You might be a bit afraid or intimidated by the whole process of buying your first home. As top Winnipeg, St. Vital and River Park South Realtors, it's our job to guide you, from beginning to end.
We will take the time to go through each and every step of the buying process. There are no dumb questions!
Together, we will consider:
- How much can you really afford?
- How to qualify for a mortgage.
- How much cash you should put down.
- How to buy a home with little or nothing down.
- What it takes to get approved for financing. What banks and other financial institutions are looking for.
- How much your payments will be.
- The tax advantages of buying.
- Is renting or buying better for you?
Tell us a bit about your situation below. We'll get right back to you. There is absolutely no charge, and we offer this to you with no strings attached.
First Time Buyers -
Making a Dream Come True
Are you among the thousands of Manitobans who pay rent each and every month, knowing that you'll never see that money again?
For many this need not be the case. Why not take income lost forever to rent and build it into an investment that can last a lifetime? Right now there are excellent opportunities for first-time buyers; mortgage rates are low and there is an abundance of reasonably-priced starter homes on the market.
Before you run out and start looking at homes, it is a good idea to first take a look at what you need, what you want and what you can afford. Whatever your taste and budget, there is a home out there for you. It will just take a little planning and forethought to make your dream of being a home owner come true.
What kind of home do you need?
Buying a home is never based on one specific factor; instead, it is a balance of many requirements - things like family size, location, income and lifestyle. REALTORS are excellent sources of advice and assistance in these matters. Not only do they have the experience and knowledge to make sure the choice you make will be the right one, but they also can help you find the right property.
The first thing you need to do is decide exactly what you need in a home. How many bedrooms? How close to schools or shopping? Do you need a garage or finished basement? These kinds of questions can be itemized in a "buying blueprint" that will serve as a guideline in your search.
Next on your agenda should be deciding on a preferred location. City or suburbs? City or small town? Town or country? City dwellers tend to think that living in a smaller, outlying community would be idyllic, but forget about the commuting factor. How will the roads be in the winter? Do you really want to drive 45 minutes or an hour every day, winter and summer to get to your dream home?
Once you decide on a general area you wish to live, you will probably find that there are a good number of options when it comes to the age and type of home you might purchase.
New homes are a good bet because of their extensive warranties and pristine condition. On the other hand, you won't have mature trees or landscaping - that is something you will have to plan and work at over a long period of time.
Resale homes offer a great combination of affordability and character. Many will include improvements such as finished basements or rec rooms, decks or patios and mature landscaping. They may also come with repairs and upgrading in the near future.
Townhouses and condominiums are obviously suited to particular lifestyles or budgets. Maintenance is usually taken care of by the management and upkeep costs can be low. Townhouse or condominium living often means sharing common areas such as parking, hallways and landscaping.
Rural properties offer the ambience that many of us crave: green pastures, wooded areas, friendly community and safer streets. These plusses must be weighed against more limited services and additional commuting time.
What can you afford?
Once you have determined what it is you want and need, you will have to find out what you can afford. It is crucial to avoid a situation referred to as "house poor". Many homeowners have found themselves in a state where the costs of paying for the home are so burdensome that any enjoyment is outweighed by the pressure of the monetary commitment.
So the first thing to do is set a maximum price range instead of just an upper price. It is not always wise to buy the most expensive home you can afford, but better to aim lower in anticipation of extra costs or fluctuations in your income.
What you can afford will be based on two things: the amount of your down payment and the maximum monthly payments. Obviously, it is preferable to make as large a down payment as possible; this will keep your payments down and save money in interest costs.
A REALTOR or your financial institution will determine the amount of the mortgage you can carry by calculating your debt-service ratio. The rule of thumb is that the sum of all your current loan payments (car, personal, credit card, etc.) plus your mortgage payment should not exceed 40 per cent of your gross income. In addition, mortgage payments and property taxes should not be more than 30 per cent of gross income.
Buying your first home may seem intimidating in the beginning, but with careful planning and a clear idea of what you want, home ownership can be a joyful reality for you and your family.
