Buying a home: 10 things you need to know

Buying a home: 10 things you need to know

July 21, 2010

Tony Wong


Buying a house can be daunting, but a little planning makes it less stressful.



Buying a home is the largest purchase you’ll likely make. No wonder you’re stressed. Where should you look? Can you afford it? What will happen if interest rates rise? It may all seem daunting, but you can make it more manageable with a little planning. Here are a few things to figure out before you make the leap.

1. Get your financial house in order

Figure out your net worth, which is your assets less your liabilities. Assets are things like cash, investments, savings, cars, boats and so on, while liabilities are things you owe – car loans, amounts on lines of credit, overdrafts, credit cards. Subtracting one from the other tells you what you’re worth.  Hint: If you get a negative number, you should probably re-think the whole thing.

The bigger the down payment the less interest you will pay in the long run. Well before you start looking for a house or condo, build a budget that will allow you to put some money away each month for that down payment.

2. Talk to a broker or your bank

Choosing a mortgage is like going to an ice cream parlour – there are dozens of choices and different flavors.

It may be time for a mortgage broker or adviser at your bank. A mortgage broker will shop around, much like an insurance broker, to find you the best deal. Your banker will sell you a mortgage offered by the bank. That doesn’t mean you can’t negotiate with your bank. The posted rates are a starting point and you can usually get a better deal. If they won’t negotiate go somewhere else.

Don’t be afraid to ask questions. If you go to a broker, ask how long they’ve been in business, what kind of products they offer and if they have references. Often the best way to find a broker is word of mouth. Ask your friends.

3. Terms and rates

The next decisions revolve around how long you want to lock the mortgage in and than will determine the rate of interest you pay. This is called the mortgage term and can be as little as six months or as long as seven years. It locks you in to a set of payments for the length of the term. Shorter terms have lower rates of interest.

Along with this is the amortization period, or the amount of time it will take to pay off your loan. It might run anywhere from say, 15 to 35 years.

The longer your amortization, the more interest you will pay. It may be worth considering a weekly mortgage. The monthly payment is divided by four, but the advantage is that you make four extra payments a year which are applied to principal. It’s a painless way to pay down your mortgage faster.

Once you’ve settled on a rate, term and amortization period, you get a mortgage pre-approved by your lender.

4. Get a real estate lawyer

While your dentist can likely do a fine root canal, an endodonist will likely do a better job. In some cases there won’t be a substantial difference in cost, but it could save you some pain down the road. Similarly, having an experienced real estate lawyer looking over your purchase agreement, checking for outstanding taxes and liens or claims against the property can be a lifesaver down the road.

Line the lawyer up in advance and explain your plan. That way, there’s no surprise when you put in your offer and come back to him with the deal.

5. Have realistic expectations

First time buyers often start with a wish list that may not be realistic given their resources. Starting big is fine, as long as you recognize that along the way you’ll make trade offs between location, size of house and features.

First, assess your lifestyle . If you are single, enjoy walking to Starbucks for a latte and hate cutting grass, then a detached home in the suburbs is likely not for you.

Make a list of the things you want. Do you need a two car garage? Space for a home office? Are you going to have children? Is it a good location? [hotlink to 10 things story] Don’t look at the house in isolation. Make sure the neighborhood, schools and surrounding amenities and services fits your needs.

Now start looking around. Use the internet, newspapers, and real estate magazines to get up to speed. Go to open houses to get a sense of what’s available at what price. Knowledge is power. A good place to start is with your local Multiple Listing Service site.

6. Stick to your plan

Understand what your spending limit is and don’t go over it. A pool might be nice, but it is not a necessity. Buying a home is ultimately a compromise of needs versus wants.

Try not to get emotional. In a hot market, bidding wars can be tough on buyers. But you could end up with a whole pile of buyer’s remorse if you think you overpaid.

Or what may look like a lemon. Homes that are in disrepair or need fixing up can usually be purchased for less. Don’t be hung up on the wallpaper, or the fact that the kitchen isn’t pristine.

Use a little imagination. Yes, it’s going to take work, but the savings could be worth it. Because when life gives you lemons, a slap of paint and a trip to the hardware store will Increase housing value like you wouldn’t believe.

7. Buyer agency agreement

Make sure that your agent represents you. A buyer agency agreement helps to reduce conflict of interest since the brokerage represents you exclusively. The seller’s agent represents the vendor.

A buyer’s agent for example, will tell you why you shouldn’t be buying a particular home. Make sure that the guy or gal on your team is batting only for you.

