Buying a home can be an exciting and rewarding process. As it is one of the most significant financial decisions a person can make in a lifetime, at times it can also be stressful and confusing. Here are a few things you should know before beginning the process of buying a house however, keep in mind that we are here to help you every step of the way.
FINANCING A HOME
Most people will finance the purchase of a home with a mortgage and understanding the steps involved is important.
Pre-approval of a mortgage is when your lender has reviewed all of your financial information and determined how much you are eligible to borrow. The benefits of pre-approval are:
- You have a clear understanding of your budget
- Most mortgage brokers will “lock in” your interest rate for 60-90 days so you won’t have to worry about a raise in interest rates while you’re shopping for home
- When you find a home and make an offer, the seller will know that you are more likely to get the loan
- When it comes time to apply for the loan all of your paperwork will be assembled and the preliminary work will have already been done
Where to get pre-approved:
Mortgage lenders are competing for your business so it’s important to shop around. Don’t be afraid to bargain with a lender as most are willing to reduce their posted interest rate. You can contact banks directly or work with a mortgage broker who will help you find the lender with the best interest rate and most flexible mortgage package available to you.
Once you have decided on a lender they will want the following information from you:
- Personal information such as marital status and number of dependents
- Details of employment as well as verification of salary/wage
- Banking and investment information, and a list of assets
- Information on loans and liabilities
- Permission to do a credit check
Whether you’re a first-time buyer or you’ve decided to refinance your home, consider the following money-saving steps when calculating your mortgage payments.
- By shortening your loan repayment or amortization period to 20 years from 25 years, you’ll pay your mortgage off five years sooner. You’ll pay higher monthly payments, but you’ll build equity faster and you’ll pay less in interest over the long term.
- Apply for a prepayment option. If you receive one, you can directly pay down some of your principal before it’s due. Make sure to check for prepayment penalties.
- By paying biweekly instead of monthly, you’ll make 26 payments in a year or 13 months instead of just 12 months and reduce your amortization to about 20 years from 25 years.
COSTS OF BUYING A HOME
It is important to remember that the purchase price of your new home isn’t the only cost you will incur.
Application/Mortgage Broker Fee:
Processing your mortgage application costs lenders money. Consumers may be charged a fee by a lender or a mortgage broker for setting up a mortgage when income or credit issues become more sensitive to the approval process.
The money you borrow for your mortgage is usually a percentage of the home’s purchase price, or of the market appraisal — whichever is lower. The lender will use someone on staff or an independent professional to make this appraisal. You are normally responsible for this cost.
Land Survey Fee:
A plot plan or survey of the property you want to buy is important to establish exactly where the boundaries are and make sure there are no encroachments such as part of your neighbour’s house or garage sitting on your land. Your lending institution will want to see such a survey and can let you know what their requirements are.
If you are applying for a high-ratio mortgage – that is, if you are borrowing more than 80 per cent of your home’s purchase price – you will have to pay for mortgage insurance to protect the lender in the event that you fail to make the necessary payments. As your new home will be used as security for your mortgage, the lender will want you to have extended coverage and fire insurance. You may also wish to check out the cost of buying mortgage life insurance. This insurance ensures that the mortgage balance is paid off if you or a co-borrower dies.
These are the fees charged by a lawyer to help you complete the home-buying process. Disbursements are the costs involved in processes such as conducting a title search, drawing up the title deed and preparing and registering the mortgage.
Property Transfer Tax:
This is calculated on the property’s purchase price at the rate of one per cent up to $200,000 and two per cent of the price over $200,000. First-time buyers may be exempt from this tax, subject to certain restrictions.
When you buy a new home, the entire purchase price is taxable. You may, however, qualify for a partial provincial New Housing Rebate if you plan to live in the home yourself. Ask us for details. A “used” residential home is normally exempt from the GST. Remember that GST is also applied to the REALTOR®’S commission and most other transaction fees for utility bills, annual property taxes and maintenance costs.
MAKING AN OFFER TO PURCHASE
When you are ready to make an offer on a home we will prepare an Offer to Purchase and advise you every step of the way throughout this process. Your Offer to Purchase will contain:
- The date of your offer
- The description of the property you are making an offer on
- The amount of your deposit, the amount you are offering
- The amount of your down payment and the details of your financing
- Your name and address and the name and address of the sellers of the property you want to buy
- Subject-to clauses, closing dates, and any other requirements you might want to impose on the seller (such as, you want the kitchen appliances)
Once you have signed the prepared offer we will present it to the seller’s REALTOR®. If more than one offer is being presented to the seller the offers will be dealt with in the order in which they were written. Once the seller has reviewed all offers, he/she will consult with their REALTOR® and determine which offer they prefer. Sellers are entitled to deal with all offers as they choose. They are not obligated to accept, counter, or otherwise respond to any offer, even if the offer is for full asking price.
Buyers who are involved in a multiple offer presentation should consider making their best offer, the first time, to encourage the seller to deal with their offer instead of another buyer’s offer.
PROPERTY TRANSFER TAX
When buying a home in BC, the buyer automatically pays the provincial Property Transfer Tax (PTT). The tax is payable on the fair market value of the home or other property. This is different from the property tax. You pay property tax on an annual basis for services you receive from your local government.
How much is it?
The tax is charged at a rate of 1% on the first $200,000 of the fair market value of the property, and 2% on the rest.
For example, if the fair market value of the property is $150,000, the tax is 1% of $150,000 or $1,500.
If the property’s fair market value is $250,000, the tax is 1% of $200,000 ($2,000) plus 2% of the remaining $50,000 ($1,000) for a total tax of $3,000.
Qualifying first-time buyers may be exempt from paying the PTT of 1% on the first $200,000 and 2% of the remainder of the purchase price of a home priced up to $425,000. There is a proportional exemption for homes priced up to $450,000.