Top 10 things you need to know before buying a House
August 27, 2008
Top 10 things you need to know before buying a house
1. Don’t buy if you can’t stay put.
If you can’t commit to remaining in one place for at least a few years, then owning is probably not for you, at least not yet. With the transaction costs of buying and selling a home, you may end up losing money if you sell any sooner.
2. Start by shoring up your credit.
Since you most likely will need to get a mortgage to buy a house, you must make sure your credit history is as clean as possible. A few months before you start house hunting, get copies of your credit report. Make sure the facts are correct, and fix any problems you discover.
3. Aim for a home you can really afford.
The rule of thumb is that you can buy housing that runs about two-and-one-half times your annual salary. But you’ll do better to use one of many calculators available online to get a better handle on how your income, debts, and expenses affect what you can afford.
4. Don’t worry if you can’t put down the usual 20 percent.
There are a variety of public and private lenders who, if you qualify, offer low-interest mortgages that require a down payment as small as 3 percent of the purchase price.
5. Buy in a district with good schools.
In most areas, this advice applies even if you don’t have school-age children. Reason: When it comes time to sell, you’ll learn that strong school districts are a top priority for many home buyers, thus helping to boost property values.
6. Get professional help.
Even though the Internet gives buyers unprecedented access to home listings, most new buyers (and many more experienced ones) are better off using a professional agent. Look for an exclusive buyer agent, if possible, who will have your interests at heart and can help you with strategies during the bidding process.
7. Choose carefully between points and rate.
When picking a mortgage, you usually have the option of paying additional points — a portion of the interest that you pay at closing — in exchange for a lower interest rate. If you stay in the house for a long time — say five to seven years or more — it’s usually a better deal to take the points. The lower interest rate will save you more in the long run.
8. Before house hunting, get pre-approved.
Getting pre-approved will you save yourself the grief of looking at houses you can’t afford and put you in a better position to make a serious offer when you do find the right house. Not to be confused with pre-qualification, which is based on a cursory review of your finances, pre-approval from a lender is based on your actual income, debt and credit history.
9. Do your homework before bidding.
Your opening bid should be based on the sales trend of similar homes in the neighborhood. So before making it, consider sales of similar homes in the last three months. If homes have recently sold at 5 percent less than the asking price, you should make a bid that’s about eight to 10 percent lower than what the seller is asking.
10. Hire a home inspector.
Sure, your lender will require a home appraisal anyway. But that’s just the bank’s way of determining whether the house is worth the price you’ve agreed to pay. Separately, you should hire your own home inspector, preferably an engineer with experience in doing home surveys in the area where you are buying. His or her job will be to point out potential problems that could require costly repairs down the road.
Posted by Kanza at 2:01pm
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What is all this talk of amortization?
August 22, 2008
Amortization or amortisation is the process of decreasing or accounting for an amount over a period of time. The word comes from Middle English amortisen to kill, alienate in mortmain, from Anglo-French amorteser, alteration of amortir, from Vulgar Latin admortire to kill, from Latin ad- + mort-, mors death.
In layman terms it is the period of time required to repay a loan. Recently the length one is allowed to stretch out the life of a mortgage has been in the news. The federal government has shifted the maximum length of time our banks can lend a mortgage down 5 years from 40 years to 35. This is after gradually growing the terms from the standard 25 years that was maximum for decades in March of 2006 to 30 years, than 35 and finally 40 years soon after.
Reason for this new allowance was to give more people the option to afford their own home since the increase in the price of real estate throughout the country had not kept pace with increase in average wages which was freezing out many consumers. The longer an amortization is the less income one needs to qualify for the loan. Typically home loans are rather large so need the extra time presented by amortizing to allow one to reasonably pay amount back. So most mortgages are set up in 5 year terms but with an amortization of 5 to 8 terms or 25 to 40 years.
Though due to problems with US housing market, the Federal Government has felt this extended change, along with some others including 0% down mortgage, may be fuelling a similar sort of housing bubble that the US has been experiencing with serious consequences. As such, the maximum amortization now available is 35 years. So one is now allowed 7 terms of 5 years to pay back a home loan.
Michael Pezzack, AMP*
Mortgage Agent
Posted by Kanza at 11:11am
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Explosion that rocked the city
August 12, 2008
I’m sure everyone’s heard of the massive explosion Sunday morning at a propane depot near Keele and Wilson. Residents were evacuated and left homeless for 1 to 2 nights as emergency crews were working to figure out the cause and to make sure the area is safe for residents. There are still a lot of unanswered questions, but perhaps the most miraculous thing of all is that there weren’t a lot of casualties, yes there were a couple lives lost, but could you have imagined if this happened in the middle of the afternoon? Where people were out in their yards or driving down the street or walking their dogs? It would have been a major catastrophe.
Not only that, this also is a prime example of how important insurance is. Some residents and business owners are claiming they have no insurance to cover the damages done by this explosion. What are they to do?
