The Alleyne Team Home Buyer’s Guide
The Alleyne Team welcomes every opportunity to be of service to home buyers – especially first time buyers. This buyer’s guide outlines the things that need to be accomplished before getting the key to your dream home. A guide will never take the place of the personal touch, but we wanted to provide an online resource for buyers. This guide is meant for general information. Please feel free to call us 604-785-7066 (ask for Mike) and ask away - we love talking about real estate. We are an experienced team in the areas of Surrey (including Cloverdale and South Surrey), White Rock, Langley and surrounding areas. We are glad to walk you through the A to Z (from mortgage application to the house keys) of buying a property.
First time home buyers are the ones who usually need more guidance. It’s your first time after all. Often, uppermost on mind is how much money is required and where to get enough money to finance the purchase of a home. If you have enough available cash on hand, or from the support of somebody else, it simplifies the home buying process significantly. But realistically, most of us don’t have enough cash to purchase a home outright. If you have a stable source of income, then the solution is a mortgage.
MortgagesA mortgage is a loan from a bank or a lender to buy a property – usually a house, townhome, condo, apartment or land. The difference between a mortgage and other loans is that with a mortgage, the house or condo bought from the loan proceeds is pledged to the lender as security to the loan.
It is wise to have a pre-approved home mortgage before going on a house hunting spree. With pre-approval, you will know how much your budget is. When buying a home, aside from the cost of the home itself, you also have to pay incidental expenses like taxes, home inspection fees, insurance, renovations, utilities and ongoing maintenance. You will need to have enough money and savings to be able to live comfortably.
Financial institutions (credit unions and banks) look at your income flow and assist you. So as long as you have stable income, either from your job or a business and average to good credit, it should not be too difficult to obtain a pre-approved home mortgage. Be ready with your financial documents as lenders will be requiring it at the time of your application for mortgage.
TerminologyBefore venturing any further, you should get acquainted with their terminology that is vital to the whole mortgage process.
In lending, amortization refers to payment of a loan distributed over a period of time as determined by the amortization schedule. The amortization is composed of the principal, or the original money borrowed, and the interest or the fee that you are paying to the lender.
Term refers to the period of time over which you will pay the loan. The loan term usually varies from 6 months to 5 years. When the due date comes, you have to pay the remaining balance in full, arrange for an extension of term, or your lender will create another payment plan for you. You are comitted to one financial institution for the term that you intially chose, however; you can move your mortgage when the term is completed. Mike Alleyne wrote a very informative blog on entitled, Prepare Yourself for Mortgage Renewal, A Cautionary Tale. Your decision on the term of the loan is crucial to your cash flow in the future when you start paying the amortization. Here are the pros and the cons:
Longer payment term
The monthly amortization is smaller and more affordable if you have limited cash flow; but
The consequence is you pay more in interest in the long run.
Shorter payment term
Lower interest rate but the monthly amortization may be heavy on the pocketbook.
Fixed versus Variable MortgageWith a fixed rate mortgage the name says it all. The rate is fixed for the term of the loan. By choosing a fixed rate mortgage you will have the certainty of what your monthly payments are and how much is applied to principal and interest. When interest rates are low, this type of mortgage provides a certainty that you will not be affected by any increase in interest rates for the term of the mortgage. On the flip side, if interest rates decrease, you will not get the benefit of the lower rate.
With a variable rate mortgage, you will still have certainty of the monthly payment about. The uncertainty or “variable” part of this type of mortgage is how much of the payment is applied to principal and how much to interest. This types of mortgage would benefit you in the opposite circumstances than with the fixed. If interest rates go down more of the monthly payment would be applied towards your principal.
Open versus Closed Mortgages
An open mortgage can be paid off or revised at any time, so it is very flexible. This type of mortgage is may be entered into when you expect your financial circumstances to change in a positive manner. For example, are you anticipating a big bonus from work that you’d like to put against your mortgage. The downside is that it often comes with higher interest rates.On the other hand, the terms and conditions of a fixed or closed mortgage cannot be changed unless the full term has been completed or you are willing to pay for the penalties. There is usually some flexibility within this mortgage because financial institutions have some unique mortgage products, some closed mortgages:
are completely closed to additional payments
allow the borrower to increase their monthly payment (with some restrictions)
allow an annual lump sum payment of 10%, others allow 15%
include the ability to double up on a mortgage payment
allow the borrower to change payment frequently to weekly, bi-weekly, semi-monthly or monthly
If a certain amount of flexibility within the closed mortgage is of interest to you, ensure that you compare the mortgage products carefully that the financial institutions are offering.
