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Questions by potential first-time home buyers


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#1 Mike K.

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Posted 23 January 2013 - 10:33 PM

Every now and then friends and acquaintances approach me with questions about real-estate and to seek advice on how they should proceed with their first condo/home purchase. I can talk the talk about condo projects, developers and contractors, but when it comes to details about the home buying process for first time buyers there is very little I feel comfortable passing along.

For example, as a first-time buyer, what is the minimum down payment? How much down payment is required to avoid CMHC insurance? Are there perks and benefits for first time buyers? Should common-law couples both sign on as home owners or should only one partner purchase the home which then allows the other partner to purchase the second home as a first-time buyer? And when all is said and done, what are the total fees a first-time buyer pays above and beyond the down payment? Any other important info first-time buyers should be aware of?

[Edit] To clarify, if you're already committed to buying a home you're likely aware of the answers to the above questions. But for potential first-time buyers who are not even sure if they're ready to move from renting to owning, the questions above and others like them often come up in conversation as most people in my peer group have not yet bought or sold real-estate.

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#2 wisevictoria

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Posted 24 January 2013 - 10:42 AM

This is a fairly involved question or topic.

The short answer is to find a mortgage specialist who you feel comfortable with. A good advisor will be happy to meet with you and go through the entire process from start to finish. This should include the mechanics of a mortgage application, qualification rules, different rates and products, mortgage definitions, property transfer tax, other closing costs (legal / building inspection etc, property tax adjustments, etc.)

You know you are talking to the right person when you feel that your questions are all being answered in a concise and understandable way. Taking a mortgage is certainly a big life decision, so do understand what you are getting in to.

To try and answer your questions - 5% down payment is the minimum permitted for the purchase of a primary residence. This is the case for first time and repeat buyers. To avoid CMHC default insurance fees, a minimum down payment of 20% is generally required. There are not many perks for 1st time buyers, other than the ability to withdraw up to $25,000 per person from RRSP's without paying withholding tax, and an exemption to land transfer tax for purchases up to $425,000 (partial exemption up to $450,000). How title should be registered is unique to each person's situation, no blanket rule.

I will do my best to answer any other questions that people may have.

#3 Mike K.

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Posted 24 January 2013 - 12:05 PM

Thank you for your feedback!

Can you elaborate further on CMHC fees and insurance costs for those with a down payment below 20%?

Also, what is the difference between getting a mortgage through a private lender (i.e. a local mortgage company) or getting a mortgage through a bank? And what is the benefit or either option? Are some buyers forced to sidestep the banks due to poor credit, etc?

There are many private lenders out there but I have no idea how they fit into the grand scheme of things and who is their targeted client.

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#4 wisevictoria

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Posted 24 January 2013 - 12:21 PM

CMHC insurance fees apply to mortgages in excess of 80% of the property value due to The Canadian Bank Act. This piece of legislation requires that in order to issue a mortgage over 80%, lenders have an insurance policy in place to protect the lender if the borrower defaults. i.e. borrower stops making payments, bank forecloses and sells the house but is short on the value of the mortgage by some amount, the insurance company will cover this shortfall. This insurance does not provide any benefit or coverage to the borrower, but for the fact that it allows the lender to actually issue the loan.

There are three insurers in Canada that provide this type of coverage. The predominant one is CMHC. The others are Genworth Financial and Canada Guarantee (formerly AIG). They all have fairly similar policies and guidelines, as well as costs. From a home owner's perspective, they are hard to tell apart.

The cost is a function of the down payment size. Basically, the smaller the down payment the higher the risk to the lender, so the higher the insurance premium. Generally the premium is added to the mortgage amount, not paid in cash. With 5%-9.9% down payment, the insurance fee is 2.75% of the mortgage amount. From 10.0% - 14.9% it is 2.0%. From 15.0% - 19.9% it is 1.75%. Below 80% it is zero with most lenders. There are certain circumstances where you would still insure a loan even below the 80% financing level. In this case, the premiums decrease further. From 20% - 24.9% it is 1.0%. 25-34.9% it is 0.65%, and over 35% it is 0.50%.

