The more you know about the property buying process, the better experience you will have. Below are some of the key terms and most frequently asked buyer questions.
Frequently asked buying questions.
What is your biggest piece of buying advice?
Make sure you understand the process inside and out, and really understand what you can afford. Our buyers guide is honestly the best tool to help you prepare. You can download it here. DOWNLOAD GUIDE
What is the biggest mistake buyers make?
The biggest mistake that most buyers make is going online and using a “what can I afford” calculator to determine their budget. The first step that every buyer should take when purchasing a property is to sit down with a mortgage professional (not your part time cousin) to determine how much you can afford.
What is a mortgage preapproval?
A mortgage pre-approval is the amount the bank thinks you can afford without verifying your actual income, credit, debt etc. You should never rely upon a mortgage pre-approval and should always work to get a mortgage commitment. With a mortgage commitment the bank will actually verify how much you can actually afford. Keep in mind that just because you get an approval from the bank doesn’t mean you will stay approved. If your credit, debt or income change after the approval the bank can revoke the approval so be financially prudent when looking for a property.
What are the advantages of being a first time buyer?
As a first time home buyer you have two main advantages.
The RSP Home Buyers’ Plan (HBP) lets a first-time buyer withdraw up to $25,000 from RSPs for a home purchase. The withdrawn amount must be repaid within 15 years, subject to a minimum annual repayment that is 1/15 of the amount withdrawn. If the full $25,000 is withdrawn, the minimum annual repayment is $1,333. If less than the minimum is repaid in any particular year, the balance is added to the taxpayer’s income.
The Land Transfer Tax Credit gives first-time buyers of new and re-sale homes rebates on the provincial and Toronto land transfer taxes. The maximum provincial land transfer tax (LTT) rebate for first-time buyers is $2,000 and the maximum Toronto LTT rebate for first time buyers is $3,725.
What is a high ratio mortgage?
When you buy a property you must put a minimum of 5% as a downpayment, however if you put less than 20% it is considered a high ratio mortgage. In this case you have to qualify at a higher interest rate (you can still get a low interest rate, but you have to qualify at a higher rate) and you also have to purchase mortgage insurance. The mortgage insurance is actually added to your mortgage and you pay it over the life of the loan so it really doesn’t impact your monthly payments a great deal. You can see how much mortgage insurance is based on your downpayment amount by using my detailed mortgage calculator.
Do I need mortgage insurance?
If you put anything less than 20% as a downpayment then yes you will need mortgage insurance. The cost of mortgage insurance differs based on what % you put down, as well as what your purchase price is. You can find out the exact cost by using my detailed mortgage calculator.
Can I get out of a deal?
When you submit an offer, typically your Realtor will include some “conditions” like a financing condition or home inspection condition. Once an offer has been accepted, you have a specific period of time to “waive” these conditions. If you do not waive them for whatever reason, your deal becomes null and void and your deposits are returned in full. If you decide to waive the conditions, then the deal is considered “firm” and you can no longer get out of the deal. If you never put any conditions into the deal to begin with, then the as soon as the deal is accepted and the deposit is dropped off, the deal is firm and you can’t get out of it.
Do I have to pay any commissions?
Nope! In a real estate transaction, the seller pays the real estate commissions to both the listing and buying Realtor. Pretty sweet deal isn’t it?!
What are the costs associated with buying?
It really depends on the type of transaction. Typically if you buy new construction there are additional costs to a resale purchase. The “normal” up front costs on a resale purchase are: land transfer tax (varies), legal fees (around $1000 – $1500) and your downpayment. If you put less than 20% as a downpayment you will also have to purchase mortgage insurance, but this is added to your mortgage and not an up front cost. If you get into new construction sales you are also looking at developers fees and possibly HST (which you get back later on).
Important buying terms.
Amortization Period
The time over which all regular payments would pay off the mortgage. This is usually up to 25 years for a new mortgage.
Appraisal
The process of determining the value of property, usually for lending purposes. This value may or may not be the same as the purchase price of the home.
Bungalow
A one-story house, cottage, or cabin.
Condominium
A large property complex that is divided into individual units and sold. Ownership usually includes a non-exclusive interest in certain “common properties” controlled by the condominium management.
Close
The final procedure in a home sale in which documents are signed and recorded. This is the time when the ownership of the property is transferred.
Closing Statement
A document commonly used in real estate transactions, detailing the fees, commissions, insurance, etc. that must be transacted for a successful transfer of ownership to take place. This document is prepared by a closing agent and is also known as a “settlement sheet”.
Commercial Real Estate
Property that is solely used for business purposes.
Deed
A legal document that grants the bearer a right or privilege, provided that he or she meets a number of conditions. In order to receive the privilege – usually ownership, the bearer must be able to do so without causing others undue hardship. A person who poses a risk to society as a result of holding a deed may be restricted in his or her ability to use the property. Deeds are most known for being used to transfer the ownership of automobiles or land between two parties.
Mortgage
A debt instrument, secured by the collateral of specified real estate property, that the borrower is obliged to pay back with a predetermined set of payments. Mortgages are used by individuals and businesses wishing to make large value purchases of real estate without paying the entire value of the purchase up front. Mortgages are also known as liens against property, or claims on property.
Mortgage Broker
The matchmaker between a home buyer and a lender whose goal is to originate a mortgage loan. The broker draws from a pool of various lenders to find the right match.
Real Estate Sales Representative
A person with a provincial license to represent a buyer or a seller in a real-estate transaction in exchange for commission. Most Sales Representatives work for a real estate brokerage or agent.
Total Debt Service (TDS) Ratio
The percentage of gross income needed to cover monthly payments for housing and all other debts and financing obligations.
Zoning
Government (usually municipal) laws that control the use of land within a jurisdiction.