Tag Archives: First Time Buyer

Get to Know the Home Buyers’ Plan

ANDREW BODRA

Just over a year ago, I made the huge step of purchasing my first home. (Don’t be so impressed, I was almost 30, it was time).

I’m a millennial so, I obviously browsed the internet for all the do’s and don’ts, tips and tricks of buying a home. With the weighing reminder from all the internet “experts” about “the hidden costs of home-ownership” and “the first year is the toughest”, it is no wonder that spending much of my readily available savings on a down payment conjured feelings of pure panic.

I could surely write you a hefty list of advice for purchasing your first home. Tips like, make sure you can get INTERNET at that cute home tucked into the forest of trees in the middle of nowhere (Yes, that happened).  However, I will stick to one important tip that helped to relieve some of the stress that came along with making the largest purchase of my life.

If you are considering buying or building your first home, find out if you qualify for the The Home Buyers’ Plan! If you’re like me, I had heard of the plan (HBP) but really had no idea how it could help me or how to use it.

What is the Home Buyers’ Plan?

The Home Buyers’ plan is an exception to the rules of withdrawing from RRSP’s to use toward the purchase of your home for first time buyers. Under the plan, you are eligible to withdrawal up to $25,000, tax free, from your RRSP.  Which means you don’t need to claim the amount of the withdrawal as income for that year and pay the tax as you would in a typical scenario. I look at it as if I simply loaned myself interest-free money from my RRSP.

Copy of “Homeownership isn’t a “special” interest. It’s a common interest.- (1)

In my situation, when I had found my little piece of (internet-less) paradise, my mortgage agent provided me with the form to complete and submit to my RRSP provider in order to withdrawal the funds under the plan. But, the form is available on canada.ca and is simple to complete.

Good news, no repayment instalment is due until the second year AFTER the date of the withdrawal. Which helps to take some of the load off in that struggling first year of home ownership.  With annual instalments, I have 15 years to repay the borrowed amount back to my RRSP.

So, If you’re in the market for you first home (YAY for you!) have a chat with your RRSP provider and take a look at the requirements and restrictions for the Home Buyers’ Plan. If you have any questions about buying YOUR first home, reach out to us at ray@eriesedge.com or 519-586-7922.

Why the New Mortgage “Stress Test” Will Stress Homebuyers Out

Why the New Mortgage “Stress Test” Will Stress Homebuyers Out
Huge changes to mortgage rules were announced earlier this week.
 
Yet another “stress test” will be applied to mortgages.  Currently, homebuyers who have carefully saved a downpayment of 20% or more aren’t required to purchase mortgage default insurance. Only mortgage consumers with down payments less than 20% require default insurance which costs anywhere from 2.80% to 4.00% of their mortgage amount.
 
However, new rules on mortgage lending take effect next year and result in a major decrease in affordability for responsible homebuyers.  Uninsured mortgages now require the minimum qualifying rate to be the greater of the five-year benchmark rate published by the Bank of Canada (presently 4.89%) or 2% (200 basis points) above the mortgage holder’s contracted mortgage rate.
 
So, what does this mean?  Let’s take a look at the numbers.
Bank of Canada Five-Year Benchmark Rate
The Bank of Canada’s current five-year benchmark is 4.89% which in this example is greater than the buyer’s mortgage rate plus 200 basis points.
 
A family with an annual income of $50,000, a 20% downpayment at a five-year fixed rate of 2.84% amortized over 25 years can currently purchase a home for $370,547.
 
Under new rules buyers will have to qualify at the five-year benchmark rate of 4.89% meaning that they will only be able to afford $301,095  A difference of $69,452.
2% Above Contracted Rate
 In a case where the mortgage rate, plus the 2% stress test is greater than the The Bank of Canada’s current five-year benchmark rate, here’s how the numbers add up.
 
A family with an annual income of $50,000, a 20% downpayment at a five-year fixed rate of 2.84% amortized over 25 years can currently purchase a home for $360,942.
 
Under new rules buyers will have to qualify at the five-year benchmark rate of 4.89% meaning that they will only be able to afford $295,350.  That’s a difference of $65,592.
If you’re in the market to buy a new home and would like to talk about these new mortgage rules and the current real estate market, we can be contacted at 519.586.7922 or stop by our office at 1019 Bay Street, Port Rowan.  All of our contact information is also available on our website at www.EriesEdge.com

Understanding Pre-Approvals… Blunt, for your own good!

Understanding (3)

When you’re buying a house and have less than 20% down payment, your mortgage approval has 2 steps:

  1. The lender’s approval
  2. The Insurer’s approval. (CMHC, Genworth or Canada Guaranty)

Lender Approval

The broker and lender can do a PRE-APPROVAL, where they check your credit, crunch numbers and give an opinion of your chance of getting approved. They may ask for income confirmation upfront during this stage, you should provide it and have them review it.

A PRE-QUALIFICATION is when no credit check is done, the broker or lender is just looking at whether the income that you state you make, can support the amount of mortgage you would like. This is a BASIC review of your application, mostly of your income and other debt to see if you can afford a mortgage payment. It’s good for people who may be purchasing in the future. I do not recommend this if you are actively looking and planning to buy soon.

