blog November 24, 2019

Understanding your First Mortgage – The blog of a first time home buyer

The mortgage and pre-approval process is a scary one, at least for me it was. Just like you realise that public school didn’t prepare you to file your income tax, getting a loan for the biggest purchase of your life can easily seem daunting! I’d like to break down some of my knowledge on the subject and also touch on the pre-approval process.

Please note, I am not a mortgage professional. What I am about to write out is my understanding of the current mortgage process (late 2019). Do not use this as legal or financial advice, rather, use this as just a little preparation and clarification. For lots more information, the government has a handy website: 

Click to visit the site

Seriously, this website is going to give you much better advice than I will, but I’d still love if you read the rest of my article too!

So … whats a mortgage? A mortgage is a secured loan against your property. All that basically means is that if you stop paying at any time during the amortization period (more on that later), the bank has the right to repossess it. (Andy’s Pro Tip: remember to pay your mortgage!) Now the bank isn’t going to show up the day after you miss a single payment, but you absolutely need to be sure that you get a mortgage you can afford, even if you experience some hard times!

When you hear about mortgages, you hear terms like equity, 5 year fixes, amortization, mortgage rates, First Time Homebuyers’ Incentive (more next week), down payment… the list goes on! Here’s some of the most important things to know:

  • Mortgage
    • A type of loan that allows the lender to take possession of secured property if you stop repaying the loan.
  • Down Payment
    • The money you put down as your purchase a home. The current minimum is 5% of the price of the home. Down payments that fall under 20% of the home value are subject to creditor insurance (Often referred to CMHC fees), which protect the lender in the case where you can’t pay the mortgage. This fee is added to your mortgage amount and paid off just like the rest of your mortgage.  The amount of this fee depends on how much money you’re able to put down on the house.
  • Principal 
    • The amount of the loan. When you pay your mortgage payment, some of the money goes towards interest, while the rest pays down your principal, building equity
  • Equity
    • The value of your home, minus the remainder of the loan. This is the money you’ve “built” up with your mortgage payments, and you can think of it as the money you’d receive when you sell (minus some fees, like paying your REALTOR®).
  • Amortization Period
    • The amount of time it will take to fully pay the mortgage at your minimum payment. Most commonly this is 25 years, meaning that if you don’t increase your payments, you will fully own your home 25 years after the start of the mortgage.
  • Interest Rate
    • Your interest rate is the rate set by your lender (most often your bank) which controls the amount of interest you pay. You can have a fixed or variable rate mortgage.
    • Fixed rate will mean your payments remain the same, regardless of the current loan rates. EG: A 5 Year Fixed, 25 Year Mortgage means that the first 5 years of the mortgage, the rate will stay the same, before switching to a 20 year variable mortgage.
    • Variable rate will change as the market fluctuates, up or down. When the rate drops, your mortgage payment decreases. When it increases, you pay more.
  • Open vs Closed Mortgage
    • An open mortgage can be repaid in full at any time without penalty, while a closed mortgage has a limit on how much extra you can pay per year before incurring a penalty. An open mortgage will be at a slightly higher interest rate, but can save you money if you expect you’ll be making a large payment (for example, you buy a new house before your old one sells and you’ve built considerable equity)

There’s so many more details that can be explained, but the most important thing to do is to have a discussion with a mortgage professional. Don’t be afraid to ask as many questions as you need! Not only will they help you prepare for the eventuality of your mortgage, but they can also get you pre-approved!

So… what is Pre-Approval?

Getting pre-approved means meeting with a mortgage lender to have a look at your credit, look at your debt ratio (your debts compared to your income, among other factors) and determine how much they will be willing to lend you for a home. While you may be able to afford a very expensive house, if you have a lot of outstanding debt (think student loans, cars, credit cards) you may not qualify for as large a loan as you might think. Conversely, if you have great credit, you may be able to afford more than you expect!