You want the mortgage that suits your needs because the penalty for breaking a fixed or closed mortgage can be quite harsh. The penalty is usually three months of interest or the interest rate differential, whichever is higher. Canada mortgage trends has a tool that will allow you to calculate what the interest rate differential is http://www.canadianmortgagetrends.com/interest-rate-differential-ird.
Regardless of the type of mortgage you choose, the mortgage payment will be set up to automatically withdraw from your bank account. You will need to ensure you have sufficient funds to pay the home mortgage. This way, you will create a good credit history, which will be to your advantage when you want to avail of other loans or mortgages in the future.
How much can you borrow?Lenders usually cover up to 95% of the cost of your house or condo unit. You must have enough funds to pay for the remaining 5%. In Canada it is mandatory to have CMHC for any mortgage where the buyers puts less than 20% down. The lender will require CMHC loan mortgage insurance if you have a down payment of from 5% to 20% of the cost of the property. Some lenders require upfront payment for the insurance premium but most will add the cost to your monthly amortization. To determine the approximate amount of the CMHC insurance on your high ratio mortgage use this tool.
Another guide for checking how much you can afford is by using the parameters set by the Canadian Mortgage and Housing Corporation's "Are you Financially Ready Guide".
And finally, do a self-assessment using these rules used by many lenders (a) do not spend more than 32% of your gross income on costs related to housing (taxes, renovation, lease costs, heating equipment, etc.) and, (b) do not spend more than 40% of your gross income on paying debts.
Applying for a mortgage for residents in Canada is a fairly straightforward process as most financial institutions offer mortgage loans. But before you commit to a certain bank or lender, gather a few “quotations” or get pre-approval from several lenders so that you can compare rates and get the best rate available.
If you don’t want to do the legwork, a mortgage broker is an excellent alternative. They know the market well and can generally get you a very good rate. If you want to shop mortgage rates yourself, then,
Gather up some basic paperwork about yourself, and your financial picture, such as identification, last year’s personal tax return, Notice of Assessment from Canada Revenue Agency, and perhaps a current paystub showing your income to date in the current year.
Go to your existing bank first for mortgage pre-approval. It may be easier because the bank already has a relationship with you. Banks are very much into KYC (know your client)
Once you have a rate from your bank, go to other banks as well. However; be prepared to develop a relationship and open a bank account at whichever bank ultimately holds your mortgage. For most banks these days, this will be mandatory. Let your bank know that you will be getting a competing quote and they will likely sharpen their pencil
You can do some preliminary calculations before going to the bank by using the Alleyneteam.com mortgage payment calculator. Remember that every mortgage calculator will be a little different because, different items are factored in. For example, some mortgage calculators factor in property tax. Use the mortgage calculator just as a general estimate of monthly payments. If you’d like a preliminary interest rate to work with, you can refer to rates posted online, or alternatively, use a mortgage rate quoting tool.
Remember, if you do not want to go through the hassle of shopping for lenders yourself, engage the services of an accredited mortgage broker who can represent you. You give them the information once, and they shop around for you. Simple as that. We have provided you with some names of mortgages brokers on our resources page.
How to Choose a Lender
If you already got several mortgage pre-approvals from different lenders and all of them offer competitive rates, which lender should you choose? Here are some tips:
Look at the paperwork package. Put premium on transparency. Choose the lender that can explain to you the details, minus the “bling-bling” and who is willing to send or email you copies of documents so that you can take time to study it and return to them with more questions. The mortgage financing industry is also technologically advanced that all documents, forms and other documents are instantly available and can be sent in seconds.
How clearly does the mortgage representative explain the process to you?
How is their responsiveness? How quickly do they return your phone calls?
Are they friendly, courteous and respectful?
Who has the best interest rate? Do they honour what they have advertised online. Ensure you are comparing apples to apples. Ask them to be clear on all the costs you will be incurring. Are there appraisal or financing fees?
How are the online reviews of the lenders? In this “share” era, other borrowers have likely done online reviews or testimonials.
Obtaining a mortgage for your dream house may be one of the biggest financial decisions in your life that it is important you work with an organization that you are comfortable with. Use what you've learned, plus trust your gut feel. Your inner instinct will tell you if something is not quite right, the devil can be in the details.
Once you’ve chosen the lender and had been given preapproval and started the ball rolling for a mortgage loan, it’s now time to go house-hunting!
