documents for closing.

Now it’s time for you to start packing. Consider researching some moving companies and make arrangements ahead of time.

What are the closing costs?

Other than your down payment for your home you need to save for the following closing costs, including:

  1. Lawyer’s fees
  2. Land transfer tax
  3. Property taxes
  4. Title insurance
  5. Disbursements
  6. Registration of the Deed and Mortgage
  7. Lawyer’s Miscellaneous charges
  8. Status Certificate fee (when buying a condo)

Note: Check with city hall to see how property taxes are paid within the municipality. For example if you are on an equal payment plan with the City of London your property taxes are divided into 10 equal payments (Jan to Nov).

Investment Properties:

You need to ask yourself four questions before making a move on an investment property:

  1. Do you have enough saved for the downpayment?
  2. How much income will the property generate?
  3. Can you be a successful landlord?
  4. How will deductions affect your profits?
  5. What are a landlord's rights and responsibilities – Help for Landlords.

There are 2 components to real estate investment – capital gains and cash flow. Capital gains are the profit you make when you sell which is the most publicised part of real estate investment. Your main concern when making an investment should be: does this make financial sense in that all my costs, including financing, are covered and is there some money left over for contingencies?

The traditional way to measure viability of real estate is the one percent rule, If a property costs $250,000 then you’d need roughly $2,500 a month in rent.

Here is an investment model for a 5 bedroom home @ $450 per room plus utilities:

Purchase Price $250,000
Down Payment (25%) $63,000
1st Mortgage $187,000
Financial Costs (4.5% P&I) $1,035
Property Taxes $275
Insurance $140
Total Monthly Cost $1,410

Monthly Rents($ 2,250) – Monthly Costs($1,410) = Cash Flow Per Month($840)

Note the return on investment should include principal payments (about $200 per month for this size of mortgage). Therefore the actual return on investment is ($800 + 200) = $1000 per month.

Note this does not include management-maintenance costs which can vary according to the condition of the property and whether the owner will be doing the property management.

It is important to note that you must have a down payment of at least 20% of the purchase price when buying a property that is not your main home. As of May 30, 2014, the Canada Mortgage and Housing Corporation (CMHC) is discontinuing its Second Home mortgage insurance product – this means mortgages on second homes will no longer be insurable under CMHC.

Some other key items to consider are:

  • Location, how close is the property to campus and how easy is it to access public transportation?
  • What are the demands for the area you are searching?
  • Check out the property types that are ideal for students, look at room sizes and layouts which work for student accommodation, look for properties with good sized common areas and sufficient bathrooms.
  • The age and condition of a property is important as it will impact renovations that may need to done prior to renting out the property.