There are some variations to this. Particularly in the days of 30-40 year amortizations for insured mortgages, there was a 0.20% premium for each 5 years of amortization beyond 25 years. If a down payment is borrowed, there is a 0.15% surcharge. Also, for self employed people who don't income qualify in a traditional sense, higher rates apply. Rental properties are also deemed more risky, and have a higher premium rate (currently maximum is 80% financing on rentals, but with some lenders insurance premiums still apply)

#5 Holden West

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Posted 24 January 2013 - 12:28 PM

Always go through a mortgage broker. They shop around for the best deal. Think about airline tickets--do you think calling up Air Canada is going to get you a cheap ticket? And there are no direct fees to pay. The broker takes his cut from the bank. He'll also input all your financial information into his computer, along with the costs of buying to help you find out what you can afford. He'll also alert you to a lot of the often forgotten costs of buying a home (legal fees, assessments) and factor that into the purchase price. He'll also give you the pros and cons of variable rate or locking in long term.

But I would ask around for a good name. Like a travel agent, you want a wily veteran.
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#6 MarkoJ

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Posted 24 January 2013 - 01:25 PM

Involved question....I'll answer in detail this evening.

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#7 Mike K.

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Posted 24 January 2013 - 01:30 PM

Thanks, wise, and Holden, that makes a lot of sense. I never would have thought of it that way.

@Marko, looking forward to it.

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#8 pherthyl

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Posted 24 January 2013 - 02:06 PM

I don't want to start an argument here about the value of mortgage brokers or realtors. I agree with Holden West that going through a broker is your best bet.

But critically, do your own research. All the questions that Mike K posted could be easily answered in 30 minutes on Google. The purchase of a home is likely the biggest single purchase you will ever make, so don't you think it's worth spending a few hours educating yourself?

Mortgage brokers and Realtors are a great resource, and if you get a good one they will spend the time giving you an overview of things you should consider. But never forget that fundamentally they are both there to sell you a product. That doesn't mean their advice isn't good or accurate, but keep that fact in mind. Just like you would not rely only on the car dealer for advice about which car to buy.

Also if you come in to the process somewhat educated, the mortgage broker or realtor will not have to spend as much time with you teaching the basics, and you might get a good deal on the commission or a better rate.

#9 Mike K.

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Posted 24 January 2013 - 02:26 PM

I don't want to start an argument here about the value of mortgage brokers or realtors. I agree with Holden West that going through a broker is your best bet.

But critically, do your own research. All the questions that Mike K posted could be easily answered in 30 minutes on Google. The purchase of a home is likely the biggest single purchase you will ever make, so don't you think it's worth spending a few hours educating yourself?

Mortgage brokers and Realtors are a great resource, and if you get a good one they will spend the time giving you an overview of things you should consider. But never forget that fundamentally they are both there to sell you a product. That doesn't mean their advice isn't good or accurate, but keep that fact in mind. Just like you would not rely only on the car dealer for advice about which car to buy.


Doing your own research goes without saying.

But what you are suggesting, in that real-estate professionals are simply salesmen who want to sell you something and therefore have tainted opinions and shouldn't be relied on to provide facts, is misguided, wouldn't you say?

Approaching a professional, be it a mortgage agent or a real-estate agent, who has been practicing for many years, studies the industry, keeps up to date on the latest regulations and trends and has a swath of experience dealing with a variety of clients and their individual situations and needs is an excellent opportunity to learn something and shouldn't be discarded as a clandestine sales tactic. Otherwise why even go through an agent at all? Why not just secure your own mortgage, negotiate your own real-estate purchase, deal with the legal wranglings that can accompany real-estate transactions, and sell your own home?

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#10 MarkoJ

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Posted 24 January 2013 - 03:08 PM

There is a lot of merit to what pherthyl has said. Barrier to entry for both REALTORS® and mortgages brokers is extremely low - I will discuss tonight in detail.

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Looking at Condo Pre-Sales in Victoria? Save Thousands!

