What Do You Want?
Begin by listing your needs:
- living requirements (i.e. how many bedrooms);
- family size;
- what you're bringing with you from your old house;
- how close to schools, shopping and other services;
- the size of down payment you can afford; and,
- price range.
It's important to be realistic when you're thinking about a down payment and setting a price range. You don't want to be saddled with something you can't afford. At this stage, it's a good idea to talk things over with a real estate sales professional.
What's Out There?
The marketplace offers both resale homes and new homes. However, since this document deals with resale homes, we will concentrate on them. (If you're interested in a new home, talk with your salesperson.)
Resale homes may be protected by a warranty offered by the vendor.
Resale homes are more likely to be in established neighbourhoods, close to amenities and have mature trees and gardens.
Remember, however, a resale home has been lived in. It has been exposed to the elements for a number of years. The house may have experienced some degree of shrinkage and settling.
Making an Offer
In the offer, you are:
- saying how much you're willing to pay;
- suggesting a closing date;
- proposing a set of conditions; and,
- stating when the offer expires.
At this time you'll present a deposit, along with your offer. An appropriate deposit will show your good faith to the seller. The seller's agent is bound by law to bring all offers to the seller's attention.
After your offer is accepted and all the conditions are met, the offer becomes binding on both sides. If you walk away from the deal at that point, you may lose your deposit. You may also be sued for damages. Therefore, make sure you understand and agree with all of the terms of the offer before signing.
Most offers carry some kind of conditions which have to be met before the sale is complete. Some common types of conditions are:
- you getting a suitable mortgage (include the amount, interest rates and any other figures you feel important)
- the seller providing a current survey, or a "real property report," showing the location of the house on the property owned by the seller and that there are no encroachments
- the seller having title to the property (your lawyer will check this out when he or she conducts a title search to see if there are any liens on the property, easements, rights of way or height restrictions)
- if there is a septic system, the seller should have a health inspection certificate, stating the system meets local standards
- if you still have any doubts about the home's safety and construction, you may wish to make the purchase conditional on an inspection by a qualified engineer
The seller may counter your offer, by changing the conditions, price or both. Look at the counter offer in terms of what you're looking for in a new home: how does it fit in? And you can, of course, always counter the counter offer.
A quick way to see how much you can afford is to use the gross debt-service formula (GDS). Here, the Principal, Interest and Taxes (PIT) on your mortgage loan should not exceed 30 per cent of your gross income. Increasingly, financial institutions will factor energy costs into the PIT formula, moving the rule of thumb GDS from 30 to 32 per cent.
You can work it out in reverse: multiply the monthly payment on principal, interest and taxes (include any condominium maintenance fees) by 40. So if your monthly payment for these items is $1,000, you'll need a gross annual income of at least $40,000. Discuss your mortgage limit and different types of mortgages with your salesperson before you begin seriously looking for a new home.
Before the house can formally change hands, there are still a few things to do. Here's what to expect on or before closing day:
- your lawyer and the seller's lawyer will arrange to transfer title of the property from the seller to you
- the mortgage money will be transferred to your lawyer's trust account, and then to the seller
- your lawyer will bill you all additional expenses -- land transfer taxes and any outstanding legal fees
At this time, be sure to:
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- check with your lawyer that everything is as stated in the offer-to-purchase
- make a pre-possession walk-through with the agent. Is everything in good condition? Is everything you wanted there?