First-Time Buying
With today's low interest rates and wide variety of housing options and prices, buying your first home may be one of the best long-term investments you will ever make. But before taking the big leap to home ownership, it is important to consider your personal needs and financial situation carefully.
Owning a home is not for everyone. It's a big responsibility that may require some sacrifices and possibly a lowering of expectations. Unless you have available a significant down payment, it is important to keep in mind that double garages, fireplaces, family rooms, powder rooms, walk-in closets, pools and over-sized lots all add big dollars to the price of any home. Prime neighbourhoods -regardless of a particular home's negative features -also command premium prices.
For most people, their first home is a modest structure in a pleasant rather than prime neighbourhood, and it may need some cleaning or fixing up. It may take a number of trade-ins over a period of years to build up equity and eventually realize their dream home.
Deciding to buy
One of the easiest ways to evaluate your decision to buy is to ask yourself "If all else were equal, would I rather rent or own my own home?" It's safe to say that most of us would opt for home ownership.
But how do you make the choice financially? A good way is to look into the future and consider what you will have to show from monthly rental payments (a stack of receipts) versus mortgage payments (significant equity in a home). When all is said and done, buying a home is a sound investment in your financial future.
Getting started
For most first-time buyers, the key to home ownership is the initial down payment. This is the part of the purchase price you have to put down as cash (usually 25 per cent of the purchase price for a conventional mortgage). However, it is possible to get a high-ratio mortgage for up to 95 per cent of the purchase price. This type of mortgage is insured by the government and the insurance premium -anywhere from .65 per cent for 25 per cent down to 2.75 per cent for 5 per cent down -is added to the mortgage principal.
One of the best ways to save for a down payment is by taking advantage of a government program available to first-time buyers using your RRSPs for a down payment. Enlist the services of a real estate professional to help you understand how the program works and other ways to help you save for the highest down payment possible. This professional, a REALTOR®, will also help you understand and choose the housing options and neighbourhoods that will best serve your pocketbook and desired lifestyle.
Working with a REALTOR®
Once you have a good idea of how much you can afford and income available for housing costs, you can start to zero in on the home you want to buy. This is where you will be really glad to have a REALTOR® on your team.
A REALTOR® has considerable knowledge of market values, properties available in your price range and homes that will match your individual needs. He or she will review your list of needs and wants, and help you determine the price range of homes you can consider in a variety of neighbourhoods.
A REALTOR® will also preview properties for you and show you those homes that match your budget and your needs; he or she will also explain the various financing alternatives available and provide you with up-to-date information on interest rates and mortgage options.
Calculate a Workable Home-Buying Budget
About two-thirds of Manitobans own their own homes and every year thousands more buy a home for the first time. It's a similar story across Canada. Home ownership is an essential part of life.
If you are thinking of buying a home, don't start shopping until you know exactly how much home you can afford. Find your price range by calculating three amounts: the amount of cash you can put toward the purchase (down payment), the maximum amount of loan (mortgage) you can comfortably pay back and the costs associated with actually completing a purchase (closing costs).
Down payment
Canada's National Housing Act keeps lenders from providing the entire amount of a home's market value, so you will need a cash down payment to cover part of the purchase price.
The Act says a lender cannot normally provide more than 75 per cent of a home's market value unless the mortgage is insured by the Canada Mortgage and Housing Corporation (CMHC) or a private insurance company.
With mortgage loan insurance you can borrow up to 95 per cent of a home's value. The loan is known as a "highratio" mortgage because of the high proportion of borrowed funds to cash.
Mortgage insurance is available through chartered banks, trust companies, life insurance companies, credit unions and caisses populaires and costs between one-half and two-and-a-half per cent of the loan amount, depending on how much of the home's value is being borrowed. It protects lenders against borrower default and remains in force for the life of the mortgage.
The amount and cost of a mortgage is strongly affected by how much of a down payment you make. The bigger the down payment, the smaller the loan you will need and the less you will pay in interest over the years. It makes sense to put down as big a down payment as you can afford, but keep in mind there are other costs involved in buying a home. It is a good idea to have some cash in reserve.
