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Top 5 first-time homebuyers’ mistakes

June 10th, 2010
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A lot of homework needs to be done before one commits to buying a house and making payments.

Buying your first home involves a lot of research and effort. In spite of all the resources available to help First home buyers, people tend to make mistake when they buy a house for the first time. Here are few of common mistakes that you can keep away when you go out to buy a house.

Not collecting adequate information
A lot of homework needs to be done before one commits to buy a house and makes payments. The best way of obtaining relevant information and tips for first home buyers would be to get advised by an experienced realtor. Real estate professionals represent their client’s best interests and not gaining maximum advantage from their expertise can be grave error of judgment for new home buyers.

Forgetting to have a house inspection before closing the deal
One should not buy a house without getting it thoroughly inspected. Home inspectors should be able to describe in advance about their services. Usually home inspectors check the plumbing, foundation, structure, electrical works, roof, heating and air conditioning system and the garage and the basement. Though important, not all home inspectors check the house for termites, radon, asbestos, mold and lead problems.

Not setting a budget before buying a home
Buying a house that is well above their budget is one of the common mistakes first home buyers tend to make. Prioritizing one’s needs and expenses, setting a home-budget that is comfortably within one’s means is critical in home purchasing. Experts say that ideally, one’s total monthly debts, including mortgage, should not exceed 36 percent of one’s income before taxes.

Overpaying for the new house
One of the common mistakes of first home buyers is neglecting to find out what exactly is the cost of the house that they are about to buy. The best way to find that out is to compare the cost of the house with the current costs of similar sized houses in the area.

Everything but the community
As social beings, people have the need to be well adjusted to their surroundings and neighbors to feel satisfied. The cheapest house may not come along with the best locale, good schools or crime-free areas. When you buy a house, the location is also important if the owner decides to re-sell the property after a few years. The best thing is for one to research about the community through the internet, papers, locals etc.

And we’ll add a bonus first-time homebuyer mistake:

Forgetting closing costs
One of the cardinal rules for first home buyers is never to forget that there are closing costs in every home transaction deal. Closing costs can run up to 2 – 5 percent of the home’s total cost. A mortgage lender should provide the home owner with a specific estimate of what costs will be. It is also important to remember that origination (points) on a loan, escrow fees, title and homeowners insurance, legal costs, property taxes, fees to record your new deed and notary fees all can increase the money which is not usually thought of by many people when the housing budget is planned to buy a house.

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Posted in Buying a home, Financing, Mortgage, Real Estate

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Canadian mortgage rules to change

February 16th, 2010
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Finance Minister Jim Flaherty has announced new rules aimed at preventing homebuyers from getting in over their heads with mortgage debt.

Finance Minister Jim Flaherty has announced new rules aimed at preventing homebuyers from getting in over their heads with mortgage debt.

From CBC.ca:

Finance Minister Jim Flaherty announced new rules Tuesday aimed at preventing homebuyers from getting into financial difficulty when mortgage rates rise.

After consulting with major Canadian lenders, Flaherty outlined the latest weapons at Ottawa’s disposal aimed at removing some of the speculative froth in the housing market.

“There is no evidence of a housing bubble, but we’re taking prudent steps today to prevent one,” he said at a news conference in Ottawa. “If some lenders aren’t willing to act themselves, we will act.”

Broadly speaking, the plan unveiled has three components.

First, Ottawa will require that all borrowers meet the standards for a five-year fixed-rate mortgage, even if they choose a variable mortgage with a lower rate or a shorter term.

“This will guard against higher rates in the future,” Flaherty said.

Second, the rules would lower the maximum Canadians can withdraw when refinancing their mortgages to 90 per cent of the value of their home, from 95 per cent.

And finally, Ottawa will now require a minimum 20 per cent down payment to qualify for CMHC insurance for non-owner-occupied properties purchased as an investment.

The last rule is aimed at reining in would-be real estate speculators who own multiple properties beyond their primary residence.