This is when the gets fun. You now know how much you can spend …. so let the home shopping begin. Tell the truth, we know, you’ve already started looking on the internet. That’s completely natural. 94% of the Canadians who want to buy houses or condo units so some part of their search online. Gone are the days of looking through thumbnail sized black and white listings in the paper. Searching on line is a lot more fun, grab a cup of tea, coffee, glass of wine and search in the sanctity of private.
A word of warning though, many things you read online are sugar-coated. Learn to read between the lines. “Needing finishing touches from the decorator” may actually mean major renovation necessary. Often the home looks perfect in pictures but is at a busy intersection or under power lines. There are often notes in the listing noting such things that only the realtor sees.
In all cases, you will need to visit the property at least twice before signing up for anything. Photos posted online were taken at the house or condo unit’s best angle. They may not be the actual representation of the real thing.
Quotations online may not be the final cost. There might be other hidden costs. So it is suggested that you talk to the realtor so that the total costs will not exceed your approved mortgage.
It’s important to know what you are looking for. Some buyers know instinctively what they want. Others let their realtor walk them through their choices. Still other form the plan for their dream home during the searching process. That is, they look at homes and decide what they like and what they don’t like.
The “right” property that will fit your budget and lifestyle. Here are a few tips on how to find the right home for you.
Make a wish list. Keeping your budget or pre-approved mortgage in mind, make a wish list of what you want your house to be like and you can narrow down your list to the three must haves. Examples are number of bedrooms, parking, a porch or a kitchen that can double as dining area where your family members can hang out.
If you are searching for a home in the lower mainland, chances are you are going to have to make sacrifices. What items on your wish list are the most important to you. Surrey, South Surrey, White Rock, Cloverdale and Langley are all very hot real estate markets. There are wonderful little enclaves in each area. We recommend that you provide your realtor with your wish list.
Pick a team to work with
Buying real estate is a very big decision. Don’t panic, there is no need to face this process by yourself. The first step is to pick a good real estate agent to work with. You will want that realtor to be working exclusively for you. That is, it’s not advisable to go to an open house, fall in love with that open house, and ask that realtor to write an offer for you. You will want a realtor to be working for you and only you when you enter the negotiation phase.
There are many good realtors out there, despite what you hear. Good people that are passionate about their jobs, love the real estate business and want to do the best job for their clients. Ask you family or friends for recommendations. Do you research by reading verified reviews. Interview a few realtors and ask them for references.
Ensure your realtor dedicates their time to you. They should not be answering calls not related to your search while with you. A good idea is to have a realtor who is part of a team. Your realtor has back up to cover office matters and dedicate their time to you.
There are some parameters that you and your realtor should talk about. Sometimes your realtor can help you see other potential opportunites. Other times, the buyers direction is clear and the realtor can get early alerts that meet just that criteria.
Reality Check - Making Decisions and Managing Expectation
Stay within your budget. Let your pre-approved mortgage serve as your price ceiling. A good realtor will not show you houses that are way beyond the amount of your pre-approved mortgage. It’s perfectly OK to show you homes slightly higher than or lower than your range, so that you can absorb that information and make an informed decision.
So, if your budget is a little lean, you may want to go for the modest but accessible suburban neighbourhood at the outskirts of the city. Statistics show that these nice, modest communities have the increase in real estate sales in the recent years. As time passes by, the market value of houses in these areas will likely increase due to demand.
Though you might have your heart set on a suburban areas, there are still locations close to schools, hospitals, restaurants and other public establishments. Aside from the convenience factor, living close to the school district for instance will increase the market value of your home in the future. It’s all about decisions and compromise. Perhaps you chose a smaller footprint closer to amenities.
Decide the type of home that you want
Today’s option for home buyers is whether to buy a condo or a house. Each choice has its pros and cons and should be thought of properly because the difference between the two is more than just having your own yard. Your lifestyle in the future will be affected by where you live. By the way, townhouses and apartments belong to the category of condominiums in terms of ownership, and all these can be covered with mortgage.
The list of features below will help you decide whether to buy a condo or a house:
For a large family
Enjoy a yard of your own
Regular maintenance of the yard premises required
No need to ask permission from anyone for any renovation and maintenance works
No condo association and parking fees
You pay all insurance costs
Total control over the property (you can do whatever you like with the house and its premises at the time that you want it as long as it is legal and you don’t disturb your neighbors)
Comes with many restrictions. You can only do renovations inside your own unit and it should be within the law and your agreement with the condo management)
Many condo fees (association dues, water, sewage, heating systems, parking fees if you have not bought a parking space which is a separate cost from the condo unit itself)
No maintenance of the exterior areas as this is taken-cared of by condo management. This is where the condo fees go to.