Mortgage Basics
A mortgage is simply a long-term loan secured by using real estate as collateral. To get a mortgage, you have to fit the same criteria that lenders apply to any application for a loan - you need a certain income level, employment stability, a low or manageable debt load, a good credit history and other things.
Even though qualified borrowers can choose a number of different mortgage options, some things are constant from mortgage to mortgage and lender to lender.
Interest is what you pay for using a lender's money and it is usually a percentage of the amount borrowed, calculated semi-annually. Theoretically, if you borrowed $1.00 at 10% annual interest, you would pay $10 per year in interest. In real life, payments usually pay for interest and repay some of the money borrowed, too. This is called a "blended" payment.
Loan payments are made periodically during a set length of time called the amortization period. Common amortizations are 20 or 25 years. The longer the amortization period for a given loan amount, the smaller your monthly payments will be. However, the amount of the interest paid goes up substantially as the amortization period increases.
Payments
Most mortgage payments are made once a month, but other options are twice a month, every two weeks or every week. Usually, your principal (the amount still owed) is reduced more quickly if you make more frequent payments and you will end up paying less interest.
At first, most of each blended payment goes toward paying interest; the amount borrowed is only reduced a little. As the end of the amortization period gets closer, more and more of each payment goes toward paying back the amount originally borrowed.
For example, with a $40,000 mortgage at 10% amortized over 20 years, after five years only about ten per cent of the principal amount has been paid off, after ten years about 26% has been paid, after 15 years a little more than half, with the remaining half paid off in the last five years of the amortization period.
The interest rate, amortization period and other conditions between borrower and lender are specified in a legal document called a mortgage loan agreement. The agreement stays in effect for a time period called the "term" of the mortgage - usually six months to five years, but sometimes longer.
A mortgage loan is due and payable at the end of a term. At that time a borrower may either pay off the amount owed, renew the loan with the same lender or change lenders. If borrowers can't meet their payments, lenders can "foreclose" or take possession of the property before the term is up.
A typical mortgage amortized over 20 years might end up divided into eight terms - say four three-year, a five-year and three one-year terms - each renewed at a different rate of interest set by the lenders and guided by the government's Bank of Canada rate.
Mortgage Options
A "pre-approved' mortgage can be set up before you shop and guarantees rate, term, payment periods and other conditions for a certain period of time.
"Fixed rate" mortgages are structured so that each loan payment is the same amount, based on an interest rate that doesn't change during the term. "Variable rate" mortgage also have standardized payments, but the interest rate can fluctuate from month to month as mortgage rates vary. When rates rise, more interest is paid and a smaller proportion of the payment goes toward paying off the principal. In times of falling rates, less interest is paid and more goes to the principal.
"Open" mortgages let you pay off all or part of the principal without penalty before the end of the term, cutting down on your total interest cost. There may or may not be a fee to do this, depending on the mortgage, and the interest rate is usually higher than for a closed mortgage. "Closed" mortgages allow only regular, agreed-upon mortgage payments to be made but usually carry a lower interest rate.
"Assumable" or transferable mortgages let buyers take over a seller's loan, with conditions intact, if the buyers meet the lender's criteria. Property with an assumable mortgage can be very desirable. For example, buying a home with a ten per cent assumable mortgage and eighteen months left in its term is a real bonus if the current interest rate is two or three points higher.
On the other hand, if you are buying a home and don't intend to live in it for long, you may want a "portable" mortgage. A portable mortgage can be transferred to your next home purchase with the rate, balance and term intact. If you find you will need a larger mortgage, some lenders will blend your portable mortgage with your new one.
To find a competitive interest rate and options that best suit your needs, shop around for a mortgage before shopping for a home. Be sure you look into the administration fees, penalties and other costs that can come with a mortgage too.