 

 


#11 dasmo

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Posted 24 January 2013 - 03:42 PM

You should negotiate yourself through your estate agent. As pherthyl said, do your research. Figure out what you can afford yourself. Think for yourself. Then use your agent as a go between. Helps remove emotion from the transaction and the discomfort of confrontation. In my experience, the estate agent will not help you come up with numbers but they are obligated to take your numbers to the table. Don't get emotional about it until it's actually yours. You must be willing to walk! Agents can also help by giving you information on a seller or get you property info before it hits the MLS etc. So I do feel estate agents are of value but not necessarily in getting you the best price for a property. That is up to you.

evalueBC can give you comparative actual recent sales figures for any area you might be looking as well as assessments. http://evaluebc.bcassessment.ca

As far as rates go, You can do a broker but still know your numbers. http://www.ratehub.ca will let you know what's happening. If you have a good relationship with your bank, then ask them for the best rate and see what happens. Worked for me.

Also get a lawyer to actually review you mortgage and explain it to you, not just rubber stamp you through everything in ten minutes. You will be paying them anyway.

They will want you to get "mortgage life insurance", don't. Get your own life insurance separate. That way if your all payed up, you still have life insurance. The kind tied to your mortgage shrinks along with it.

Always include a "subject to" a home inspection. Get a home inspection from an inspection place you get yourself. But keep a level head. Every place will have something and it's their job to point it out to you. If there is something that is a big surprise and they didn't disclose it to you, then bring it to the table. I found Barnes & Co http://www.inspectionsvictoria.com to be very thorough. They looked into everywhere, taking pics and doing a detailed report at the end. Plus, the Realtor didn't like them...


I could go on but I have to go...

#12 Mike K.

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Posted 24 January 2013 - 03:50 PM

I look forward to your insights, Marko, and again, thanks for your thoughts, wisevictoria.

You should negotiate yourself through your estate agent. As pherthyl said, do your research. Figure out what you can afford yourself. Think for yourself. Then use your agent as a go between. Helps remove emotion from the transaction and the discomfort of confrontation. In my experience, the estate agent will not help you come up with numbers but they are obligated to take your numbers to the table. Don't get emotional about it until it's actually yours. You must be willing to walk! Agents can also help by giving you information on a seller or get you property info before it hits the MLS etc. So I do feel estate agents are of value but not necessarily in getting you the best price for a property. That is up to you.


I think some of you may be mistaking my questions for something else. I'm not asking how an agent negotiates the best mortgage rate or a real-estate agent negotiates the best price, I'm more interested in the steps involved for a first-time buyer :)

The reason I ask these questions is they are asked of me with regularity and not being in the market I've had little reason to sit down and research the particulars. wisevictoria put things in a concise way and I feel like I can shed a little bit of light on this now if asked.

Also get a lawyer to actually review you mortgage and explain it to you, not just rubber stamp you through everything in ten minutes. You will be paying them anyway.

They will want you to get "mortgage life insurance", don't. Get your own life insurance separate. That way if your all payed up, you still have life insurance. The kind tied to your mortgage shrinks along with it.


This is great advice.

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#13 dasmo

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Posted 24 January 2013 - 04:01 PM

oh, I thought it was a thread for advice for a first-time home buyer ;-)

#14 seanpro

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Posted 24 January 2013 - 04:01 PM

You should negotiate yourself through your estate agent. As pherthyl said, do your research. Figure out what you can afford yourself. Think for yourself. Then use your agent as a go between. Helps remove emotion from the transaction and the discomfort of confrontation. In my experience, the estate agent will not help you come up with numbers but they are obligated to take your numbers to the table. Don't get emotional about it until it's actually yours. You must be willing to walk! Agents can also help by giving you information on a seller or get you property info before it hits the MLS etc. So I do feel estate agents are of value but not necessarily in getting you the best price for a property. That is up to you.

evalueBC can give you comparative actual recent sales figures for any area you might be looking as well as assessments. http://evaluebc.bcassessment.ca

As far as rates go, You can do a broker but still know your numbers. http://www.ratehub.ca will let you know what's happening. If you have a good relationship with your bank, then ask them for the best rate and see what happens. Worked for me.

