Frequently Asked Questions
Buy First? Or . . . Sell First?
Which comes first – the purchase or the sale? This is the greatest dilemma facing homeowners planning a move-up.
If you choose to buy first, make sure the offer to purchase is conditional on selling your current house. That way, if you sell your house, both deals proceed; if not, the deal is off, and you won’t be stuck with two homes.
Selling first, though, will give you considerable peace of mind. Knowing how much money you’ll get on the sale will help you establish a price range for a new home. And selling first allows you to negotiate the purchase more vigorously, too, since unconditional offers carry a lot more weight with sellers.
Market conditions are another important consideration in deciding which route to follow. In a seller’s market, you’ll probably do better selling after you’ve bought. But in a buyer’s market, it makes more sense to sell first, and then buy.
About the Mortgage Process?
Getting a pre-approved mortgage certificate
A pre-approved mortgage certificate is a written commitment that you will get a mortgage for a set amount of money, at a specific rate of interest that is guaranteed for 60 to 120 days, depending on the financial organization you choose. The commitment is made subject to a financial assessment and property appraisal. The service is free and without obligation.
Why is it a good idea to get a pre-approved mortgage?
A pre-approved mortgage gives you an edge. Before you even go house hunting, you will know the size of your mortgage, the interest rate, and the size of your monthly mortgage payments. With your financing already mapped out, you can concentrate on finding the right home in your price range.
A pre-approved mortgage also puts you in a strong bargaining position when you make an Offer to Purchase. If the seller wants to make a quick sale, you may be able to negotiate a price lower than the list price, because the seller knows that you are a serious buyer. On the other hand, if several people are bidding on the home you want, you may decide to offer to purchase at the list price, to beat out earlier offers.
Making an Offer to Purchase
When you find the home that’s right for you, your next step is to make an offer to purchase the home from the current owner. Your Real Estate Representative can prepare this document for your signature. The owner will either accept your offer, make changes to the offer and present you with a counter-offer, or reject the offer.
The Offer to Purchase
The Offer to Purchase is a legally binding agreement between you and the person selling the house. Your Real Estate Representative will ensure that the agreement includes all of your wishes and some clauses that are for your protections. If you wish, you may ask your lawyer to review the document before it is presented. It sets out:
- Your legal name(s).
- The seller’s name(s).
- The address or legal description of the property.
- The price you are prepared to pay for the property.
- The items you expect to be included in the purchase price.
- The amount of your cash deposit.
- Your financing arrangements, such as your mortgage.
- The closing date.
- Specific terms or conditions that must be met as part of the purchase.
- A time limit for meeting these conditions.
If you do not have a Real Estate Representative, make sure you discuss the Offer to Purchase with your lawyer before you sign it. Remember, it becomes a legally binding agreement the moment it is accepted. If you decide to cancel an offer that has already been accepted, you could lose your deposit and the person selling the home could sue you for damages. If the seller does not accept your offer, your deposit will be returned.
When your offer is accepted
Your offer has been accepted. Good. You’re now in the home stretch – finalizing the details of your mortgage and closing the purchase of your new home. Call your assigned Mortgage Broker. Your Mortgage Broker will need to receive the following documents and information:
- A copy of the real estate listing.
- A copy of the accepted Offer to Purchase.
- Information on the source of your down payment.
Income verification if you are employed. - A letter from your employer verifying your place of employment and income, or T4s and Notice of Assessment, or T1 General Tax Return and Notice of Assessment.
- Income verification if you are self-employed.
- 3 years of Financial Statements and 3 years of Notice of Assessments, or 3 years of T1 General Tax Returns and 3 years of Notice of Assessments.
Processing the mortgage application
Your Mortgage Broker will want to verify the value of the property you are buying, your current financial picture and your credit history, so a property appraisal and credit report will be ordered.