Closing Costs
Finalising or "closing" a real estate transaction can involve substantial costs that may come as a surprise if you don't know what to expect. A wide variety of fees, taxes and other expenses require payment before you take possession of your home.
If you are getting a high-ratio mortgage, the cost of mortgage insurance can be paid immediately. On the other hand, you might have the option of adding the insurance fee to the loan, but then it will cost more because you will pay interest on it over the life of your mortgage.
You will probably pay a fee to your lender for having an appraisal done as well, because most lenders appraise a property before approving a mortgage. They just want to be sure they are lending you no more or less than the home is worth. You will have to arrange for pre-paid home insurance too, since you usually can't get a mortgage without a home-owners' policy to protect your home and the lender's investment.
There will be some delay while mortgage documents are being registered in the government land titles office. When that happens you may not get your loan until after the possession date and you will have to pay interest to the sellers on money owed to them at the same rate as your mortgage until they receive the full sale price.
Taxes
No matter where you live, you can't escape property taxes. The tax year is the same as the calendar year, but tax in Winnipeg is generally paid in one amount towards the middle of the year. Depending on when you take possession, you may have to reimburse the seller for part of the year if they have already paid, or may find the seller owing you money if you have to pay after you move in. Either a credit or a debit for taxes will be included in the statement of adjustments prepared by your lawyer. For information about property taxes in a specific area, contact the appropriate municipal or city government.
You also pay land transfer tax in Manitoba unless you are a farmer buying farmland. There is no tax on the first $30,000 of purchase price, but after that it is half a per cent up to $90,000, one per cent after that $150,000 and one a half percent on the rest. Buying a $100,000 home means a $400 tax bill.
Services
A real estate agent's fee is usually paid by the seller, but other professional services aren't. Almost all home buyers need a lawyer to provide a title search, title and mortgage registration, location certificates, zoning memorandum, a tax certificate and other things. You might also need a surveyor, engineer, home inspector or appraiser.
Consider your moving costs, too, as well as any repairs, renovations or redecorating you might want to do when moving in. Don't forget fees for having new telephones, cable TV and other utilities hooked up. The GST must be paid on services, too.
You can see that using all your savings for a downpayment is not a good idea. Plan for closing costs well in advance to avoid financial surprises.
Buying a home isn't just the biggest investment most people make in their lives, it's one of the most complex. It can be one of the most pleasant and rewarding, too, with a little financial planning before you start shopping
All About Downpayments
How to Save for a Downpayment
The dream of owning a home of your own will more easily turn into reality if you take some practical steps towards saving for a down payment.
It makes good financial sense to put as much money as you can into your down payment. The bigger the down payment, the less you will have to borrow for a mortgage. This means smaller monthly mortgage payments and it also lowers the cost of interest over the mortgage term.
Saving for a down payment can be a challenge and it often means sacrifice, but there are programs designed specifically to help first-time buyers meet the challenge.
If you have been putting money into a Registered Retirement Savings Plan (RRSP), the RRSP Home Buyer's Plan allows you to withdraw up to $20,000 from the plan to buy or build a house. Your spouse can also withdraw up to $20,000 from his or her RRSP, to make a total of $40,000 available for a downpayment.
There will be no income tax deducted from this money provided it is repaid to an RRSP within 15 years, according to a government repayment schedule. The money you take out must also have been deposited at least 90 days before withdrawal.
You can take part in this plan if you, or your spouse, have not owned a home and lived in it as your principal residence for five years before you take the money out of your RRSP.
You have to enter into an agreement to buy or build a home in Canada that will be your principal residence within a year. You can buy a new or resale detached or semi-detached home, a townhouse, condo, mobile home or an apartment in a duplex, triplex, fourplex or apartment building. Shares in a co-operative housing corporation also qualify.
Once you have entered into the agreement, Revenue Canada's Form T1306 must be completed and handed over to the financial institution that issued your RRSP. This form gives you permission to withdraw money without taxes being withheld. You can take money from more than one RRSP, as long as you don't exceed the $20,000 limit.