I was a little nervous when I went in to be pre-approved. Now, full disclosure as always, I actually went in to get approved for the specific house I found, rather than find out the maximum we could qualify for, but the process is the same. I was nervous because as someone self employed, my income is more variable than most. My actual pre-approval actually went smoother than I expected. I brought in 3 years of Tax Returns and proof I paid my taxes, while my partner brought in a few pay stubs and a letter of employment. We’re fortunate enough not to have any outstanding debt, so after a few minutes with our mortgage specialist, we walked out with a letter of pre-approval, locking in a rate for the next 60 days. That means we could make an offer any time in those 60 days and be guaranteed the rate and mortgage we were offered, pending a letter of finance. 

A letter of finance is a condition of sale (more on that in a few weeks) which is when your lender actually checks everything fully, and offers to loan you the amount requested. They may need additional documents, proof of employment, etc., to ensure you’ll be able to pay your mortgage. Be sure not to significantly change your financial situation between your pre-approval and your actual offer, since you might get denied your loan at the last minute. That means, don’t go financing a fancy new car that will look great in your driveway until AFTER your house closes.

Once again, this is just meant as a jumping off point, but I hope it’s helpful as you begin the financial side of your home search! Next week I’ll discuss what to do when you find “the one”, or at least a house that could be your next home!

Andy Tree is a professional Wedding Photographer, marketing expert, coffee lover, millennial, board game enthusiast, and overall nerd. Over the next weeks he’ll fill you in on every step of his search and first home purchase.

Send us a message on Facebook if you have any specific questions or if you’re ready to start your own search!

blog November 17, 2019

Why work with a REALTORⓇ? – The blog of a first time home buyer

You’re ready to start looking at houses, you know a little about what you want, what’s next? In my opinion, it’s time for you to hire your REALTORⓇ! Your REALTORⓇ is going to be your investigator, your paperwork guru, your negotiator, your cool 3rd wheel (maybe), and your partner through this process. Well, they should be, if they’re good… I’m going to take you through what I think is important when choosing your REALTORⓇ.

 

Full disclosure, I am extremely biased, I work part-time for a REALTORⓇ so I’m obviously going to tell you to work with one. However, I also think that working in an office of 80+ REALTORSⓇ has given me a unique perspective on what you should consider when choosing one. Either way, take this article with a grain of salt..

 

Before we get into choosing a REALTORⓇ, let’s talk about the why. Here’s a few reasons:

 

  1. It’s FREE – You might think that nothing in life is free, but if you’re a first time home buyer, the services of your REALTORⓇ are 100% free to you, no strings, no cost, nada! A REALTORⓇ’s commission comes from the seller’s side of the deal, so you don’t need to pay for the service at all!
  2. Paperwork – Purchasing a home involves a lot of paperwork and a lot of legal-ese. Having someone on your side that can help explain the ins and outs of the process will give you so much peace of mind! There’s so much more than just making an offer, and having someone that’s been through it hundreds of times makes it so much smoother. Remember, the details of purchasing a home can differ in every area, so don’t rely solely on internet resources (but keep reading my blog, okay?).
  3. Negotiations – Negotiations when you’re buying a house isn’t quite as easy as HGTV makes it look, you have to base your offers and counters on tangible facts about the property, about the costs of fixing issues (your REALTORⓇ has all the contacts to get you those quotes), and about historical data of the area. Making informed offers can help you hugely if you’re ever in a multiple offer situation!
  4. It’s FREE – Did I mention this already? Seriously though, it’s free, there’s no reason not to.

 

There’s wayyyy more reasons to use one, but I do hope that I’ve sold you on the idea of a REALTORⓇ! They’re there to protect and help you and there’s no reason not to use one when you’re buying your first home. It’s free to you, they’ve got your back, and they will help you literally with every step of the purchase… provided you pick a good one.

 

I already put up a disclaimer, but once again, I work for the REALTORⓇ I hired to help me with my purchase, but, I would have hired him even if I had not been working for him. I mean, you’re reading this on his website, so what follows will probably be a little biased towards Rob. I believe that I still have some worthwhile advice on making a choice, but if you’re here for 100% unbiased advice, you should probably click away now. Don’t forget to come back next week though when I go through the Mortgage Pre-Approval process and lingo!