Also, if your down payment is less than 25%, you qualify for a high ratio mortgage on which you would have to pay insurance premiums. You decide whether you want to pay the premium in cash or have your lender add it to your mortgage amount. Your Mortgage Representative can contact Canada Mortgage and Housing Corporation (CMHC) or GE Capital Mortgage Insurance Company of Canada (GEMI) to make the arrangements.
Be prepared to pay fees for the mortgage application, credit report and property appraisal.
Closing the purchase
Closing day is the day you become the official owner of your home. However, the closing process usually takes a few days.
Typically, you visit your lawyer’s office to review and sign documents relating to the mortgage, the property you are buying, the ownership of the property and the conditions of the purchase. Your lawyer will also ask you to bring a certified cheque to cover the closing costs and any other outstanding costs.
Once your mortgage and the deed for the property are officially recorded, you become the official owner of the property.
Why do I need a Survey?
Commonly known as a survey, an up-to-date certificate of location is a vital legal document in the home-selling process. It must be forwarded to the lawyer or notary handling the sale in time for the closing.
Prepared by a qualified surveyor, the certificate of location specifies the exact size and location of your property, the size of the building and the type of structure. It notes conformity with local zoning regulations and by-laws, and includes drawings of exterior and (sometimes) interior ground plans.
The certificate of location must accurately reflect any structural changes made while you’ve owned the house including additions, garages, decks – even the relocation of a storage shed! Certain items falling under a predetermined height (landscaping, for instance) are exempted.
If no improvements have been made, the original survey generally remains in effect indefinitely. In some provinces, however, surveys must be updated routinely.
While it is usually the sellers responsibility to provide and up-to-date certificate of location, the cost of having a new one prepared (if necessary) becomes, in some jurisdictions, the buyer’s financial obligation. It’s wise to specify who will be responsible for assuming this cost in the offer to purchase.
How do I choose a Lawyer?
Buying and selling real estate has become very specialized the last few years. So when looking for a lawyer/notary, make sure it’s a real estate lawyer/notary – one who spends most of the time closing real estate deals.
And don’t wait until after the deal is struck before choosing a lawyer; then you lose the valuable input he or she can provide scrutinizing the offer before your pen hits the paper. Since your lawyer’s role is part advisor, part confidant and part nursemaid, a good rapport with your lawyer is a must.
How can you find a good real estate lawyer? Get several names from your realtor or banker and ask friends, family, neighbours and co-workers who they’ve used in the past.
Never choose a real estate lawyer/notary just because their fees are the lowest. As with any other professional, quality and experience are the key, not just price.
Should I consider buying a brand new house directly from the Builder?
Newly-built homes have enormous appeal. Most Builders in Ottawa co-operate with Real Estate Sales Representatives. This means you can still have the benefit of representation, and can suggest to your Realtor that you’d like to look at new properties. The truth is, a good Realtor will introduce you to new development sites as well as resale properties in your price range.
Buyers are captivated by the enchanting thoughts of a home that’s bright, fresh, clean, modern and, of course, new. Buyers can often customize it to taste – interior colours, decor and finishings. Often you can choose from a variety of models and styles, instead of having to simply buy “what’s there”.
Unlike resale homes, many brand new homes have a warranty covering defects in materials and workmanship, and leaky basements. And a new survey is always available.
Real Estate Representative can negotiate prices on your behalf and buyers can get good value buying from a builder. Extras, options and upgrades can be included in the price, and sometimes discounts on mortgage financing is available.
But before you purchase a brand new home, be sold on the builder; investigate its reputation, its background, and the quality of its work. Check with the Ottawa New Home Builders Association or Ontario New Home Warranty Program for information. And don’t be afraid to bang on doors and ask other buyers what they think of the builder.
What kind of home owner insurance should I get?
Everybody needs to insure their home – but some people actually over insure it. As the land on which a home sits won’t burn, only the building must be insured.
If the amount outstanding on your mortgage is less than the value of the building, there’s no problem. But if the balance owing on your mortgage exceeds the value of your home, insuring the mortgage amount means you’re over insuring the building.
