First Time Home Buyer

[plan b]

I would like to first say thank you RFD for finally creating a finance section. :)

Now on to my question, I've been planning to buy my first home by the end of this year and I'm not sure what steps I should first take in going about with such a purchase.

Should I be looking to see how big of a mortgage I can get? or should I first be looking for a location before walking into a bank or talking to a broker?

Also, where can I can find a good mortgage broker in the GTA?
and what information do I need to provide prior to applying for a mortgage?

From my understanding, mortgage brokers are not compensated through the buyer directly?

And judging by the eventual increase in interest rates in the near future, I think this is my last chance to purchase a home with low rates for quite some time? With that in mind, would it be wise for me to go with a fixed rate mortgage?

I have many more questions, but these will do for now.

[15-20_God]

First you need to get an idea of what you want to get and where. For the mortgage, most banks websites have a mortgage calculator where you punch in a few numbers and it tell you roughly what kinda mortgage payment you can afford every month. Getting approved for the loan amount is a different story. Try and get an idea of how much you are comfortable spending per month on a mortgage and go from there.

Also, if you have an RSP you can make a withdrawal from it under the home buyers plan to help finance your home purchase. The withdrawal is tax free and you have 20 years (I think) to repay the amount. Its good for $20,000.

As for rates the BofC is planning to leave rates where they are for now, and a possible 0.25% cut later in the year.

[Ducky]

for those who took their rrsp out to pay the down payment, how long does it take to be approved (after you fill in the form to make the request)...a few days? week? month?

[Carnage]

Try and find a broker that a freind recomeneds, or even at your local bank branch.

Just make an apointment and go in and talk to them. Doesn't cost you anything, and they'll be able to explain everything in detail.

That's what I did. Just started talking about stuff well before I was in a point to actually make a purchase. Really helped me find out just what I was going to be capable of.

[rdarkman68]

for those who took their rrsp out to pay the down payment, how long does it take to be approved (after you fill in the form to make the request)...a few days? week? month?

The actual withdrawal takes a few days. The bank just process your form and the money is transfer from the rrsp acc. to your chequing acc. But you would only be able to withdraw money that has been in the rrsp acc for more than 3 months. So be sure to contribute early, (if you don't already have $20,000 rrsp). You probably should try to get a good line of credit from your favor bank first, in case your rrsp is late, you can cover your mortgage commitment for a few days.

Pre approval is easy, they don't really do any checking until you actually apply for the mortgage. It's just a rough calculation base on what you earn and what other payment you have each month. You can even pre-approve online or by phone. ING and PC are good place to start if you don't have time to go to the bank.

[Sylvestre]

The withdrawal is tax free and you have 20 years (I think) to repay the amount. Its good for $20,000.

just to correct, it's 20K per person (eg, you and your spouse would qualify for 40K if you had that available).

secondly, FHB withdrawals must be paid back within 15 yrs, and payments become due after the 2nd year after you withdraw the money.


also gonna say this, think very carefully if you want to use all your RRSP money. sometimes paying the mortgage, and paying back your rrsp, and making additional contributions is quite challenging financially.

[ngjo]

1st: pre-approve mortgage rate
Get an pre-approve mortgage rate from any bank. You will know how much you can borrow and decide the price range of house that you should look for.
2nd: RRSP
Other ppl already described in detail. The only thing that I need to add is the repayment will be 15 years instead of 20. It only take a few days for me to get my money from RRSP after I sign the contract on buying my first home.
3rd: find a good sales agent
Torstar (http://www.thestar.com/NASApp/cs/ContentServer?pagename=thestar/Layout/Article_Type1&c=Article&cid=1100992208312&call_pageid=971886500121&col=971886477711) have lots of articles on real estate. You can do a search on it to for other articles. e.g. in & out fees (http://www.thestar.com/NASApp/cs/ContentServer?pagename=thestar/Layout/Article_Type1&c=Article&cid=1100344813614&call_pageid=971886500121&col=971886477711)
Agent usually charge from 4-6% of the value of the house as commission. Try to get them to charge 4% if you can.
Even if you are buying a new house, you can still bring in an agent. They will get a small commission for it and you will pay the same amount. Some agent will split that commission with you.
4th: House inspection after signing the contract
5th: Get a lawyer to represent you
6th: But title insurance prior to getting your house, you can only buy it before you get in. Torstar also have an article on it.