We’ll never know when something like this will happen, hopefully never again.
Posted by Leslie at 1:59pm
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rule changes!
August 08, 2008
The federal government, in its attempt to avoid a housing crisis such as the U.S. is currently experiencing, have made some changes to the mortgage lending rules that you should be aware of. As of Oct. 15th 2008, no longer will one be able to purchase a home or condo with 0% down or be allowed a 40 year amortization. A minimum 5% downpayment will be required and maximum amortization of 35 years will be the limit. Also being eliminated are any high ratio interest only mortgages. A high ratio mortgage is any mortgage with a downpayment of less than 20% of the purchase price. This change also disallows high ratio home equity line of credits. Note: cashback mortgages will still be available so the option of buying without a downpayment will still exist, but at higher rates.
Although the changes are not officially taking place until October, many banks and mortgage lenders have already adopted these new rules for any new applications. Fortunately, there are still a few lenders waiting until mid October to enforce the new rules so the possibility is still out there if you move fast and wish to have the maximized amortization or the 0% down option.
Even though the mortgage rules appear to be a little unstable, currently rates are holding steady without many changes since the spring season. 5 year fixed rates are in the mid 5% range and variable or adjustable rate mortgages in the 4.15 - 4.25% range. As always, it’s best to shop around for the lowest rates and a brokerage such as Buyingblock does the work for you — at no cost!
Posted by Michael at 9:11am
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Housing prices up 1% in July
August 07, 2008
The Toronto Real Estate Board release it’s July 2008 report yesterday. Here are some highlights:
- Sales remained at a moderate pace as 7,806 sales were reported
- Sales declined 12% from June 2007, but increased 10% from 2006
- A listing’s average time on the market increased from 31 days to 33 days.
- There’s a 28% increase in available listings than 2006.
Read the Toronto Star article.
Read the press release from the Toronto Real Estate Board.
Posted by Leslie at 1:43pm
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Does a list price really mean nothing?
August 05, 2008
I came across an interesting article in the Toronto Star today about the Toronto Real Estate Market and the multiple bidding wars still prevelant. Even during a time when the market has really cooled off, home buyers are still facing bidding wars and most times, the house they were so keen on buying have really sold for over 50% of the asking price. Why is that?
Well it seems that for the past 5 years, houses have been listed way below it’s actual worth in order to stir up multiple offers and essentially build up a frenzy for the property…aka, quick sale.
The article argued that the Toronto Real Estate Board should really put some rules into effect that limit the way agents can list listings, not only that, should actually make agents list at its market value.
Click here to read the full article in Toronto Star.
Posted by Leslie at 1:59pm
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Toronto the most expensive Canadian city to live in
August 01, 2008
Does that statement surprise you? Well according to a cost of living survey from Mercer, a UK-based HR firm, Toronto ranks 54th in the world as the most expensive city to live and the only Canadian city in the top 5 of North American cities ranking fourth after New York, Sao Paulo, and Rio de Janeiro.
Vancouver moved up into the 64th spot from 89, Calgary moved to 66 from 92 and Montreal jumped to the 72nd spot from 98th last year.
This year’s findings were a change of pace from last year’s declining Canadian cities. Perhaps the most influential reason behind this increase this year is due to the strenght of the Canadian dollar.
Can anyone take a guess as to what city ranks in the top three??
Moscow, Russia, followed by Tokyo, Japan and London, England.
This survey is done semi-annually and is based on a unique international basket of more than 200 goods and services reflecting realistic spending habits.
Posted by Leslie at 12:11pm
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Real estate in U.S. still a good investment
July 30, 2008
According to a U.S. consumer research study by Architectural Digest with Sotheby’s International Realty Affiliates LLC, she survey showed some surprising findings:
This survey indicates that the U.S. residents see their condition differently than how the media portrays it and about 50% of respondents think the media exaggerates the current real estate conditions. Most coming to the same conclusion that they still see real estate as a valuable investment, no matter what the media says about the current conditions.
Posted by Leslie at 1:22pm
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MERIX Comments on Changes to Government Guaranteed Mortgages
July 29, 2008
Here’s some more info on the new changes to the mortgage requirements:
“There has been lots of discussion in the news about the recent changes to government guaranteed mortgages announced by the Minister of Finance.
However we believe the majority of Canadians do not understand what exactly it means to remove the “government guarantee” from some of these lending programs.
We’ll explain…
Many Canadians generally understand how mortgage insurance works. We’re not talking about mortgage life and critical illness insurance, we’re talking about mortgage default insurance. This is the premium that is applied to your mortgage amount and is paid to a mortgage insurer, who in turn agrees to insure your mortgage with your lender in the event you default. In other words, it is protection for the lender incase their customer cannot make their payments. This is a mandatory insurance for mortgages higher than 80% of the home value.
Well that’s great, but what happens if a lot of people all of a sudden can’t make their payments and the insurer who is supposed to protect the lender is unable to cover their insurance obligations?
Enter the government guarantee.