Insurance coverage should be determined by the value of the building – not the size of the mortgage. One way to avoid this dilemma is by having a “replacement cost endorsement” for the building appear in your insurance policy. Replacement cost coverage guarantees that the insurer will pay the full cost of rebuilding the home, even if the loss is greater than its insured value.
This endorsement is available at nominal – and sometimes at no additional – cost. But it’s limited to owner-occupied homes, not income-producing properties.
And don’t forget – your fire insurance must be in place at the time of closing.
What do I need a Home Inspection?
No home is perfect. Realizing this, buyers today are encouraged to have a home inspection done by a qualified professional prior to finalizing the sale.
The inspector’s role is to identify any structural problems that might affect the value of the home today or in future and, if any are identified, to give the buyer an estimate for repairs.
The buyer can then accept the fault as is, renegotiate the offer or revoke it altogether.
Sellers are now required to complete an SPIS – Seller Property Information Statement – which they warrant is correct to the best of their knowledge. It itemizes and identifies any structural problems and when and how they have or have not been corrected. The SPIS in no way replaces the need for a Home Inspection.
What conditions might be included in the Agreement of Purchase & Sale?
While you might strike a deal in principle with a buyer, loose ends-in the form of “conditions”-may have to be tidied up before the sale can be completed.
A conditional offer is one in which the sale of the property is agreed to buy both buyer and seller, subject to outstanding conditions being met by the appropriate party.
A buyer’s ability to successfully obtained mortgage financing, a satisfactory home inspection or the sale of the buyer’s current home within a prescribed time are all conditions which might affect the final outcome of the sale.
If the conditions are satisfied within the allotted time frame, the offer becomes ” firm and binding”. If not, the deal is off, and the deposit is returned to the buyer.
As the seller, don’t put yourself in the position of facing a lengthy period of legal limbo.
Add an escape clause to your counter-offer – if another acceptable offer is presented while you’re waiting for conditions to be met, the first buyer must either waive the condition and close the sale, or forfeit the deal.
How much can you afford?
A Milestone Real Estate professional can help you find the home of your dreams and also assist you in evaluating mortgage options and obtaining financing at the most prevailing rate. In the meantime, here are some ways to help you determine how much you can afford.
Setting a maximum price range is of critical importance. To determine your price range, you should calculate two amounts.
a) The amount of cash you can afford to put towards the purchase (the down payment)
b) The maximum amount of loan mortgage you can comfortably carry.
The larger the down payment, the less you have to borrow, the smaller your monthly mortgage payment, and the lower your cost of interest of the term of the mortgage. So it makes sense to put down as much of your own money as possible.
- You should keep a cash reserve of unexpected expenses and such adjustments payable on closing such as land transfer tax, legal and mortgage fees and of course moving expenses, and any new furnishings and appliances that may be necessary.
- The first step towards establishing a maximum mortgage limit is to calculate a monthly payment you can afford. Financial institutions do this by calculating your debt-service ratio.
- To calculate your debt-service ratio, list all your loans (car, personal loans, monthly credit card balances). The sum of these loan payments and your mortgage payment (including principal, interest and taxes) should not exceed approximately 40 per cent of your gross income. The mortgage payment and taxes should not exceed approximately 30 percent of your gross income.
- The size of the mortgage you can arrange, based on payments you can afford, depends on interest rates. The lower the rates, the larger the possible mortgage and the more affordable housing is.
- But there are other mortgage terms to consider, as well. How open is the mortgage? Would prepayment be allowed? Is the mortgage portable?
- Discuss your mortgage options with your Realtor, your banker, or a financial advisor.
- The usual source of mortgage funds is a lending institution such as a bank or trust company – and it is the particular policy of the lending institution that determines the maximum loan allowed. But there are other sources of funding too, and your Realtor can help you choose the best lender at the best rates and terms.