The Up-Front Costs of Buying a Home

You have probably been thinking about buying your home for quite some time. Like most people, you have begun saving for your down payment. The money may be in your RRSP, maybe in Mutual Funds, or you may be getting it in the form of a gift or a loan from parents or relatives. Whatever the case may be, there are two very important factors to be considered regarding your down payment; the amount you have and the accessibility of the funds.

The amount you will require depends on the amount you finally end up paying for your new home. The financing you arrange with your financial institution is equal to the purchase price minus the down payment and the deposit. The accessibility of the funds is important in that you will be required to bring the money in a cashier’s check at closing before you are scheduled to take possession of your new home. Because of this, it is important you ascertain the flexibility you have in taking the funds out of any investments of RRSP’s. Similarly, if the down-payment is a gift, you will need to make sure the party giving you the money has it available when you need it. If your down payment is in the form of a gift, you will also be required to provide a letter to your financial institution from the party giving you the money. The financial institution will tell you exactly what the letter has to state.

A common mistake that people make when buying a home is to confuse the “deposit” with the “down payment”. The deposit OR earnest money you pay is to show the seller of the home that you are serious about buying their home. This earnest money check is presented at the time the offer is presented to the seller. The earnest money check is deposited into the listing agent’s Real Estate Trust Account until the day of closing. When you are buying a home with the minimum 5% down payment, it’s not uncommon for the seller to required a deposit of $5,000 or more, depending on the purchase price of the home. While the customary deposit varies from area to area, in this area, a deposit of between 1% to 10% is the norm.

Other fees you are likely to incur prior to closing include: Home inspection ($200-$300), any appraisal fees, credit reports, or other fees charge by your financial institution (about $425). In order to avoid any unpleasant surprises when you come to close on the purchase of your new home, it is critical you ask everyone involved in the transaction if there are any costs you will be required to pay.

Borrowing the Mortgage Funds

There are many, many things to be taken into account when it comes to arranging your mortgage, such as:

*What is your net worth?

*What is your income? Can you verify that income?

*What are your current monthly expenses?

*What is the required monthly payment on any credit cards/loans?

*Is your credit history clean, or have you had credit problems in the past?

*How much will the financial institution lend to you?

*How much are you comfortable spending on your home every month?

These are just few of the important things to take into account. One of the key things to consider is that financial institutions are in the business to lend money. They have a lot of money to lend, and therefore, there is a lot of competition between lenders. For this reason we recommend a mortgage broker, who can shop your application around for the very best loan terms available.

Another key point to consider is the amount you are comfortable spending for your mortgage every month. You may well find you qualify to buy a home in a higher price range than you thought possible. The important thing here is your lifestyle and how your mortgage will effect it. Perhaps you like to go on a couple vacations a year; maybe season tickets to the symphony are important to you. You need to determine if you will still be able to afford these sorts of things, or are you prepared to sacrifice some of them in order to buy a large/better/different home?

Choosing an Agent

The right agent is quite likely the MOST important component in your home-buying process. It is our practice to work FOR you, as your agent. We will discuss the Agency Disclosure rules with you in greater detail than covered here, and ask you to sign an acknowledgement of the Agency Option (required) you have chosen.

From your agent, you should expect prompt, courteous service; honesty and integrity; answers to all your questions (OR a referral to the right professional to answer the question for you); empathy; and above all, a lot of questions. IT is our belief that in order to make your home buying a successful, stress-free experience, we need to know as much about you as possible. To this end, we will ask you the questions in the Buyers Needs Analysis, and will be constantly asking more questions as we go through the process of finding your new home.

Your agent will assist you in determining if the things you want and or need in your new home are realistic in light of the current market climate and the amount you wish to spend. Your agent will then find the available homes meeting your criteria and present them to you. You shouldn’t be surprised if the homes presented to you do not exactly meet the criteria you have decided upon; many times, a home will have a majority of the features you want. At this point, you have to decide if you wish to make a compromise, or to keep looking for the perfect home. Your agent will also keep you informed of changes in the market climate, and any other things that may affect your home buying experience.

If you see a home offered For Sale By Owner (FSBO), it is important you CALL your agent, not the number on the sign. Remember you are relying on your agent to make your home buying experience a good experience, and you need their help even more with a FSBO. Regardless of which real estate company has a home listed, or if the home is a FSBO, YOUR agent can and will be your GREATEST ALLY in purchasing that home.