Insurer’s Approval

The Insurer (CMHC, Genworth, Canada Guaranty) does NOT do pre-approvals – this is because they are approving you AND the house you’ve bought. They can’t approve the house, unless you have an accepted offer. They reserve the right to “like the house”, and basically want to make sure you haven’t bought a shack that’s about to fall over. Make sense?

So, you may have a Pre-Approval but until you have bought the house, and the Insurer has reviewed the offer and the house, you DO NOT have an approval.

Once the insurer has reviewed your accepted offer and the house, they will issue a CONDITIONAL APPROVAL.

All approvals, every single one, is CONDITIONAL. 

This means: They will actually GIVE you the money once you meet the all the conditions outlined in the mortgage commitment (the approval on paper).

Conditions are ALWAYS:
  1. Proving that your income is what you said it was.
  2. Proving where your down payment came from.
  3. There may be other conditions such as selling your current home, paying off other debt etc.
  4. Whatever the conditions are: Know them and meet them in a timely fashion. Why? Because actually GETTING the money to pay for the house you just bought, depends on you doing this.

A few words about paperwork… once you’re approved, the lender has agreed to give you a whole wack of money $$$$$.

So… they have the right to ask you for paperwork, things like: employment letters, recent pay stubs, T4’s, tax returns, separation agreements, the list goes on and on. It’s nothing personal, it’s just the reality of getting a mortgage today. Family, friends, co-workers, neighbours, your dry cleaner and your cable guy will tell you that they didn’t have to do this when they got a mortgage. Tell them that’s because

the magical unicorn mortgage days are over. Just like the yellow pages, times have changed.

Here’s why:

  1. Our government says so and they regulate mortgages.
  2. That saying about a few bad apples spoil it for everyone applies to mortgages as well. If there is a rule, it’s a rule for a reason! You can vent to your broker, that’s ok! But in the end, working together to get things done is what’s going to get your money funded on your closing date. As I always say, hustle now and we can complain together later.

The Home Buying process can be stressful, not going to lie. The more educated and prepared you are, the better! Work with an experienced broker who will be blunt and protect you.

And most of all, keep a sense of humour! Life is too short, make boring stuff fun!

 – Carr

Thank you to our Guest Blogger

Picking the Right Mover

Picking the right moverIt’s moving day! Are you excited? Or, are you stressed? Moving can be an emotional time and we’d like to offer a few tips to help you manage your move when it comes to hiring the right mover.

We touched base with transportation expert Kristen Hopley for some guidance. First and foremost, Kristen advises that you should decide what level of effort you want to put into your move.  Are you willing to and have time to over see the move?  If not you need to find a reputable mover. Here’s Kristen advice for finding that trust-worthy mover for your moving day!

Ask friends and family for a recommended mover

Ask others whom you trust who they had move them and if they would recommend that mover. This is a great way to start narrowing down your list of potential moving companies.

Get 3 quotes

Contact 3 movers and request that they have a representative come into your house to do an estimate of what needs to be moved.

Make sure that the Representative comes to your home to see what they will be moving

When meeting with the representatives make sure they take the time to answer all of your questions.  They can only provide a proper quote if they know exactly what services you want.  Are you looking for a full pack or just the move?  They should explain what steps they take to protect your belongings. Do they blanket wrap your furniture, pad your bannisters, put floor runners down to protect your carpet, and if you have marble floors what type of material will they lay down (should be plywood or Masonite) to protect your floors?  The best representatives will ask to walk through the house asking you what will be moving and what is staying.  They should want to open closets and look in the basement garage and sheds. These representatives are gathering as much information as they can to provide you with an accurate quote for service.

Visit the moving facility

Request to visit their moving facility.  This is a great way to evaluate the companies level professionalism and judge their quality of service. Are the facilities clean? Is the staff friendly? Do they behave like experts in their field and are they willing to answer any further questions you have? 

Ask lots of questions as well as their advice about the services they offer

During this visit, make sure to ask questions so you can manage your expectations around preparing for the move and for the day of the move.  For example, if you are packing your own belongings into boxes ask the mover if they loan packing materials?  If not, how much do they charge for the paper and the packing boxes? 

Carefully review each quote

Once you receive all three estimates look through them carefully.  It’s important to pay attention to the details. If the movers are quoting by the hour how many men and trucks are each quoting?  Make sure they are the same.  If you are going a distance, anything over 100kms they should probably be quoting by weight and mile.  Check the weights of each quote.  What is each mover charging per pound.  When looking at your quotes make sure that everyone has included the services you are requesting.

Will they guarantee their estimate not to exceed by more than 10%?

Lastly, ask your mover of choice will they guarantee your quote within 10%.  If they say no, ask them why.  Each representative should be qualified enough to know how to create an estimate that would fall within 10%.  The reason estimates are not an exact science is, you may chose to bring goods you thought you would not and the weight of your furniture is hard to determine.

Once you’ve picked the right mover for you, the packing can begin! 