 

So… What did I look for in my REALTORⓇ?

 

Here’s some of the qualities I think are important. Make your own list, or have a chat with your partner and prioritize these qualities, along with yours, so you can make an informed decision. You might not find anyone that will fit every single quality you’re looking for, but knowing what’s important to you will still help you find your best fit! One extra piece of advice, don’t be afraid to interview a few REALTORSⓇ! You do not need to work with the first one you contact! So, with that said, here are the qualities that were most important to me:

 

  1. Experience – This one’s pretty easy. I wanted someone who has been through a lot of transactions. While there are some amazing REALTORSⓇ just getting started, the knowledge and confidence that comes from having been through hundreds of transactions gives me a lot of peace of mind, so it was at the top of my list!
  2. Availability – Also pretty straightforward, but I wanted to work with someone who actually had time for me. I didn’t want to be passed off to a specific “buyers agent”, I wanted my transaction to matter, and that within reason, my REALTORⓇ would be available to help me see homes, answer questions, and just pick up the dang phone! Finding experience and availability can be tricky, but it’s definitely possible!
  3. Professionalism – See the trend, none of my wants so far have been that crazy. The main thing here is that I wanted to still feel valued and respected even though I was looking for my first home. Have you ever felt judged in a store because you didn’t seem like you could afford their products? I’ve been ignored at a few car dealerships before just for my age or the old car I used to drive, and I didn’t want to feel that way when purchasing my first home. Even if you’re looking for a $50,000 mini-home, you still deserve just as much respect from your REALTORⓇ as if you were purchasing a $400,000 home.
  4. Renovation/Construction Knowledge – Here’s the first more unique want. I wanted someone with real-life construction background or at least significant renovation experience. Why? Well, if I purchased something that needed fixing up, I wanted some advice on what actual costs would be, as well as advice and guidance. If I purchase something recently built, I wanted the knowledge that the contractors actually did a good job of it. I hate surprise costs, part of the reason I was happy to rent for so long, so making sure I wasn’t going to have to tear anything down right after I signed on the dotted line was very important to me.

 

With those qualities in mind, I chose my REALTORⓇ, Rob Hamel. He’s got over 10 years of sales experience, a background in construction, he’s into tech like me, and he actually answers his phone. He also works around 1 metre away from me, which made it very convenient to get a hold of him, but I mentioned that already.

 

When you’re choosing your REALTORⓇ, remember, consider your options and don’t feel like you have to use the first person you talk to. You want a partner, someone who has your best interest in mind, and someone you get along with well. On the flip side, don’t forget they’re humans with lives and families, so try not to have unrealistic expectations. Most full time REALTORSⓇ that I know work 70+ hours a week, so do your best to show your respect to them throughout the process. Oh, and I promise Rob didn’t make me write that part!

 

Next week, let’s get the scoop or Mortgages! What are they, how do I pick, what does amortization mean? So many questions! I’ll have (at least some of) the answers!

 

Andy Tree is a professional Wedding Photographer, marketing expert, coffee lover, millennial, board game enthusiast, and overall nerd. Over the next weeks he’ll fill you in on every step of his search and first home purchase.

Send us a message on Facebook if you have any specific questions or if you’re ready to start your own search!

blog November 10, 2019

Open House like a Pro – The blog of a first time home buyer

Last week, I discussed the thought process of what went into the decision to start the search for our first home. We were ready, or at least ready enough, to start looking at houses, so it was time for our first round of open houses, yay!

 

Now, by the time we had actually gone to our first round of open houses, I was spending a little time every day or two to scope out all the new listings on realtor.ca (tip: sort listings by new to see what’s come up since your last visit). Realtor.ca has a handy ability to sort by open houses, so you can schedule a route for your day, which is important because most open houses are only on for 2 hours (most commonly Sunday 2 to 4 in my area), and I wanted to see as many as I could my first time out!