If you don't think a conventional mortgage - which calls for 25 per cent of the purchase price as a down payment - is within your reach, the Canada Mortgage and Housing Corporation has a first-time buyer's program that offers financing of up to 95 per cent of a home's purchase price. To qualify, you must be planning to buy a home in Canada that will be your principal residence, and you can't have owned a home in the previous five years.
Often the biggest obstacle to saving a down payment is simply the inconvenience of making regular deposits to your savings plan or account. Even minimal contributions add up over time and before you know it you have enough saved for a downpayment.
Many financial institutions now offer automatic deductions to put some of your money into a savings account every week, every two weeks or once a month. Your ability to save money regularly will also stand you in good stead when it comes time to shop around for a mortgage.
Manitoba REALTORS® are specially trained to help you find the home that's best for you. They are familiar with the way these programs work, and their advice can help you start working toward making your dream of home ownership a reality.
Make a Tax-Free Down Payment on Your First Home
If you are thinking about taking the first step into the exciting world of home ownership but are wondering how you will ever save enough money for that down payment, help is available.
The RRSP Home Buyer's Plan has been designed by the federal government to assist home buyers with the difficult task of saving for a home.
Here is how the plan works: if you are a first-time buyer and plan to purchase or build a home in Canada, you can withdraw up to $20,000 from your RRSP towards your down payment. If you have a spouse who is also eligible, you can each withdraw up to $20,000 toward the down payment, for a total of $40,000. Generally, you can participate in the RRSP Home Buyer's Plan only once in your lifetime.
The best part is that no income tax will be deducted from these funds as long as they were deposited at least 90 days prior to your withdrawal, and you repay them to your choice of RRSP over a period of not more than 15 years. Repayment must begin two years after your RRSP withdrawal, with scheduled annual payments on or before December 31 of each year.
Each year you have to repay 1/15 of the total amount you withdrew until the full amount is repaid to your RRSP. You will receive an annual repayment statement from the government that will tell you the amounts you have repaid and the amount you will have to repay the next year.
It is important to note that you do not receive a second tax break when you make an annual repayment to your RRSP. You must inform your RRSP insurer that it is a repayment and not a regular contribution and complete an RRSP repayment form, available any Revenue Canada district office.
If you decide to pay less than your scheduled annual payments, the amount that you don't repay must be reported as income on your tax return for that year and you will be taxed on that amount.
No matter what type of home you wish to buy - whether it is existing or newly built, detached for semi-detached, a townhouse, condominium, mobile home or apartment - you can take advantage of the RRSP Home Buyer's Plan. Your home must, however, meet a few straightforward criteria: it must be located in Canada, acquired not more than 30 days before receiving the withdrawal under the RRSP Home Buyer's Plan and intended as your principal place of residence within one year after buying or building it.
Talk to a real estate professional to learn more about the RRSP Home Buyer's Plan. A REALTOR will ensure that you maximize the plan's benefits, and help you take that step into home ownership with confidence.
Your RRSP Can Help You Buy a Home Now
The biggest hurdle for many first-time home buyers is putting together the down payment for a house. But if you or your spouse have an RRSP, you may be able to start enjoying all the advantages of home ownership sooner than you think.
The RRSP Home Buyers Plan was started in 1992 as a federal tax incentive to assist first-time home buyers in overcoming the initial difficulties of getting into the real estate market. Since the government started the Home Buyers program, more than 400,000 Canadians have used their RRSP funds for down payments; about 65,000 were expected to have taken advantage of the plan in 1996.
With mortgage rates near their lowest levels in 30 years, now is an ideal time to buy. Using tax-free RRSP funds for a down payment makes getting into a home even easier.
How does it work?
The minimum down payment for first-time home buyers is five percent of the sale price of the house. You'll need an additional three per cent or so of the sale price to take care of some initial payments such as taxes, but up to 95 percent of the sale price can be financed for eligible buyers by an insured mortgage.
That minimum five per cent means you don't need a great deal of money in RRSP savings to meet the down payment requirements.