You only pay insurance for the interior (for own unit) and the personal properties. The condo management takes care of the insurance for the premises in the exterior and the building itself.
Buying an Old House vs. a New HouseIn case you have chosen that you want to live in a house, there are still many considerations to think about. One of those is whether to buy a brand new home or an older one. In case you decide to go for an really old timer home, double check with the insurance and mortgage company just to make sure that they are covered based on the condition of the house.
If you want to live in the Lower Mainland area of British Columbia such as South Surrey, White Rock and Langley, you will find out that there are still areas that boast of charming old houses that remind you of the Victorian era. Buying old or new houses both have their pros and cons.
Pros of buying older houses
The old world charm. Having a Victorian house for a home will make you the envy of many of your friends. Old houses have the personality and interesting architectural features that new houses lack. When you think about older homes, you imagine lots of arches, stained glass windows, hand-carved furniture and gardens. Old houses have larger yards so that they are filled with matured trees and flowers that add to the old-world feel of the place.
Excellent craftsmanship. Old houses have withstood the tests of time. They were made from sturdy materials that were intricately designed by craftsmen and artisans who did the work more for art’s sake than for earning a living. This element is absent in today’s mass produced decorative materials.
Closely-knit neighbourhoods Chances are residents of old communities know each other. Older houses are passed on from one generation to the next. Moreover, new zoning ordinances are not likely implemented in older neighbourhoods.
Close to the urgan areas Older houses are often nearer to urgan areas and usually very accessible, if not within walking distance from schools, churches, restaurants and other public establishments.
Cons of buying older houses
Requires expensive renovations and maintenance Exactly because these houses are already old, some of its parts have deteriorated over the passage of time. So be prepared to invest in upgrading the chimney, heating system, foundation, floors, etc. The electrical and wiring system should also be replaced to conform to the current housing regulations. Many insurance companies will not ensure properties with outdated electrical system.
Plumbing will also be a potential problem. You might already need to upgrade the sewer systems. The roots of tress may have already damaged the sewer pipes or these pipes have already rusted.
Small storage space People of long ago may not have as many personal effects as we do today that is why their houses were built with limited storage spaces. If you have a big family, be prepared to spend for installation of storage spaces
More expensive Because of their ideal location (proximity to the downtown area), old homes may be more expensive.
Pros of buying newer houses
Little maintenance or renovation required Because everything is new, you don’t have to budget for a major overhaul at least in the next two years.
Fitted with modern conveniences If not already fitted with dishwashers, heating and cooling systems and other modern conveniences, at least, newer homes were built with these considerations in mind.
Built according to the housing regulations The type of materials from which newer houses were built is in accordance with the modern code regulations. These include the wiring, energy efficiency, insulation and the like. This assures you of insurance coverage.
You being the first user Nothing beats the proud feeling of owning a brand new property.
Sometimes Less expensive Newer communities are often built a little farther away from the downtown areas so that they are cheaper.
Cons of buying newer houses
Less individuality In a newly-developed community, houses are built uniformly. If you are one to value originality, you have to spend extra money to make your house look a little different from your neighbour.
Less vegetation You have to start your own garden from scratch. It will take at least two years before you have your own matured trees and beautifully landscaped gardens both in the front and back yard.
Longer travel time to downtown You and your family should wake up a little earlier because you will have a longer time commuting from home to office or school and vice versa.
For your own comparison, make notes of the things that you observe in each house or condo that you visit. You can organize it into a chart for easier reference. Your entries may include storage, natural light, renovations needed, etc. You need this information especially when you want to come up with a tentative budget for future renovations. The house may come cheap but it may not be worth it if you are to repair everything down to the foundations.
Narrow it down
By now, you must have narrowed down your choices, whether it’s a house or condo that you want, an old home or a brand new one. It’s now time to view the houses or condo units matching your criteria. With all the properties up for sale, viewing them all may prove to be a time and energy-consuming activity. However, there are ways to make the tour more systematic. Here are some of them:
Plan your route. Identify the locations that you are considering for a new home. Choose the ones that are accessible and convenient. Go to one neighbourhood at a time. Take note of details such as how long it took you to get there, the flow of the traffic and how long it took you to find parking space.