8. Get a home inspection

You wouldn’t buy a used car without checking under the hood, so why buy a house without a home inspection?

A home inspector will check for structural and electrical defects, roofing and foundation problems. This can come back to haunt you later. It also gives you some negotiation room when you put in your offer.

In hot markets, sellers may press to have the inspection waived. Don’t give in and get swept away in the heat of the moment. Walk away.

At the end of the day, it boils down to your risk profile. I have a friend who sometimes drives without a seatbelt. My cousin meanwhile, loves the fact they have somehow managed to invent car airbags for her knees. My theory is it’s better to have somewhere soft to land.

9. Don’t be afraid of being a landlord

One way to pay your mortgage off faster is to have someone help you. Buying a duplex or triplex is not a bad way to go, particularly in urban areas where prices have been bid up. Renting out the basement in a single detached home or a spare room is also a smart idea if you’re not using the space. And the extra money in your pocket may mean that you can afford a nicer home in a better neighborhood.

10. Maybe you should rent

Just because all your friends have put money down on a new condo doesn’t mean that you have to follow suit. Depending on your circumstances, it might make more sense to rent than buying a home. A rent versus buy calculator can help you figure it out

Taxes, maintenance and utilities can add up. A low interest rate environment can tip the rent verses buy equation into the buy side, while higher interest rates, which make buying less affordable, can make it more favorable to rent.

In many cases, it is much cheaper to rent than it is to buy. Most studies show however, that in the very long term, it is better to buy. However, if you tend to move a lot, don’t like to deal with maintenance issues, and want to free up some money for other things, then renting might be the best lifestyle choice.

Tony Wong writes about real estate for The Toronto Star.



Selling a home: 10 things you need to know

Selling a home: 10 things you need to know

August 03, 2010

Tony Wong


Selling a home can often be as stressful as buying one.



People sell their homes for a variety of reasons, whether it’s because they need more space, they’re downsizing, moving up, leaving the country, or getting a divorce. They all have one thing in common: They want to get the most they can.

Here are 10 things you need to know about selling your house.

1. What’s my house worth?

It doesn’t hurt to get a second opinion at the doctor’s office. Real estate is no different. If you’re interviewing realtors, ask what they think your home will fetch. Agents will look at what else has sold in the neighborhood and make a comparison. But trying to figure out value in a fast moving market can be like pinning a tail on a galloping donkey. What sold last might not be where the market is today. But at least it will give you some baseline numbers.

That ballpark figure is essential to helping you to figure out how much equity you have in the home. That’s the amount of money left after you sell, minus your mortgage and other expenses such as moving and commissions. It gives you an idea of what you can afford for your next property and whether it’s worthwhile selling in the first place.

2. Declutter

I know you’ve seen those reality shows where the hoarders have junk packed to the ceilings. I know this isn’t you. But I also know that you don’t always vacuum every day and the house isn’t necessarily as pristine as it could be. Decluttering is the cheapest way to make your house shine to a prospective buyer. You may even find that box of chocolates that your aunt gave you for Christmas.

3. Curb appeal

First impressions count. The front of your home is the first thing buyers see. Some buyers have been known to stop at the front door and walk back to the car if they are turned off. That means making sure your lawn is freshly mowed. A coat of paint outside can’t hurt either. And bury the garden gnomes.

4. You can do it yourself

There are plenty of do-it-your self companies to help you sell. Some will list your home on the Multiple Listing Service for a few hundred dollars. Others will provide services a la carte, depending on what you need.

Or you can do most of the work yourself. That includes your own showings and flyers. But you get to keep most of the savings. An agent will charge a seller roughly 2.5 per cent of the selling price. On a $400,000 home, that works $10,000. With a little sweat equity you could save significantly.

5. If you want an agent…

If you feel more comfortable using an agent, shop around. Just because your cousin just got his license, it doesn’t make him the best choice. Your aunt might be miffed, but this is your money. Ask friends. Get referrals. There are even internet “dating” services out there that have realtors bid on your business. Pick from realtors that offer you the best range of commission and service and most of all knowledge about your neighborhood.

The realtor that suggests the highest price is not necessarily the best for you. Is he just trying to get your business? Find out how he calculated the price and assessed the value. Then compare with your other choices.

And don’t be afraid to negotiate. Realtors work hard for their money. But that doesn’t mean you can’t get a discount. If your agent shaves off just half a percentage point on his or her commission, that would leave $2,000 in your bank account on a $400,000 home. That’s enough for a nice little vacation somewhere.