The Canadian government will guarantee up to 90% of the mortgage amount against insurer default. So, this is security for the lender in the event the insurer defaults. This Government Guarantee is in place for CMHC (Crown Corporation) as well as the private insurers, such as Genworth Financial Canada.
The government guarantee is also a criterion for high ratio loans to be sold into the Canada Mortgage Bond program, which is a relatively new cost-effective funding source for banks and mortgage lending companies. These Bonds are bought up by investors all around the world due to their higher yield than Government of Canada Bonds combined with their “government guarantee”.
So what has changed?
Well, the Finance Minister looked to our southerly neighbours as well as across the pond and noticed some pretty dire scenarios which begged the question: Are we guaranteeing mortgages that are a little too risky? After an analysis of the mortgages that fall within their guarantee, recent trends, and industry consultations, the Minister of Finance decided to cease guaranteeing high ratio mortgages with the following characteristics:
- LTV ratios in excess of 95%
- Amortizations in excess of 35 years
- Non-amortizing mortgages (Interest-Only Mortgages).
- Applications where the beacon score of both borrowers is less than 620.
How does this affect me?
If you are a current homeowner, who is happy in your home and have no intentions of moving in the near future than this probably doesn’t affect you. However if you are a prospective homebuyer, looking for 100% financing and a 40 year amortization then your financing options are becoming a little more limited. Most of the big chartered Banks and many lenders have already pulled the above products. Other lenders, such as MERIX are offering these products until October 13, 2008 (please speak with your mortgage originator concerning rules around this deadline).
Let’s take a closer look at the 40 year amortization phenomenon:
Why is it appealing when borrowers know they are paying many thousands of dollars in interest over the life of their mortgage? Well there are a couple of predominant reasons:
New homeowners are increasingly concerned more with their payment amount than the house price or the interest cost over the life of the mortgage. It’s a decision made largely on cashflow.
The vast majority of people who take 40 year amortizations actually qualify for 25 year amortizations but choose the former and accelerate their payments, which reduce their amortization to 32 years. Registering their mortgage with a 40-year amortization helps protect them in the future should they need to decrease their payment.
From a purely mathematical perspective, according to the Ministry of Finance:
“Reducing amortization from 40 years to 35 years on a mortgage loan of $200,000 with a 6 per cent interest rate results in a $41 increase in a borrower’s monthly payment, but the borrower will save $49,000 in interest payments.”
Looking ahead…
If the decision to take 40 year amortizations is based on cashflow, then we’d suggest $41 per month on its own will not cause any major disruptions in the housing market. The reality is that new mortgagors will have to spend a little more in their monthly mortgage obligations but the impact to the housing market will be isolated to those who needed the 40 year amortizations and 100% financing to qualify for their mortgage. As a replacement for 100% financing, we may see the increase in popularity of Cashback mortgages once again. The 100% financing programs have all but made CashBack offers obsolete, however they may be a decent option for some people once again - even if the interest rate is higher.
In the short term, we may see a small spike in homebuying and refinance activity as people try to accelerate their timelines in order to take advantage of these fleeting offers. This may keep the market relatively strong through 2008. In the medium to long term, we don’t expect these changes to have much of an impact to the housing market. 35 year amortizations are still available and for that matter 40 year amortizations will still be available by some lenders, such as MERIX, for those customers who have the minimum 20% down payment for conventional financing.
For more information about 40 year amortizations, we encourage you to read “Why 40 Year Mortgages Aren’t 40 Years Long”, by Peter Vukanovich, President, Genworth Financial Canada. This article can be found here: http://www.genworth.ca/mi/eng/downloads/HT_April_2008.pdf”
Posted by Leslie at 11:49am
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No more telemarketing calls!
July 24, 2008
The Canadian Radio-Television and Telecommunications Commission (CRTC) has created the National “Do Not Call List” which will take effect in September 2008. What this means is that once registered, you should receive less soliciting telephone calls because at this moment, telemarkets have to keep track of their own Do Not Call Lists — and I’m not ENTIRELY sure that they are always on top of that.
So what’s the deal then, how does this whole thing work you ask?
There will be a toll free number (to be determined) that you will be able to call and register up to three Canadian numbers. Once registered, you will be on the list for three years and you’re free to re-register at the end of the three year term.
Here’s a list of some organizations that are EXEMPT to the list:
If during that time you are still getting telemarketing calls (excluding those companies that are exempt to the National “Do Not Call List”, then you’re free to register a complaint. Once registered, an investigation will be made and if they find the complaint to be true, a fine of $1,500 for individuals and $15,000 for corporations will be issued.
Now how does this tie into real estate you ask? Well, realtors in particular are solicitors as well — you know those who call you up out of the blue to ask if you want to sell your home, ever got one of those calls? Well as of September 2008, once you’ve registered for the National “Do Not Call List” they shouldn’t be bothering you anymore.
For more information, check out the CRTC website.
Posted by Leslie at 3:19pm
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