Let your real estate agent drive you to the locations. This will enable you to concentrate more on the feel of the neighbourhood rather worry about the next blind curve.
Wear comfortable shoes. You will do a lot of walking and going up the stairs.
Don’t just look at the specific houses. Get the feel of the whole neighbourhood.
It’s advisable to visit a house or condo at least twice before making the final offer. A place looks different in the day and during the night, therefore it’s best to make it a point to a visit a place at different hours of the day.
Take photos as well. With all the houses or condo units you visited, it’s not surprising that you forget all the details at the end of the day. Take photos especially of the not so nice aspect of each home or condo so that you already know the necessary renovations to do in the future.
It is also a good idea to take with you the account officer of the company from whom to get pre-approved mortgage. With their experience, they are also experts in property appraisal.
Making an Offer and Closing the Deal
If you have chosen a property and are sure about buying it, you now have to make an offer to the seller. Your real estate agent can draft an Agreement of Purchase and Sale which you will submit to the property owners. This legal document contains all the conditions that you propose such as:
The price of the house;
Inclusions like the existing furniture and fixture if you want to have the house or the condo fully furnished;
The date when you plan to move in; and
Other conditions that you and/or the seller requires prior to closing the deal.
Closing on a Property Purchase
Congratulations! You are now a proud owner of a new home. Well, almost.
Before the keys to your new home or condo unit reach your hand, there are formalities that you have to undertake to legally complete the sale, with all the documentation, insurance and securities in place.
What does “closing” on a property purchase really means?
It is the point where the title of the property is transferred to the name of buyer. It is also the time when the buyer mortgages the property to the lender. The term is also known as “settlement” or “closing escrow”, wherein the buyer of the house deposits the payment to an escrow account until such time that the house has been inspected by the authorities and have passed all documentation and insurance requirements. At that point, the buyer then authorizes the escrow service to transfer the amount to the seller and the title of the property is transferred to the buyer. If your mortgage lender is a bank, it can arrange for the opening of an escrow account for you.
There are still many transactions and closing costs that must be undertaken during the closing of the purchase after the escrow had been made. These are some of them:
Approve the disclosure of the seller. The seller or his or her agent has to disclose the obvious problems or flaws with the house, for you to decide if you are ready to take on the risks. For example, the garage may have been converted into a living area which may be a violation of the locality’s housing code.
Home inspections. This is not a regulatory requirement but it is in your best interest to do so. Adverse results in the inspection will give you a chance to back out or negotiate for a lower cost with the seller. Inspections should cover major or minor repairs needed, environmental hazards and pests. An investment of a few hundred dollars more to the closing costs might save you from a disadvantageous purchase in the long run.
Secure home insurance. Your lender will require you to secure an insurance coverage over the time that your house is mortgaged with them. Get quotations from many insurance providers so that you can negotiate for the best rate, and lower your closing costs.
Secure the title report and title insurance. For your own good and protection, ensure that the title of the house is not encumbered in any way. Meaning, only the owner has the sole claim over the property. On the other hand, the title insurance will shield you from legal issues that may arise in the future after the investigation/check on the title. Get a lawyer to help you unless you want to do the dirty work yourself.
When all the requirements mentioned above had been complied with, all taxes and closing costs paid and all paper works done, it is now time to transfer the payment held in either the real estates agent's brokerage account or the lawyer's trust account to the seller and you finally get the key to your dream house. Your mortgage lender or bank can arrange this for you.
How Can The Alleyne Team Help You
Buying a property, especially for first time buyers, can be overwhelming. Sometimes it may feels like a maze of home feature sheets, paperwork, legalities and formalities.
Let the AlleyneTeam assist you through all these activities make the entire experience a learning and enjoyable process . We will help you look for the house or condo to match your wishes and budget. We will work house-hunting around your schedule or if you can’t do the actual trips at all, we can make a shortlist for you and send you any available videos and feature sheets. We can also pre-view the property for you if you wish.
We will work hard to ensure that you get the best deal during the negotiation process by
Helping you formulate your wish list
Assisting you in the search for a home
Referring you to a few banks or mortgage brokers (if you wish)
Assisting you with the legal documents that you need and facilitate the legwork.
Negotiating a purchase price
Referring you to a few home inspectors (if you wish)
Offer our expertise through the whole process as your realty adviser and always protecting your interest. We will make sure that you will not be pressured to make a move that is not advantageous for you.
Keep in touch with us for all questions and concerns. We are happy to help.
Check out our website at any time for this weekend's open houses.