 

With a few favourites picked and a few fillers added for variety, we hopped into the car and were off to see our first houses: a few townhouses, a cute bungalow that was currently an Airbnb, a 2 story historic family home, and another large bungalow. 

 

I learned a lot from the first 3 homes I looked at, mostly because they were 3 identical townhouses. There was $10,000 difference between the 3, one vacant, 2 lived in, different paint, light and kitchen, but all in the same “frame”. What a great way to quickly learn how much a good coat of paint can make a house look! It’s really easy to get caught up in the style of the current homeowner, good or bad, and that really can sway your opinion of the space. I think if you have the possibility of viewing a few similar units on your first open house tour, I’d say go for it, you’ll definitely learn a lot!

 

The next few homes brought up the discussion of how much I’m willing to fix myself. Now, I’m not afraid to get my hands a little dirty, but during the summer I typically work a 60-80 hour workweek, so the property would really have to be perfect for me to take on anything extra. Everyone has a comfort level of what you’re willing to work on, and what you want right from ownership, so be sure to have a good think or a discussion with your partner about what suits your needs, and use the experience you gain from the open houses to help inform that decision.

 

Another major difference I noticed from home to home were the REALTORSⓇ I met. Full disclosure once again, I do work for a REALTORⓇ, and two of the ones I met with are from the same office, so my experience was not completely typical, but I did meet four others that I had not met before. Some were very friendly, upfront, and ready to answer any questions I had. Some made it feel like they had better things to do and were completely hands off. You’re always going to have different experiences, but here’s a few things to keep in mind.

 

REALTORSⓇ are there to help you and answer any questions, but they’re also there to market themselves and meet new buyers and sellers. Don’t be surprised by them asking for your contact info, and whether or not you’re already working with a REALTORⓇ. Answer honestly, but remember that you’re under no obligation to work with them as your buyers agent. I’m going to get into that a lot more next week, but for now, remember that you’re under no obligation by attending an open house, aside from following the rules.

 

By the end of my first day of open houses, I certainly didn’t find the one, but I did learn A LOT along the way and I’m really glad I did it. I think I learned a dozen new things that I don’t like in a house and left feeling energized for my search and with a much more realistic set of wants and needs. With that said, here’s a little advice for you:

 

Andy’s Top Tips to Open House like a Pro:

 

  1. Check out all kinds of homes – Going to a home outside your budget or outside of what you’re looking for can still be very useful to help narrow down your wants and needs. You’ll learn a lot from the houses that you don’t like, and it will make you so much more confident when you’ve found the one!
  2. Ask the REALTORⓇ questions – It’s their job to show the home. Don’t be afraid to ask plenty of questions, even the easy ones. There’s things that you can’t just look at, like the average heating costs, HOA fees (condo and townhouses), if it ever floods, how old the roof is, etc. Don’t be afraid to ask why the sellers are moving!
  3. Location – How easy is it to get to work, schools, parks, etc. Don’t forget that location is key! Even little details like distance from a fire hydrant and fire station can make big impacts on your home insurance rate.
  4. Follow the house rules – This seems like common sense, but respect the rules. Sign-in if asked, take your shoes off, etc. If possible, don’t bring your young children, it can be very hard to look closely at a home while entertaining or supervising young kids.
  5. If you like the home, look for signs of neglect. – Falling in love with a home only to have to walk away from it because of finding issues in the inspection is heartbreaking! Here’s just a few things to look for:
    1. Warped or stained baseboards
    2. Mold at back of cabinets, particularly under sinks
    3. Check any exposed pipes for leaks or suspicious repairs
    4. Check hardwood floors that are covered by rugs (with the help of the REALTORⓇ). Those rugs might be there to hide damage.
    5. Look for condensation between the panes of the windows, it can mean that they’re leaking and will need to be replaced
    6. Check for cracks or stains in the ceiling
    7. Open and close doors and cabinets
    8. Check for drafts around outlets, windows and doors, which could cost you hundreds during the cold winter.
  6. Consider the neighbours – How well are their houses maintained? Do they have kids toys out? Is trash put away? Is the fence in good repair? When you buy a home, you’re buying the neighbours, too. Make sure you’re not going to regret your purchase. If you’re feeling bold and like the house, try knocking on their doors and ask their opinion of the area.
  7. Lots of upgrades – Buying a home with a recently remodeled kitchen or plenty of new upgrades can be really enticing, but if a lot of work has been done very recently, there’s a chance that corners were cut to save money and profit more from the sale. Ask lots of questions and even find out what companies did the upgrades.