6. Depersonalize your home

Pictures of your kids and grandkids are cute, but not to all buyers. Buyers want to be able to imagine living in your house. That means visualizing sitting on your comfy couch watching your big screen TV with a huge tub of popcorn. Just like you. So take away anything that will remind them that they’re just visiting. You want them to linger awhile. Don’t spoil the illusion.

7. Maybe hire a fluffer

Home stagers help you rearrange things in the house to make its appearance more attractive It could be worth it, but can also be expensive. But if it’s a slow market, your home has an odd layout, or your furniture is from a tattoo parlour (not that there’s anything wrong with that) a home stager may be the answer.

8. Marketing your home

Posting your home on the Multiple Listing Service, newspaper advertising and flyers are some of the traditional means that many people use. There are also internet sites where you can post your home for sale, depending on whether you are selling it yourself or using an agent.

The easiest and cheapest way starts with a sign on your lawn. Some people don’t like the For Sale sign because of privacy issues, but it’s round the clock billboard advertising.

You can also consider an open house for agents. Many realtors prefer to pre-screen a home before recommending it to their buyers. You can also have a general open house where anyone can drop by. Yes, so will all your nosy neighbors, but they may have friends or relatives who might want to live in the neighborhood.

9. When to sell?

Spring is traditionally the strongest market and prices are typically higher. As summer approaches, families have more time to look around, but most parents want to get settled before school starts.

Come winter, inclement weather keeps people indoors and buyers are thinking about the holidays. Not surprisingly, Christmas tends to be the slowest. But that doesn’t mean you have to shy away from listing. Sometimes less competition can mean good results. And your home is already decorated. Take advantage of the fact that the place already looks great for the holiday season. The tree is up, the fireplace is blazing. Let it snow!

10. Do you really need to sell?

If you need a bigger home, you could explore putting on an addition. If your home is dated, you can think about renovating. If you’ve lost a job and are having trouble making ends meet, think about taking in a tenant. There are options to selling that you can consider. There are also costs to take into account, from moving and storage to commissions that you pay each time you move. Selling isn’t always the best way to go. Your dream home might already be the one you’re in right now.

Tony Wong writes about real estate for The Toronto Star.


GTA resale home prices up in September | #Toronto #realestate

GTA resale home prices up in September

October 05, 2010

John Spears


Selling a home can often be as stressful as buying one.



The number of existing homes sold in September in Greater Toronto dipped 23 per cent in September, compared with September a year ago, says the Toronto Real Estate Board.

Board members recorded 6,310 sales in September, down from 8,196 a year ago.

But prices rose despite the softer sales, with the median price of a home rising to $360,325 from $347,000 a year ago. The median price marks the point where half the homes sold for more, half for less.

The average price also climbed, to $427,329 from $406,877 a year ago.

Softer sales volume isn’t surprising after the record sales chalked up by the market in the second half of 2009 and early 2010, said Bill Johnston, president of the real estate board.

Meanwhile in a national survey, Re/Max says the outlook for Canada’s home resale market looks healthy going into the final three months of 2010, after a summer “pause.”

The national real-estate sales organization says it anticipates fewer sales than in the surprisingly strong fourth quarter of 2009 but prices are expected to hold up.

Re/Max says there hasn’t been a big influx of listings, while demand has normalized after a very hot period in late 2009 and early this year.

It also says there was a good sign from the number of higher-end properties sold this summer in both smaller and larger centres.


CBC News – Toronto – Real estate picture improving: Re/Max

Real estate picture improving: Re/Max

Last Updated: Tuesday, October 5, 2010 | 12:12 PM ET 

Housing sales so far this year have eclipsed last year's levels in 11 of the country's 19 largest real estate markets, Re/Max says. 
Housing sales so far this year have eclipsed last year’s levels in 11 of the country’s 19 largest real estate markets, Re/Max says. (CBC)

Canada’s real estate market is showing signs of improvement after slowing noticeably over the summer months — but is a long way from the highs of late 2009, according to Re/Max.

According to Tuesday’s market trends report from Re/Max, sales activity so far this year has eclipsed last year’s level in 11 of the country’s 19 largest real estate markets.

“The outlook for the residential housing market has vastly improved over the past three months. Yet, markets are expected to record softer sales activity in the final quarter of the year, in comparison to the same period in 2009,” says the report from Re/Max, the country’s largest real estate firm.

On average, prices have been moving lower since peaking earlier in the spring, but over a longer time frame, prices are up across the board, with five areas reporting double-digit gains since the start of the year.

By far the strongest area of activity was sales of luxury homes, Re/Max said.