“We want to discourage the tendency some people have to use a home as an ATM, or buy three or four condos on speculation,” Flaherty said.

Minimum down payment unchanged

There had been speculation the Department of Finance might implement legislation raising the minimum down payment from five to 10 per cent of a home’s value, or reduce the maximum amortization period from 35 years to 30 years.

Those measures were not part of Flaherty’s announcement Tuesday, but all options are still on the table should circumstances change, Flaherty said.

The adjustments to the mortgage insurance guarantee framework, to be implemented as of April 19, 2010, are not likely to revolutionize the industry. Indeed, a number of large Canadian lenders already practise the first peg of Flaherty’s plan. After Tuesday’s announcement, Bank of Montreal noted that it requires its high-ratio borrowers to be able to qualify using the five-year rate.

“While we do not believe that Canada faces a housing bubble, we fully support the minister’s actions,” the bank said in a release. “Given the prospect of higher interest rates and the recent run-up in housing prices in some markets across Canada, the measures announced today are prudent.”

“This is a little bit late in telling Canadians we need to be more cautious in taking out a mortgage,” Royal Bank chief economist Patricia Croft said in reaction to Flaherty’s announcement.

Though she stopped short of calling Canadian real estate in bubble territory already, she said the April 19 date for implementation is actually likely to cause more short-term stimulation of the market, as people scramble to get in under the deadline.

“If you wanted to buy a house, wouldn’t you now do it before April?” Croft asked. “It’s even more evidence that house prices are going to cool down later this year.”

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January home sales plunge 50%

January 20th, 2009

From YourHome.ca:

Realtors say a flurry of buying last January to escape Torontos new land transfer tax that came into effect in February 2008 may have exaggerated the year-over-year drop.

Realtors say a flurry of buying last January to escape Toronto's new land transfer tax that came into effect in February 2008 may have exaggerated the year-over-year drop.

Average GTA property price falls $35,000 from last year; analysts predict tough year ahead for market

The Toronto Real Estate Board yesterday reported a meagre 888 sales in the first half of January, compared with 1,776 sales during the same period a year ago.

The average price of a home is also down, 9.5 per cent to $332,495, compared with last year’s $367,574 – a $35,000 plunge.

“The economic situation in Canada has changed noticeably over the past year … Toronto is not immune to this,” TREB president Maureen O’Neill said.

“The GTA housing market has been impacted.”

Realtors say a flurry of buying last January to escape Toronto’s new land transfer tax that came into effect in February 2008 may have exaggerated the year-over-year drop.

Sales in the city of Toronto are off 54 per cent in the first 15 days of 2009, while prices are down more than $40,000 for the average home. Homes in the 905 suburbs were not hit as hard, with sales down 47 per cent and prices off $26,000.

There is no question this will be a difficult year for the housing market as well as the commercial real estate market.

Job losses for the GTA could mount to 125,000 over the next 12 to 18 months, according to a report by housing analyst Will Dunning.

“We are probably at the edge of a rapid drop in employment,” Dunning said. “That added negative factor will accelerate, deepen and prolong the recession.”

Dunning said he remains convinced the condo market is the most vulnerable to a downturn, with 36,700 units currently under construction in the GTA. In central Toronto, resale listings, as well as rental condo listings, are up 75 per cent from a year ago, he said.

“I’ve been saying for a long time that there is excess investment in the condo apartment market and the reckoning has been deferred due to delayed completions,” Dunning said. “This has allowed the supply pipeline to get very fat. The reckoning has now begun.”

Meanwhile, in the commercial market, there was just under 12 million square feet leased in 2008, compared with 13 million in 2007, resulting in an 8 per cent drop in activity according to a report on commercial and industrial activity released by TREB yesterday.

“This result demonstrates the commercial market has not escaped the downward economic pressures of the last several quarters,” said TREB commercial council chair Garry Lander.