Defining your Dream Home

In the initial meeting with your agent, you will be asked a lot of questions about the sorts of things that are important to you in your new home. Some of the things to consider are:

*How many bedrooms do you need now? In the future? *Which rooms do you currently use the most?

*Is a pool a must-have, a definite NO WAY or doesn’t matter? *Do you need lots of parking?

*Is a big yard important to you? *What about proximity to schools, playgrounds, etc.?

*What about an eat-in kitchen? *Do you want central air-conditioning?

*How many bathrooms do you want/need now? In the future?

*Are you a handyman? Or would you rather have someone else do all the maintenance?

*Do you like older houses, or is a new construction home more to your liking?

Your agent will go through these things with you, and will then talk about which of them you are likely to get in a home within the price-range you are looking. If you cannot find the things you want in a home, perhaps you can pay a little more and thus buy a home that has more. The entire process of determining what you want/need in your new home is an ongoing process. After you have viewed each home your agent will ask you three questions.

*What DID you like about this home? *What DIDN’T you like about this home? *Can you see yourself living in this home?

Your answers to these three questions will greatly assist your agent in determining which other homes he or she should be showing you.

Finding Available Homes

Teamwork! This is one step in the process in which you play a very important part. We will be checking the new listings on the MLS (multi-listing service) for you every day, as well as looking for the FSBO properties that become available. If you have access to the local newspaper, you should look through the “Homes for Sale” section, and point out any to us that are of interest to you. We will then tell you about the property, and, should you wish, make arrangements for you to view the home.

We will either fax, e-mail, call or deliver to you the information regarding any new listings that we feel meets most or all of your criteria. With the real estate markets being subject to rapid changes in activity, prices, etc., it is important you are in regular contract with us, and are available to view homes on fairly short notice. If you have young children, you may want to make arrangements for a babysitter; one who can come over on short notice, so you can be free to look at the homes without having to concentrate on what your children are doing. It is really not possible to predict how long it will take to find your new home, due to the conditions in which the real estate market operates.

Looking At Homes

When the time comes to start looking at homes, remember the things you want and need in your new home. We will, at your request, prepare sheets for you to make notes on. Try not to get too distracted by the decorating or the knick-knacks, furniture, etc., as the furniture typically moves when the owners do, and the decorating can be changed with a minimum of trouble and expense.

If the owners are home when you are looking through the house, it is important that you try to remain unemotional about the house. If you decide theirs is the home for you, and the owners know how you “just loved” the big bay window, or the extra bathroom in the basement, you may end up paying more for the home than you would have otherwise.

As you are walking through the home, start asking yourself, “could I live here?”; “how would our furniture fit in?”, “what are the surrounding houses like?” These sorts of questions are important to ask yourself, as they help you stay focused on the home and also may help you notice things you might otherwise have missed.

Making an Offer

We provide the forms to you in advance of an offer so that you have time to read all the fine print and to write down any questions you may have about things contained therein. Understanding the forms is a significant part in a pleasant, successful home purchase. If there are things in the forms or the clauses you don’t understand, by all means ask your lawyer or us about them. We cannot stress enough how important it is to us that you understand these things, in order that you are protected and satisfied during your ‘offer’ process. The things you would include in you Offer vary greatly, depending on both your circumstances and the market environment at the time. Some of the things would be:

*Conditional Upon your arranging financing *Conditional upon a satisfactory home inspection

*Conditional upon your Company’s/Employer’s approval

These are but only a few of the possible conditions. We will discuss this matter more completely once we have viewed a few homes, and have completed the initial buyer needs interview. In determining how much to offer, there are several things to consider, including:

*What have other, similar homes sold for? *How much competition is there for the home?

*What are the terms/conditions of your offer? *How badly do you want the home?

*How much are you qualified to spend?

We will discuss the preparation and presentation in greater detail at the time we sit down to prepare your Offer.

Negotiating the Offer

Once we have prepared your Offer, we then contact the Listing agent of the home, and inform them that we have a signed offer, and would like to present it as soon as possible. The seller has to respond to your Offer within the specified period, which is usually 24 hours, or less in a “hot” market. We meet with the Listing Agent, and present the Offer to them and highlight the strong points in it. There are 3 options for them at that point:

*Accept your Offer the way it stands *Make Changes and re-present it as a Counter offer *Reject the offer

Usually, the seller will make changes to your Offer, and present it to you as a “counter offer.” At this time, the offer is now an offer by the seller’s to sell their house to you. You have the same options as the seller had previously. It is not uncommon for an offer to be ‘countered’ several times before both parties reach an acceptable agreement. The exception to this is in a “hot” market, when the seller will normally be less flexible in their requirements.

