Purchasing a Home - The Process
The Steps to Buying a Home
BUYING A HOME – an important lifestyle and investment decision
You want to buy at the best price possible. You want your monthly payment to be as affordable as possible. You want your home to increase in value as much as possible. To make sure all that happens, it is important to look beyond your individual purchase before you buy. As your Real Estate Consultant, I can help you examine the market conditions, assist you in evaluating mortgage options and financing at the most attractive prevailing rate.
How much can you afford? This depends on a number of factors. The most important are your gross household income, your down payment and the mortgage interest rate.
The first affordability rule is that your monthly housing costs shouldn’t be more than 32 percent of your gross monthly income. Housing costs include monthly principal, interest, taxes and heating expenses (p.i.t.h.). If applicable, it also includes half of monthly condominium fees. Lenders add up these housing costs to determine what percentage they are of your gross monthly income. This figure is your GROSS DEBT SERVICE RATIO (GDSR).
The second affordability rule is that your entire monthly debt load should not be more than 40 percent of your gross household monthly income. This includes housing costs and other debts such as car loans and credit card payments. Lenders add up these debts to determine what percentage they are of your gross household monthly income. This is your TOTAL DEBT SERVICE RATIO. (TDSR)
About the Down Payment
A mortgage is security for a loan on the property you own. It is the difference between your purchase price and your down payment. The greater the down payment, the less you have to borrow, and of course, the smaller your monthly mortgage payment. A few options of down payment include your savings or a non-repayable gift. There are other options available to you and this can be discussed with mw, your Real Estate Consultant.
Other Costs to be Aware of when you Buy
This is a list of possible extra costs involved in buying a home. Some of them are one time costs and others, such as condominium maintenance fees and property insurance, will be ongoing monthly expenses. THE GOOD NEWS IS THAT NOT ALL OF THESE COSTS MAY APPLY IN YOUR CIRCUMSTANCES.
– Appraisal fee – if your loan is not insured your lender may require a property appraisal for mortgage purposes. A basic appraisal is somewhere between $150. & $250.
– Land Survey Fee – Your lender will require a survey unless you are purchasing a condominium.
– Land Transfer Tax – This applies in most provinces, including Ontario. It varies as a percentage of the property’s purchase price. It is usually between 1% – 4%.
– Home Inspection Fee – Inspectors in Ontario are unregulated so fees can vary. They range from $300 + GST to $350 + GST. Larger homes may cost more to inspect. A two-hour inspection carried out by an engineer who provides a written report will cost closer to the upper limit.
– Mortgage Broker Fee – A broker may charge a fee to find you a lender.
– Property Insurance – This insurance covers the replacement value of the structure of your home and its contents.
– Lawyer fees – A lawyer is required to search the title, draw up mortgage documents and tend to closing details. Lawyers fees range depending on the complexity of the deal.
– Moving Costs – The cost of a professional moving company or a rental truck if you move yourself.
– Prepaid Taxes or utility bills. – You will have to reimburse the seller on a prorated basis if some bills have been prepaid beyond the closing date.
Discuss your financing options with me, your Real Estate Consultant, your banker or a financial advisor.