You may withdraw up to $20,000 of tax-deferred savings from one or more RRSP's to make a down payment. In fact, if your spouse also has RRSP’s, he or she may also withdraw up to $20,000 under this RRSP Home Buyers Plan and the total of $40,000 can be used as a down payment to buy or build a home. (The property bought or built under this plan must be your principal residence, not a second home or cottage.)
According to CMHC figures, the average withdrawals when the plan started were just under $10,000. That average has declined to about $8,000 this year.
Your tax-free RRSP withdrawal must be repaid within 15 years on a schedule of at least 1/15th per year. Any shortfall in any year will be included in your income and taxed at the normal rate. The repayments begin the second year following the year in which the withdrawal was made. You do not receive another tax break when you make repayments to your RRSP.
A REALTOR can supply you with all the details about the RRSP Home Buyers Plan - and help you find that first house. With good deals and low carrying costs available, now is the time to take the plunge - with help from your RRSP savings - and make your dream of owning a home come true.
Cut Years Off Your Mortgage
With today's lower interest rates, deciding to buy a home is one of the best decisions anyone can make. Financing such a big purchase, however, often means combining savings with money borrowed through a financial arrangement commonly referred to as a mortgage.
Mortgages allow you to pay back the principal - or the amount to be borrowed - plus interest in regular installments. The taxes on your home can also be added to the mortgage payments. Most mortgages are amortized over 25 years - that's the length of time it takes for you to pay the debt off in full.
For most home buyers, paying off the mortgage is a long-term commitment. That's why it is important to begin looking at options before buying, or before renegotiating your existing mortgage. When home buying, your REALTOR can help you calculate how much mortgage you can afford and provide advice on the many options available.
But even if you find yourself locked into a long-term mortgage you can afford, there still may be ways to pay it down and be mortgage-free sooner.
Pre-payment options
Most financial institutions now offer generous pre-payment options. Although many limit how often you can use an option, it is well worth checking into them and comparing what one lender offers over another.
Many lenders now permit an annual lump sum payment on your mortgage with the amount going directly to reducing your principal. A lump sum payment of $2,000 a year on an $80,000 mortgage, for example, can significantly cut years off your mortgage.
Other pre-payment privileges include doubling up payments whenever you have extra cash. Some lenders allow additional payments against the mortgage balance up to the equivalent of a full monthly payment on every payment date or several times throughout the year. Accelerating payments by paying every two weeks instead of monthly, for example, can also result in substantial savings over the life of a mortgage.
While taking advantage of pre-payment privileges can save you thousands of dollars in interest costs over the life of your mortgage, it also pays to consider all your options. You may be reducing the principal but you are not reducing your existing payment obligations. You still must make your regular payments.
Pre-payment critics also say that if your interest rate is reasonably low, you may be able to put the extra money to better use. When you pre-pay $2,000 a year, you reduce your principal but get no tax benefit. Put the same amount of money into a registered retirement plan and you get a tax break. If you invest this amount in a mutual fund at 10 per cent and your mortgage rate is seven per cent, you are making three per cent more on your investment.
Lower your amortization period
The average mortgage must be paid off in 25 years. By selecting a shorter amortization period you can cut years off your mortgage. The shorter the period, the larger the payments, but the more you save on interest and the long-term cost of the loan. Shortening the amortization period is a great idea when interest rates are low and you can afford the larger monthly payments.
Re-finance your mortgage
This is only a good idea if you have a fixed, long-term mortgage and rates have fallen more than two per cent. But the cost of refinancing a loan to get a better rate can be very high. To have your closed mortgage discharged, you will usually have to pay either a three-month interest penalty or an "interest differential", which can cost considerably more.
You can reduce the penalty, which is based on the outstanding principal, by exercising a prepayment privilege and reducing the principal first. This can be done using your own money or by arranging with another lender to borrow enough to discharge your mortgage and pay the discharge penalty. Whatever you decide to do, seek expert advice before r~financing, or you may end up paying more than if you had stayed the course.
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- NUMBER1EXPERT™ 
