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Offers and counter offers – The blog of a first time home buyer
You’ve found a house you love (or like, it doesn’t have to be a love-at-first-sight kind of deal) and you’re ready to make an offer, what happens next?
Firstly, this process is going to be an exercise in teamwork and trust between you and your REALTORⓇ, which is why it is so important that you choose the right one for your needs! For my home, my offer was pretty simple. There was only one back-and-forth negotiating price (I’ll be honest, I didn’t want to push hard, I really just wanted to be sure we got it!). Rob had to negotiate his cut, because the home I wanted was listed privately, otherwise everything from the offer standpoint went very smoothly.
The offer itself might sound like an intimidating document, but it is really just this information broken up:
- Your name(s), the seller(s) name(s), and the address of the property
- This one’s pretty obvious
- The price you’re offering to pay
- This price does not include any applicable CMHC fees that would be added to your mortgage if you pay under a 20% deposit.
- Extra items you want included
- The general rule is that if you turned the house upside down and the object didn’t move, it is assumed to be included in the house. Usual items include window coverings (like blinds), bathroom mirrors, and major appliances. If there’s a storage unit, rolling kitchen island, etc., you can always see if the seller is willing to keep it as a part of the home, but keep in mind the more you ask for, the less the sellers will be willing to negotiate price.
- The date you’d like to take possession
- This is your closing date, or the day you’ll take legal ownership of the property (typically at the end of the business day, so I recommend you don’t plan to move on this date)
- The date and time the offer expires
- A date and time set between you and your REALTORⓇ for when this offer expires. Typically you do not give much time to encourage a quick acceptance or counter.
- All other conditions to be met
- This includes the offer being conditional on a satisfactory home inspection. The inspection (which is at your own cost), may turn up unknown issues which will cause you to adjust your offer or walk away. You also might have agreed upon something being fixed, changed, painted, etc. Lastly, it will often ask for a disclosure statement, which is a document signed by the current owner disclosing any issues or repairs that they know of while they lived in the home.
You’ll fill in these details with your REALTORⓇ and likely submit the offer online. If you’re like me, you’ll be almost holding you breath waiting for the response, but be patient! Hopefully you’ll hear back by your offer’s expiration time (you might not though). When you do hear back, one of four things will happen:
The Offer is accepted: Yay! Your offer was reasonable and the sellers have agreed to all your terms. Move on to next week’s blog post because you have an accepted offer!
The Offer is rejected: On no! To the seller, your offer wasn’t reasonable enough to bother countering, and it has been rejected altogether. Your REALTORⓇ might be able to get some more inside information about why, but don’t get too discouraged! You could always write another offer or continue your search.
Your Offer is countered: The most likely outcome is that your offer is countered. They might agree with some of your conditions, they might counter back at a different price, they might not like the proposed closing date, etc. There’s a million reasons your offer could be countered, but now it’s your decision on what to do.
You enter into a multiple offer situation: In the case where multiple parties put in an offer on the same property, you might have to adjust your offer to “beat” out the other offer(s). You wouldn’t see this on a counter, but you’d find out from your REALTORⓇ.
No matter what you hear back, what you do next is up to you! You can continue negotiations, you can walk away, or you can accept their offer and move forward. Your REALTORⓇ will likely have advice, particularly if they’re an experienced negotiator. At the end of the day you’ll either have an accepted offer (so look out for next week’s post) or you’ll be continuing your search.
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!
Why I didn’t use the First Time Home Buyer’s Incentive – The blog of a first time home buyer
A hot topic around election time (and my home purchasing time) was how to improve housing affordability for the average Canadian, and particularly, the first time home buyer. I’m not going to go into any politics, but I will go into what we got right before the election, the Liberal Government’s First Time Home Buyers’ Incentive.
I could explain it myself, but why do that work when I already made a video of Rob explaining it? (Click volume on in the bottom corner)
https://www.facebook.com/Rob.Hamel.Realtor/videos/582525555828595/
Having an extra 5% towards my house initially sounded nice, but in the end I chose not to use it for a few key reasons. I’m not aiming to convince you one way or another, simply explaining why I chose not to take advantage of it.
In my situation, I would have been eligible for a FTHBI of just under $10,000. This would reduce my monthly mortgage by a little under $50 a month. $50 extra a month is nothing to complain about, but what is, is the fact that when you sell your home, or complete the mortgage, you need to repay the loan in full, at the current value.
Let’s run through a few scenarios. Let’s say I sell in 5 years, my home value remains the same, and I’ve been making minimum payments on my mortgage. In 5 years, I will have built $47,000 in equity. If I can sell it for full value, I will have to pay $11,500 in REALTOR®️ fees, then repay the $10,000 FTHBI, leaving me $25,500 to put towards my next house. I would have also saved $3,000 on mortgage payments. Now if I hadn’t taken the FTHBI, in 5 years I will have built $38,500 in equity, which after paying my REALTOR®️, would leave me with $27,000 towards my next house.
I know what you’re thinking, you’ll only make $1,500 more, and you saved $3,000, why not take it? Well let’s now see what happens if my home value increased 2% year over year (which is generous, but within the realm of possibility). Not taking the FTHBI will net me around $2,500 more.
With these amounts, I’m not saving any money at 5 years, but by 10 years in, it has switched in favour of not taking it. Not to mention having to repay the full 5% all at once if I did keep my home for the entire mortgage duration. To me, I was sure to choose a mortgage and a home that I could afford comfortably, so that $50 a month doesn’t impact me greatly. On the flip side, making thousands more when I do decide to sell does matter to me. For that reason, I decided to not use the First Time Home Buyers’ Incentive.
I believe that the FTHBI does what it set out to do, improve housing affordability, but the impact that it makes in Atlantic Canada, with the relatively low cost of housing, is fairly minimal. Being sure to purchase a home that fits comfortably within your budget is key to maintaining real affordability. Additionally, being able to make extra payments, even $1000 a year, can reduce your mortgage by years and make a much greater impact than the FTHBI savings.
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 you
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!
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!