Once accepted by both parties, you have bought a home, subject to any conditions contained in the Offer. It is at this point we start to work on having the conditions met or removed, so you can make your home purchase a “firm deal.”

Buying a New House

Some people are only interested in looking at, and buying, a newly built home. Others would rather not to have to do some of the things that are exclusive to the purchase of a newly built home. The decision is a purely personal one. Some of the pros and cons are:

Pros

*You are moving into a new house. No one has lived there before, so none of the components are used.

*In the buying process, you choose the carpeting, the kitchen cabinets, etc.

*The house most likely comes with a new home warranty.

*You know your newly built house will meet current building codes.

*Your house will be well insulated, thereby possibly leading to lower operating costs.

Cons

*Houses go through a settling process, when components will possibly crack, warp, etc. Re-sale homes have already gone through this process.

*You will most likely have to have driveway paved.

*There won’t be any drapes, fences, deck, etc. included in the price. These can add up to quite a lot of money.

*There won’t be any landscaping done, as there is with the majority of re-sale homes.

*The trees, if any, will likely be small and provide little character, shade, etc.

*If building is still going on, there will likely be a lot of dust and dirt around.

There are, of course, many other things to consider in choosing between a new home and a re-sale home. Talk to friends and family and contact the local Home Builders Association.

Getting (Giving) a Mortgage

By its very definition, a mortgage is not a loan. It is instead the security for the loan. When you want to borrow money to buy a house, you approach a financial institution and offer them a mortgage on the home you wish to purchase. When you borrow the money, you are the owner of the home, and the bank is given a guarantee that should you default on the mortgage, they will have the right to seize the house, and sell it to recover the money they loaned to you.

There are many different types of mortgage loan(s) available. Because the offerings by the financial institutions are changing on an almost-weekly basis, it is important you discuss with your mortgage broker the types of mortgages available, and which they feel is right for your situation.

One matter to highlight here is that there are two qualifications required when you buy a home. The first is you qualifying to borrow the money; the second is the financial institution has to be assured the home is worth the amount you have agreed to pay for it. This is done so that, in the event of default on the loan, the institution has a relatively good chance of recovering the amount they have loaned to you. This is accomplished by having an appraisal done on the property. The institution will order the appraisal, and will charge you for it; the average cost is between $250-$350.

Things That Didn’t Fit Anywhere Else

♦ Home Inspection- We recommend that all homebuyers make their Offer conditional upon their receipt of a satisfactory home inspection report. The inspection is conducted by a qualified inspector, at your expense, and gives you a good overall impression of the general condition of the many components of a house. The inspector will not only point out any major defects you may not have seen, or not known to look for, but the report will also give you an estimation of the remaining economic lifespan of the various components. The cost of an inspection ranges between $200 and $300.

♦ Insurance- When you borrow the money to buy your home, you will be required to obtain mortgage life insurance. Be wary of taking the insurance policy offered by the financial institution; it is often as much as 3 times more expensive than you could arrange insurance for elsewhere. You will also need contents insurance, and homeowners insurance. Again, we recommend you shop around for the best deal possible. Upon request, we can furnish you with the names of several local insurance agents we have worked successfully with in the past.

♦ A Final Inspection- When preparing your Offer, there is a clause stating that the seller will allow you into the home one time prior to closing, for the purpose of measuring, showing parents, etc.

Your Offer is Accepted. Now What?

Once your offer is accepted, we will start to work, making sure all the conditions are met within the time allowed in the Offer. As soon as all of the conditions have been removed from your Offer, you don’t have much else to do until Closing Day. We will send you a checklist of various things you will need to be doing before closing. This checklist also lets you know what we are doing during that same time to insure a successful closing. Some of the items on this list include, setting up your homeowners insurance, arranging for utilities, etc.

THE NEVIUS TEAM

405/330-2626

www.NeviusTeam.com

moreinfo@NeviusTeam.com

At any time, if you have questions or concerns about buying a home, please call us at 405-330-2626 ext 501 or toll-free at 1-800-930-5442. The Nevius Team is here to insure an easy and hassle-free transaction. Thank you for your business.