[koivu_11]

here is a tip that worked for me when getting my mortgage, at the time ING direct had the lowest posted mortgage rate (maybe they still do?) and we got preapproved by them first. Then we got our real estate agent to talk to some banks and they were able to beat that rate, so we are pretty sure we got a pretty good mortgage rate at the time. worked for us, you might want to try that out.

[Kevinck]

Bought my first house in 2002. I'll fill in a few more blanks.

The bank wanted a quick list of my income, assets and liabilities. If you already have a $30,000 outstanding car loan then they'll probably approve you for $30000 less than if you didn't.

Go get preapproved first. The quote is usually good for 90 days and that way you can househunt all you want. If you find the perfect one, and must get an offer in ASAP before others do, you already have the financial backing. If you don't find something in 90 days, just go get preapproved again.

Assuming you're working full time and have no other debts, you will probably be preapproved for somewhere around 3.5 times your annual salary. But remember that is the MAX that the bank thinks you will be able to afford. And if you go for that mortgage you will be strapped for cash every month to repay. Don't go for your maximum mortgage on your first home unless you are extremely secure about your future financial situation.

And good luck! Home ownership is great fun, assuming all goes well :-)

[lexus]

Welcome to the First Time House Buyer Club.
Buying a house is so easy theseday with all kind of help thru internet.
But due to indivdal situation are different. I will suggest you:
1> Visit at least 2 banks to have mortgage pre-approve first.
2> Try www.mls.ca to search the area you like and hopefully there are some properties for you.
3> Get a licence Real Estate agent who works in the area you like.
4> Every other thing (like lawyer, house inspector, ...) your professional agent should be able to help.

Let go back to topic RRSP for downpayment. Personally I do not encourage this. It is no bad for a back up plan but try no to withdraw RRSP for following reasons:
1> Mortgage rate is low (~5.4% for 7 years term). Why would you withdraw a 8-15% return investment to pay down the low rate mortgate.
2> The earliest you purchase RRSP, the bigger the RRSP pot will grow. For a 6% return on RRSP, your investment will double after 12 years and 4 times in 24 years, .... But if you buy a house today, I hardly believe it will double over a 12 years period.

[pluto]

The earliest you purchase RRSP, the bigger the RRSP pot will grow. For a 6% return on RRSP, your investment will double after 12 years and 4 times in 24 years, .... But if you buy a house today, I hardly believe it will double over a 12 years period.

Wow, can you let me in on where you are getting a guaranteed 6% annually on your rrsp funds? :P

[Kevinck]

The main reason people take money from their RRSP for a down payment is because they otherwise don't have a down payment. In canada you can get your first mortgage with as little as 5% down but you pay a large fee to do so. The more down payment you put, the less of a fee there is up to 20% where there is no fee. Sure from a strict numbers point of view, that $20000 would be better off in an 8-10% RRSP than being put down on a 5% mortgage. But without it my wife and i would not have been able to buy our house when it was available since we'd been sticking almost all of our savings into RRSP for years and didn't have a large amount of cash on hand. Not many first time buyers have a large wad of cash sitting around. Also, that $20000 means your monthly payment will be lower and for some people that can make a difference.

[Rehan]

For a 6% return on RRSP, your investment will double after 12 years and 4 times in 24 years, .... But if you buy a house today, I hardly believe it will double over a 12 years period.
http://www.randi-emmott.com/charts/chart10.gif
1980->2004 = 400% increase in 24 years

But the important thing is that the capital gain on your home is tax-free, but your RRSP withdrawals will be treated as income. If you want to compare apples to apples, you have to compare the after-tax returns of investments.