Also get a lawyer to actually review you mortgage and explain it to you, not just rubber stamp you through everything in ten minutes. You will be paying them anyway.

They will want you to get "mortgage life insurance", don't. Get your own life insurance separate. That way if your all payed up, you still have life insurance. The kind tied to your mortgage shrinks along with it.

Always include a "subject to" a home inspection. Get a home inspection from an inspection place you get yourself. But keep a level head. Every place will have something and it's their job to point it out to you. If there is something that is a big surprise and they didn't disclose it to you, then bring it to the table. I found Barnes & Co http://www.inspectionsvictoria.com to be very thorough. They looked into everywhere, taking pics and doing a detailed report at the end. Plus, the Realtor didn't like them...


I could go on but I have to go...


Thanks dasmo, this info helps a lot!

#15 Mike K.

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Posted 24 January 2013 - 04:11 PM

^^If you're already committed to buying a home you're likely to have very different questions than someone trying to decide whether or not to pursue home ownership for the first time. I've updated the thread title to be more descriptive, my apologies for any confusion.

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#16 wisevictoria

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Posted 24 January 2013 - 04:26 PM

One huge but very often overlooked aspect of mortgages is how the penalty will be calculated in the event that you break the mortgage before its maturity date.

Many brokers and bank mortgage specialists don't understand the actual mechanics of the calculation. Also, the formula used from lender to lender can be dramatically different, resulting in huge differences in the actual penalty amounts. They can easily vary by thousands of dollars. Very often 5 year mortgages don't survive the full 5 years, borrowers need to understand what the impact of breaking the contract early will be.

This guidance applies doubly for anyone considering a "cash back" mortgage. Typically a pro-rated portion of the cash back will be added into the penalty cost, depending on the amount of time passed.

Another trend these days is for lenders to register mortgages as collateral charges. It is a subtle difference in the way that the legal paperwork is set up, but what it can do is eliminate the option to transfer the mortgage to a new lender at maturity. I predict that with real estate values stagnating, a number of recent buyers with insured mortgages will find themselves at the mercy of their lender at renewal time. The inability to conduct a transfer will force the borrower to take whatever rate the incumbent lender will offer.

#17 pherthyl

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Posted 24 January 2013 - 06:45 PM

Doing your own research goes without saying.



I don't think it does. I would suspect many people get all their information secondhand from friends or from their realtor/broker.

But what you are suggesting, in that real-estate professionals are simply salesmen who want to sell you something and therefore have tainted opinions and shouldn't be relied on to provide facts, is misguided, wouldn't you say?

Approaching a professional, be it a mortgage agent or a real-estate agent, who has been practicing for many years, studies the industry, keeps up to date on the latest regulations and trends and has a swath of experience dealing with a variety of clients and their individual situations and needs is an excellent opportunity to learn something and shouldn't be discarded as a clandestine sales tactic.


You misread my post. However I don't want to derail this thread in an argument.

Why not just secure your own mortgage, negotiate your own real-estate purchase, deal with the legal wranglings that can accompany real-estate transactions, and sell your own home?


Some people do just that. Clearly this is not a good idea for a first-timer, but many people do without a broker, and some even without an agent.

Being aware of the motives of the person advising you is inarguably a good thing. That doesn't mean you dismiss their advice, you just look at it with a more informed lens. Unless you are paying your broker or agent by the hour, they only get paid when you buy. It is humanly impossible for that fact not to influence the relationship.

But just incase I haven't made myself crystal clear: First time buyers: After educating yourself, talk to a good mortgage broker and a good agent.

Edit: And if you are interested in the mortgage industry and want to understand some of the intricacies and new developments, check out www.canadianmortgagetrends.com
For example, on the topic of early termination: http://www.canadianm...kage-costs.html

#18 MarkoJ

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Posted 24 January 2013 - 09:43 PM

Regarding pherthyl's comments.

I worked at Jubilee and Victoria General for a few years in intensive care. There were seven intensivists between the two hospitals. There wasn't any particular one that you could say, "ohhh she is not very good," they were all very good. To train for an intensivists you already have to have a strong speciality (surgeon, anesthesiologist, respirologist, internist, emergency doctor) and GP won't cut it. The barrier to entry is extremely high as you can imagine. No wonder those who make it are competent, intelligent, educated, experienced and typically love the job.