 

There’s a million more things I could write, but I believe this is a good place to start when you’re ready to start Open House-ing (is that a word?). Next week I’ll be talking to you about why working with a REALTORⓇ can make everything so much easier, and what to look for when you pick yours!

 

Andy Tree is a professional Wedding Photographer, marketing expert, coffee lover, millennial, board game enthusiast, and overall nerd. Over the next weeks he’ll fill you in on every step of his search and first home purchase.

Send us a message on Facebook if you have any specific questions or if you’re ready to start your own search!

blog November 2, 2019

To buy or not to buy… – The blog of a first time home buyer

Deciding to purchase my first home wasn’t as straightforward a decision as it can be for many people. I currently rent a very nicely built home that doesn’t leave me wanting for much. When something breaks, I don’t have to deal with it. My costs are essentially fixed, mostly everything works, I have enough space for my girlfriend, my cat, and I. Honestly, it’s pretty good living. On the other hand, I’ve rented my current place for 4 years, which means I’ve “thrown away” over fifty thousand dollars. 50 large! Of course, if I had bought a house all that money wouldn’t have built equity, but nearly half of it would have. 

I would definitely like to start putting some of that money back into my own pockets, but I’m not in a huge rush since I’m pretty happy with my current living conditions. At the time we were in quite a sellers market, meaning houses were moving fast! If we found something we liked, we’d need to be ready to make an offer right away, which is certainly a little intimidating to a first time buyer.

Next comes figuring out what we’re even looking for. We made a list of some must haves, but were mostly flexible. One major decision is while I’m decently handy, I’m also extremely busy, so we weren’t willing to buy something that needed a lot of work. A few things on our list was a modern kitchen with decent space (since we’re used to a rather large kitchen at the moment), at least a second half-bathroom, a room for a home office (I currently share the space with my entertainment set up, which isn’t perfect for productivity), and lots of natural light.

Figuring out you must-haves right away can certainly help narrow down your search, but be sure to adjust this list as you go to open houses, view listings, etc. You’re going to learn a lot from the first houses you check out, so don’t worry if you don’t have much of a list yet.

Before we started looking too closely, it was important to figure out how much we could afford. Using some handy affordability calculators helped us plan for monthly expenses, but we also needed to consider how much we needed upfront. The minimum down payment in Canada is 5%, but there’s plenty of extra costs, such as property tax, lawyer fees, inspection, land transfer tax, etc. A more realistic expectation is the minimum we’d need is 10%, 5% for down payment, 5% for closing costs. I had to also take into consideration that my main income comes from my small business, which means a varying income year to year, while my girlfriend’s has the comfort of being salaried. 

Let me get real with you, another concern I had was the perception of buying a home with my girlfriend, since we’ve only been together for a year and a half and we’re not married. I personally had no doubts about buying a home together, but I did worry a little about the perspective of others. We discussed having the home only in one of our names if we could qualify for a mortgage alone, but ended up deciding to find the house before we stressed too much about it.

With no particular rush, we decided to start casually looking at houses. Realtor.ca is my go-to to see what’s new. Sorting by new and putting a price limit at the top of my budget makes swiping through houses as easy as swiping through tinder!

Andy Tree is a professional Wedding Photographer, marketing expert, coffee lover, millennial, board game enthusiast, and overall nerd. Over the next weeks he’ll fill you in on every step of his search and first home purchase.

Send us a message on Facebook if you have any specific questions or if you’re ready to start your own search!