[pluto]

1980->2004 = 400% increase in 24 years

gee, what happend there between 1990 and 1996 ? :P

let's not get anyone thinking the value of housing is going nowhere what up, we're in a pretty serious bubble here.

is it really the best idea to have 100% of your wealth tied up in one incredibly illiquid assett? I say no....

[plan b]

The housing market is still hot and after looking around I've come to realize that the prices are not matching the true value on some of these properties.

Anyhow, assuming the bubble bursts and home values decline, it still seems like property values steadily increase in the long run, even when there's a short term hiccup.

That's primarily why I'm still interested in buying even though the prices to me are fairly high.

[Singh_21]

gee, what happend there between 1990 and 1996 ? :P

let's not get anyone thinking the value of housing is going nowhere what up, we're in a pretty serious bubble here.

is it really the best idea to have 100% of your wealth tied up in one incredibly illiquid assett? I say no....

Real estate is a long term investment. If you buy and sell at the right time, there is no way you will ever lose money on it.

[GabL]

One question, does buyer needs to pay commission to an agent? How does it work? I heard that it's the seller that needs to pay BOTH agents representing the seller and the buyer? Is that true? Thanks.

[dolphie]

as far as i know the seller is paying a set percentage. if their own dealer finds the buyer, s/he keeps it all.
if another agent brings in the buyer, he splits the selling agents comission with him/her

am i right?

[cil254]

as far as i know the seller is paying a set percentage. if their own dealer finds the buyer, s/he keeps it all.
if another agent brings in the buyer, he splits the selling agents comission with him/her

am i right?

correct.

[GabL]

correct.

So buyer doesn't any commission to anyone?

[me!]

So buyer doesn't any commission to anyone?


you got it,

Depending on your province, there may be a property purchase transfer tax. also you have to pay legal fees to have the title switched over to you. and if you buy brand new, there is also gst

[GabL]

you got it,

Depending on your province, there may be a property purchase transfer tax. also you have to pay legal fees to have the title switched over to you. and if you buy brand new, there is also gst

yeah, I know those, I'm just thinking about the commission. Just to make sure! And Thanks! :cheesygri

[dolphie]

just to give you an idea, i just bought for 182, and am paying extra fees in the way of 4-5 grand. they say 2-3 percent of your purchase price for all your extras....not including down payment of course.

[GabL]

just to give you an idea, i just bought for 182, and am paying extra fees in the way of 4-5 grand. they say 2-3 percent of your purchase price for all your extras....not including down payment of course.

Thanks for the advice! :)

[GabL]

Another question, if I'm buying a second hand townhouse that was build around 2001, do I still need house inspection? Or I can save it as it's relatively new house? And usually how much you will put as a deposit when you're presenting your offer? Thank you.

[me!]

Another question, if I'm buying a second hand townhouse that was build around 2001, do I still need house inspection? Or I can save it as it's relatively new house? And usually how much you will put as a deposit when you're presenting your offer? Thank you.
inspections are 300 - 500 dollars and your townhouse is HOW MUCH?????

You willing to gamble the safety and well being of your house for 3 - 500 dollars? Besides, you could always use it as a bargaining chip if there is anything the inspection finds out that needs attention. I got several thousand knocked off my offering price.

You can put up as little as $100 as a deposit along with your offer to purchase.

[dolphie]

i had to put 1000 down. one question. is that 1000 bucks paid out and gone...or will it come off of the 5 percent down i am putting down when we take posession?

[me!]

i had to put 1000 down. one question. is that 1000 bucks paid out and gone...or will it come off of the 5 percent down i am putting down when we take posession?
the deposit can be put towards your down payment. your money is never "gone" when you put a deposit. even if your offer is not accepted.

