Patricia Lovett-Reid

It’s easy to for Canadians to grow complacent when it comes to real estate.

We did not experience a housing bust like our neighbours to the south did. More conservative regulations helped to prevent people from getting in over their heads. In recent memory, prices seem to have only been moving in one direction: up.

But recently, things have begun to slow down. According to Statistics Canada, new housing prices rose a meagre 0.1 percent in June. That’s even less than an almost equally meagre 0.3 percent in May. According to the Canada Mortgage and Housing Corp., housing starts in July slipped to 189,200. That’s the third straight month of declines.

To be fair, the Atlantic Provinces enjoyed substantial increases and year-over-year; the index was up 3.3 percent.

The reason I’m writing about this is because it means that anyone buying a house needs to be extra careful they have all their ducks in a row. Here are six things to remember to ensure you end up with the house of your dreams.

 

1. Build your team
You transaction will require a knowledgeable real estate agent, lawyer, and mortgage lender.

References from friends can help you pinpoint experts to surround yourself with.

2. Get a pre-approval
This will lock in a mortgage rate for about 90-120 days. Keep in mind that pre-approvals are almost always subject to certain conditions that you will need to meet before financing is confirmed. To protect and give yourself a way out in case of any oversights, it is a good idea to have a condition for financing on any offers to purchase a house. This is especially true if we’re no longer in a red hot real estate market that is seeing multiple offers and forcing buyers to remove conditions from their offers.

3. Set a budget and stick to it.
It’s hard not to let emotions take over during the home buying process. Your pre-approval amount is what the bank is willing to lend you and may not necessarily be an amount you can comfortably afford to pay, after taking into consideration your lifestyle needs. Do you have an active social life? Do you enjoy eating out? Are you planning on having kids? Are you saving for your RRSPs? When a bank provides an approval, they are based on CMHC guidelines, not the costs associated with your lifestyle.

For example, your financial institution will examine your gross debt servicing. Your monthly housing costs should not exceed 32% of your gross monthly household income. Housing costs include monthly mortgage payments, taxes, heating expenses and half of monthly condominium fees (if applicable). Your mortgage lender will also examine your total debt servicing ratio. This is your entire monthly debt load and it should not exceed 40% of your gross monthly income. This includes housing costs such as property taxes, heating costs and condo fees and other debts such as car payments, personal loans, and credit card payments.

4. Factor in closing costs
Far too often people are surprised when they get the final statement of adjustments from their lawyers and are left scrambling to come up with thousands of dollars to cover the shortfall. On top of the purchase price, there are also land transfer tax and legal fees. For example in Toronto, in addition to the Provincial Land Transfer Tax, there is also a recently implemented Municipal Land Transfer Tax, which will add approximately 1% to the closing costs (first time purchases are eligible for a rebate up to a maximum of $3,725).

If it is a new development, you may also be responsible for development charges, such as Education levies and fees for enrolment in Tarion Warranty Corporation and installation of hydro meters. My advice? When negotiating the purchase of a new development, your agent should put a cap all these extra charges. For example, if you capped all your development charges and levies at $3,000, this is the maximum the developer could end up charging you upon closing, regardless of what the actual fees should be.

5. Title insurance
Title insurance and identity theft coverage offer peace of mind and protection. Although real estate title fraud is far less frequent than other forms of identity theft, it is a violation that can have devastating and long lasting effect on its victims.

Once you’ve purchased a house, your journey is far from over. The goal now becomes paying off the mortgage quickly and comfortably. Here’s what I recommend:

6. Bump up frequency of your payments
To save substantially on your interest costs and pay off your mortgage faster, set your payments to rapid weekly or bi-weekly mortgage payment options instead of monthly. The total outlay is only slightly greater than if you choose to pay monthly, but the impact is amazing.

For instance, if you started with a 25 year amortization by making rapid bi-weekly payments you would pay off your mortgage in 21.4 years. On a 30 year amortization, you would pay off your mortgage almost 5 years sooner and on a 35 year amortization more than 6 years sooner and save tens of thousands of dollars in interest costs.

Regardless of where we are in the economic cycle or how robust the real estate market is, we all need a home. Finding the right home to suit your budget, your lifestyle, and your aspirations is always a challenge. But with the right team, the right tools, a little patience, and a little luck, you may be moving into the house of your dreams, sooner than you ever imagined.