Then let's shift over to REALTORS®. An intelligent person could blow through the course book (20 modules) in about 2 to 3 weeks if they spent 6 to 8 hours each day studying. The exam is 100 MC questions and congrats, you are a REALTOR®. Barrier to course? Highschool diploma. Problem #1

Fee structure and service and/or experience offered by REALTORS® in my opinion are very poorly correlated. For example, there is a REALTOR® from One Percent Realty I recently worked with on a deal. He has been in the business for 9 years, has a broker's licence (not many REALTORS® have this qualification), has experience as a managing broker of a real estate brokerage, a university degree, and a long list of real estate awards. I also found him to very competent and he was really protecting the best interest of his clients the entire time, I was impressed. The old adage of "you get what you pay for," doesn't work in real estate. Sometimes you pay a lot less and you get a ton more. Problem #2

Fee structure is based on commission sales and there is something called human nature. Problem #3 - Many other problems, but you get the picture.

You have to do your own research when you are talking about half a million dollars. Educate yourself as much as possible - at the end of the day it is your money, not the REALTOR'S®. Self-education can help you understand many topics such as the risks and benefits of buying, role of a REALTOR® and their compensation, various incentives REALTORS® offer to buyers, local market trends and opinions, various issues such as asbestos, depreciation reports, etc.

For example, just look at VV and what a great resource it is for those looking to buy pre-sale condos. It wouldn't be wise to buy into a development without reading every single page of that particular thread. Do you think that every REALTOR® is religiously reading the threads and keeping up to date on every project? Probably not.

I bought a new car last year. I read 5 reviews online, watched about 15 YouTube videos including owner reviews, got the best pricing from reading threads on www.redflagdeals.com and I literally went to Campus Honda and said "give me the keys, I want to go on my own." I went on a test drive for 10 minutes, came back, and said, "Civic Si, White, 4 Door, and this is what I will pay." I knew their bottom line. I also knew the car had crap interior quality and all the other details even before the test drive.

Regarding mortgage brokers, great story. In 2011 I personally went mortgage shopping. I contacted ING directly and a few other banks. Got some quotes. I sent my file to a local mortgage broker from Dominion Lending that I knew because we had a few mutual clients. The best variable rate she could get me was 2.65%, but get this, she referred me to a guy at Royal Bank (mortgage brokers don't have access to RBC) and he got me variable rate in the low 2's. She sacraficed her commission for my best interest. Can you trust your mortgage broker to do this? If so, go with a mortgage broker.

Marko Juras, REALTOR® & Associate Broker | Gold MLS® 2011-2018 | Fair Realty

www.MarkoJuras.com - MLS® from $899 and $1,000 cash back for buyers | www.834sales.com & www.promontoryforsale.com - Building(s) specialist 

Looking at Condo Pre-Sales in Victoria? Save Thousands!

 

 


#19 MarkoJ

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Posted 24 January 2013 - 09:45 PM

And I will answer Mike's original question tomorrow night....had to deal with too many low ball offers today :)

Marko Juras, REALTOR® & Associate Broker | Gold MLS® 2011-2018 | Fair Realty

www.MarkoJuras.com - MLS® from $899 and $1,000 cash back for buyers | www.834sales.com & www.promontoryforsale.com - Building(s) specialist 

Looking at Condo Pre-Sales in Victoria? Save Thousands!

 

 


#20 MarkoJ

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Posted 24 January 2013 - 10:05 PM

There are some very well put together self-education documents. For example, if you are thinking about buying a condo you should definitely read this package from CMHC ->

http://www.cmhc-schl...b/pdf/63100.pdf

Marko Juras, REALTOR® & Associate Broker | Gold MLS® 2011-2018 | Fair Realty

www.MarkoJuras.com - MLS® from $899 and $1,000 cash back for buyers | www.834sales.com & www.promontoryforsale.com - Building(s) specialist 

Looking at Condo Pre-Sales in Victoria? Save Thousands!

 

 


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