[dolphie]

i realize that, but what i'm asking is....will that 1000 dollars be taken off the total amount of my mortgage...or does it come out of the 5 percent down i am giving them in four weeks? (my offer is accepted and closed)

[GabL]

i realize that, but what i'm asking is....will that 1000 dollars be taken off the total amount of my mortgage...or does it come out of the 5 percent down i am giving them in four weeks? (my offer is accepted and closed)

Are you buying new or old house? So you don't need a big amount for deposit right?

What if your offer is accepted, and you back off the deal afterward because of whatever reason, then that $1000 or whatever amount deposit will be gone right?

[mroosman]

wHENEVER I buy a house with my agent, he gives me $500 cash as a bonus thank you. PM me if you need his number

[tuzzi]

wHENEVER I buy a house with my agent, he gives me $500 cash as a bonus thank you. PM me if you need his number

Does he disclose that fact to the seller of the home???

[me!]

Does he disclose that fact to the seller of the home???
Doesn't have to. I got a 1K back from my agent. this is a private agreement between the agent and you.

whether it comes out of the commision or the agents own pocket is the agent's business. as long as the seller pays the agent(s) his fair share then there's nothing more to add.

[15-20_God]

Doesn't have to. I got a 1K back from my agent. this is a private agreement between the agent and you.

whether it comes out of the commision or the agents own pocket is the agent's business. as long as the seller pays the agent(s) his fair share then there's nothing more to add.

isn't there something ethically wrong behind this back door payout? Are these payments known to the companies these agents represent?

[me!]

isn't there something ethically wrong behind this back door payout? Are these payments known to the companies these agents represent?
ethhics aside, I did get the money from my agent. It was off her commission, so the seller forked out no more than what he committed to in the first place.

Here, there are lots of agents who seek lower commissions other than stipulated in the real estate board Act. There are so many agents willing to cut commissions just to get the deal and not just the deal but to get another sale. I guess you could call them real estate w-hores.

[15-20_God]

whether it comes out of the commision or the agents own pocket is the agent's business.

not necessarily, the customer is technically a client of the real estate co. and the broker is acting as an agent between the 2.


ethhics aside, I did get the money from my agent. It was off her commission, so the seller forked out no more than what he committed to in the first place.

it can be construed by the seller that they could have forked out $1000 less to have the house sold.

[Chookman]

I know of a program through a friend's work that if they use a Remax agent, they get 1% of the agent's fees kicked back to them. It's through the Remax agency. So if a house has a 5% listing with 2.5% going to the selling agent and 2.5% going to the buying agent, then the customer gets 1% of 2.5%. Therefore, on a $200K home, the buying customer would get a $500 kickback from Remax.

I don't know how the seller would even know about this and I don't think they could tell the agency how to spend it's share of the profit from the sale.

Anyhow, any seller who decided not to sell their home to someone because he found out the buyer had worked out a back-end deal with his agent is going to have a house sitting on the market awhile. I think it's more common than not to have a deal worked out with your agent for a kickback AND I'd bet that some agents would not show that house knowing that the owner was a PITA.

I did all the legwork finding my place. I walked into the place and asked the selling agent to represent me and give me 1/2 of the fees back that the buying agent would have got from the deal. He gets his cut plus 1/2 of what the buying agent would have picked up. He disagreed. I went out and grabbed an agent who would give 1/3 back. Deal done. House purchased below what I originally was going to pay. Buying agent loses an extra 1.25% for not cutting a deal with me and seller sells house for lower than I would have offered with dual-agency. My agent does 1 hour of work and scores an easy 1.7% that he would have never had.

There are tons of agents out there that want your business. You, as the customer, have the power and there's nothing wrong with using that power to your benefit.

[me!]

it can be construed by the seller that they could have forked out $1000 less to have the house sold.
It can also be construed that the agent took 1k less in commission