There are many ways to help manage your move to ensure you have a seamless moving day. If you have any questions about your upcoming move, ask us! Leave a comment below or give us a call at 519-586-7922.

Bonus: Packing Tips
  • Be prepared for your move!
  • Always use moving boxes.  This will make your move easier and reduce the time.
  • Have all your boxes packed before the move day.
  • Label each box with your name and the room it will go into. 
  • Use your luggage for last minute articles. 
  • Pack a box of cleaning supplies, toilet paper, facial tissue and drinks and glasses and put this in your car (provided you are driving to the new house).  

5 Things To Know About Real Estate Deposits

From a seller’s perspective, a deposit is a sign of good faith that the buyer, who has contracted to purchase the property, will complete the transaction on the date specified in the contract.

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Here are some common questions I’m often asked about real estate deposits.

1.  When does a deposit have to be paid?

The standard agreement of purchase and sale states that the deposit must be submitted “herewith” or “within 24 hours of the acceptance of this Agreement”. Neither alternative is legislated but an accepted good practice.

The reason that buyers are encouraged to come up with the deposit immediately is to demonstrate to the seller commitment to complete the transaction. 

Sometimes a buyer may not be able to submit the deposit within 24 hours for good reason. For example, when a buyer lives out of the area in which the property is being purchased, it’s unlikely that even using courier the required deposit will be received within 24 hours. 

This happens quite often to me when selling cottages. Buyers often live two, three or more hours away from where they are interested in buying a cottage. Often times the decision to purchase a cottage is made a couple of days after viewing the cottage when the buyer has returned home from cottage country. The exchange of a deposit cheque cannot be completed in person unless the buyer decides to drive all the way back to provide the cheque. 

In such instances, I simply change the pre-printed 24 hour term in the agreement of purchase and sale to an additional 24 or 48 hours to allow the buyer time to courier or express post the deposit to my office. 

In today’s technological age the use of e-transfers for submission of deposits are becoming increasingly popular thereby making the standard 24 hour submission of deposit quite simple.

2.  Can the buyer get out of a deal by refusing to pay the deposit?

No. Once the agreement of purchase and sale has been accepted by both buyer and seller, a binding contract exists. Failure to deliver the deposit may be determined a breach of contract by the Buyer. 

I’ve heard it said that a good lawyer will be able to get a client out of a real estate contract should the buyer change his or her mind. This is not the case in my experience. Your REALTOR® should understand contract law and all of the complexities and legalities to making certain that real estate contracts are airtight once all conditions have been waived or fulfilled. 

Should a buyer wake up the morning after with a serious case of buyer’s remorse and refuses to pay the deposit, the seller can sell the property to another buyer. In the event that the seller gets less money than the initial buyer agreed to pay the seller can sue the buyer for the difference (plus legal fees).

3.  What happens to the deposit money once paid?

In most circumstances the deposit is held in trust by the seller’s real estate brokerage. When a deposit is held by the real estate brokerage in trust it is protected by insurance so that even if the brokerage goes bankrupt the buyer’s deposit is protected.

4.  What happens to the deposit money if the buyer is not able to fulfill conditions?

Most agreements of purchase and sale contain conditions such as allowing the buyer to arrange a mortgage, have a home inspection completed or have the septic system inspected to make sure that it is in proper working condition, for example.  

In the event that a buyer is unable to fulfill conditions within the specified time frame indicated in the contract, the deal becomes null and void. For instance, if a buyer is not satisfied with the results of a home inspection the buyer can choose not to proceed with the purchase and request the return of the deposit. However, if the seller suspects that the buyer did not act in good faith in trying to satisfy the condition, the seller may refuse to release the buyer’s deposit. In this circumstance the deposit must remain in the brokerage’s trust account until a court order indicates who is entitled to the deposit.

In the event that the Seller does release the Buyer from the transaction, which is the case more often than not, the Buyer’s deposit shall be returned in full.

5.  How large of a deposit is required when making an offer?

This is an initial decision of the buyer which must be agreed to by the seller (just like any other term or condition of an offer). 

If a buyer’s offer includes a deposit of $1,000 yet the seller doesn’t think it’s enough to illustrate the buyer’s commitment to complete the transaction, the seller might counter offer requesting an increased deposit. From a seller’s perspective, a deposit is a sign of good faith that the buyer, who has contracted to purchase the property, will complete the transaction on the date specified in the contract. As I noted at the beginning of this blog, a deposit from a buyer indicates to the seller a sign of commitment. Meaning that the buyer is committed to completing the transaction in good faith and on time.  

While there is no right answer or minimum amount required, the size of the deposit should be given very serious consideration by both buyer and seller. As a buyer, put yourself in the seller’s shoes for a minute. How much deposit money will give a sense of confidence that the buyer is committed to the transaction? To read more about how much of a deposit a buyer should submit with an offer, click here

The purchase and sale of real estate for most people is one of, if not the single largest financial transaction of their life. REALTORS® are able to provide you experienced guidance and counsel when it comes to navigating the complexities and legalities of real estate contracts.

If you have any questions about deposits or any other real estate matters, feel free to “leave a comment” below and we’ll get in touch.