All markets reported a surge of 20 per cent or more in upper-end home sales. Sixty-eight per cent of markets saw upscale home sales climb in excess of 40 per cent, while 21 per cent boasted triple-digit gains.

“If anything demonstrates the underlying health of the national housing picture, it’s the surge in sales of luxury properties this year,” said Michael Polzler, Re/Max’s executive vice-president for Ontario and Atlantic Canada.

“We know from experience that this segment of the market is usually the first to show pressure cracks when a market is softening [and] that has certainly not been the case this year, even during the summer slowdown.”



Landlords dodge new CMHC rule | #Toronto #realestate

Landlords dodge new CMHC rule

Real estate investors are finding it more difficult to qualify for mortgages

Toronto real  estate investor Cindy Wennerstrom at one of the seven properties she  rents out. She's in the process of buying an eighth property, but is

Toronto real estate investor Cindy Wennerstrom at one of the seven properties she rents out. She’s in the process of buying an eighth property, but is “stuck, mortgage-wise.”

Photograph by: Tim Fraser For National Post, Financial Post

These are particularly confusing times to be a real estate investor due, for the most part, to a policy change made by the Canada Mortgage and Housing Corp. (CMHC) in April.

The major issue concerns mortgages on CMHC-insured properties with four complete units or less, which went from being calculated using an 80% offset model to a 50% add-back one. As reported in this paper, the offset model meant that up to 80% of the expected rental income is used to offset the cost of the mortgage. With the add-back model, half of the expected gross rental income will be added to an investor’s income, but the entire mortgage is added to expenses.

In other words, it wreaks havoc on an investor’s debt-service ratio, as was the case with full-time Toronto investor and consultant Cindy Wennerstrom, who is currently shopping for her eighth property but is “stuck, mortgage-wise,” she says.

“When banks take off 50% of the rent and apply that to your expenses, there is usually a deficit. That is subtracted from your actual income,” she says.

And with Ms. Wennerstrom’s other properties each producing a cash flow of $800 to $1,100 per month, there still isn’t enough to bring her to the desired debt-service ratio of 40%.

“That means 40% of your gross monthly income has to service your monthly debts,” says Barrie, Ont., broker Adam Bazuk. “That makes it very difficult to qualify investors unless they also have an enormous personal income.”

If that wasn’t difficult enough, the 50% add-back policy is not rubber-stamped across all lending institutions, with some allowing investors to use more than 50%, and others maintaining different versions of the offset program.

“It’s gone from a nice simple A or B plan, to an A, B and C plan, with all different ways to get there,” says Dustan Woodhouse, a B.C. mortgage broker with Invis.

Confusing, perhaps. But is it a bad thing?

Consider the 80% offset, for instance. “Everybody thought rental offset was gone,” says Mr. Woodhouse. “All they could see was that, based on a $1,000 monthly rental income, an 80% offset would qualify you for a $190,000 mortgage, while a 50% add-back would qualify you for $45,000, so it’s messed up the market from that perspective.”

But he says that for “organized property investors,” who have been reporting rental income on their T1 forms for the past two years, there are still good, if not better, options out there. Mr. Woodhouse mentions the lender Street Capital, which allows investors to subtract 100% of the expenses from the property off their mortgage application.

“Under the old rules, I would only be allowed to subtract 80%,” Mr. Woodhouse says.

While not a true 100% offset, it is the easiest way to explain the program, says Chris Hoeppner, a regional vice-president at Street Capital.

“If a client can provide the statement of real estate rentals from the T1 General, we just go with the net gain or net loss that property produces. As long as a person claims enough rental income to cover all the expenses, it basically becomes a wash, taking that property out of the debt servicing.”

But for those not so organized, who have not been reporting rental income on their T1 forms, there are still options.

As well, private mortgage insurers Genworth allows for rental offset.

Mr. Bazuk suggests avoiding CMHC by having a 20% or more down payment, and dealing with banks that “go outside of CMHC.” He also says Scotiabank, National Bank, Royal Bank of Canada and Canadian Imperial Bank of Commerce still offer a 70% offset arrangement, or are rental-property friendly.

Ms. Wennerstrom, despite being without a mortgage at the moment, is still confident.

“The option is still there, but you just have to buy the right properties,” she says, which means ones with “exceptionally positive cash flow.” To her, that’s more than $700 a month after expenses, plus a 10% reserve for maintenance and a 5.4% vacancy slush fund.

“After that, it’s just what sort of hoops to jump through to get the mortgage,” she says. “They will continue to change the rules and we will continue to find ways around them.”