Despite the fall, 2008 leasing figures are still up by 3 per cent over 2006 figures.

But analysts say it will be tougher for commercial real estate as layoffs start to sink in, while more than three million square feet of new space is set to be completed at the end of 2009.

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Posted in Buying a home, Financing, GTA, Living in Milton, Mortgage, Real Estate, Selling a home

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Ontario Land Transfer Tax Calculator

July 19th, 2008

Those of you buying or thinking of buying a new home will undoubtedly love this Ontario Land Transfer Tax calculator.

Bookmark it and consult it before or after you purchase your home to avoid the usual shock when your lawyer shows you the actual dollar amount….

– the MiltonSearch.com Real Estate Team 

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Posted in Buying a home, Financing, Mortgage, Selling a home

The pros and cons of a 40-year mortgage

April 20th, 2008

pros and cons of a 40-year mortgage,
The 40-year mortgage is popular with homebuyers, especially in Toronto where prices have risen sharply.

Let’s look at the pros and cons of extending a mortgage past the traditional 25-year limit.

Harriet and Henry are buying a home in the Greater Toronto Area. They both have RRSPs, from which they plan to borrow $40,000 for the down payment, and parents who can make up the difference.

The average home in the GTA sold for $380,000 last month. So, this couple puts down $76,000 (or 20 per cent) to avoid paying a costly mortgage insurance premium.

They shop around and get a five-year fixed mortgage term at 5.64 per cent with President’s Choice Financial.

Here are arguments in favour of a longer payback period:

You can qualify for a bigger house with a lower income: Mortgage lenders want to see a maximum of 32 per cent of gross income going for mortgage payments, property taxes and heating – and no more than 40 to 42 per cent of income going for total debts.

If Harriet and Henry have too low an income – or too much other debt – they won’t be approved for a mortgage without stretching out the repayment.

You don’t have to wait for your salary to go up: Waiting can be risky. You may cool your heels for five to 10 years before qualifying for the home you want.

By that time, you may find interest rates are higher than they are today. And you will be closer to retirement.

Let’s say Harriet and Henry are in their early thirties when buying their first house. They have at least 25 to 30 years left in the workforce.

But if they’re 40 or more before they can buy a home, they won’t likely pay off their mortgage before they retire.

You have more cash for living expenses: If your mortgage costs are punishingly high, you may have little left for other payments.

Harriet and Henry have a $304,000 mortgage. They pay $1,880.44 a month with a 25-year amortization.

But with a 40-year amortization, they pay $1,583.45 a month, cutting their monthly payments by $296.99 – or almost $3,600 a year.

They have more cash flow to pay for property taxes, utilities, repairs, insurance, transportation – and yes, maybe even a holiday or two.

Here are arguments against a longer payback period.

You pay more interest over the life of the loan: With a 25-year amortization, Harriet and Henry will pay $564,131.35 in total (assuming they renew every five years at the same interest rate).

They will pay a whopping $760,061.81 if they take 40 years to pay off the mortgage.

Let’s look at the cost of interest alone.

With a 25-year amortization, it’s $260,131.35. And with a 40-year amortization, it’s $456,061.81 – or half as much again as the initial loan.

You build equity more slowly and get back less of the money you paid in when you sell the house: Suppose Harriet and Henry go for a 40-year amortization.

A decade after buying a home, they still owe $276,589.17 on their $304,000 loan.

After 20 years, they still owe $228,783.96.

And after 25 years – when others have paid off their mortgages in full – they still owe $192,856.70.

So, how can you avoid this trap?

Increase your mortgage payments as much as you can.

Throw any other cash you have (such as income tax refunds) into the mortgage.

Your goal is to shorten the payback period and interest paid – and to fatten your own bottom line instead of the lender’s.

– by Ellen Roseman of the Toronto Star

Comment: Do you think the banks should offer 40-year mortgages, Milton?

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Posted in Buying a home, Financing, Mortgage