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Frequently Asked Questions
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How do I know what I can afford?

First you will have to calculate your net worth. This is the difference between your total assets (what you own) and total liabilities (what you owe). Your mortgage lender will certainly want this information and it will give a quick insight into how much down payment you can afford. Along with your net worth, you'll also need to add up your non-discretionary monthly expenditures. This will help you see how much you can manage for mortgage payments.

Mortgage lenders follow two simple rules to determine what you can afford in monthly housing costs: The first is that your monthly mortgage payments shouldn't be more than 32% of your gross household monthly income. This is called the Gross Debt Service Ratio. The second is that your total monthly debt load shouldn't be more than 40% of your gross monthly income. This is your Total Debt Service ratio.

What kind of mortgage should I get?

There are different types of mortgages available to suit individual needs, resources and preferences. You can choose fixed rate or variable rate, short term or long term, closed or open. Here are some general rules of thumb to help you decide on the mortgage structure that's right for you.

When considering a fixed rate versus a variable rate mortgage, the current interest rate and whether you believe it will rise or fall in the future is a key determining factor. If rates are low, it may be best to lock into a fixed rate mortgage. If rates are likely to decrease, however, a variable rate mortgage would be advantageous. In this case, your monthly payments would stay the same but the amount of principle you pay would increase. An adjustable rate mortgage will change the amount of your monthly payments based on market conditions.

Short-term mortgages are preferable if you think interest rates are likely to remain low or fall in a few years. Long-term mortgages are the better bet if you foresee interest rates rising over the long term. Long term mortgages are typically 3 or more years and often have higher interest rates than shorter term mortgages.

Your third option is an open or closed mortgage. Open mortgages allow you the freedom to make prepayments and lump sum payments without penalties. Closed mortgages offer lower interest rates but have the disadvantage of not allowing you to contribute extra money over and above your regular monthly payments.

We recommend that you contact a mortgage specialist for more details and to find out what mortgage option best suits your needs.

What are some of the extra costs?

Once you have decided on the price range of your home and calculated your mortgage payments, you'll still need to assess all the associated costs of home buying to ensure you can manage the financial load.

The first possible extra is mortgage insurance. If you pay less than 25% of the property's value for your down payment, you'll have to get insurance from CHMC. It usually costs between 3.4% and 0.65% of the mortgage amount depending on the amount of your down payment.

Next is the appraisal fee. Your mortgage lender may require that the property be appraised at your expense. A Home Inspection Fee may also be a condition of your Offer to Purchase. These fees could add up to $500 to $600 on the purchase price.

Property insurance is another additional cost. The mortgage lender requires the home to be insured because it is security for the mortgage. Also your Legal Fees and Disbursements must be paid upon closing and they'll cost a minimum of $500. Other up-front costs may include Property Transfer Tax and pre-paid vendor costs such as fuel and utility bills.

If you're buying new, the builder may offer optional upgrade packages. This will increase the price of the home but can be rolled into the mortgage and be amortized over the life of the mortgage. After final completion, you'll be facing ongoing payments such as annual property taxes. And if you're moving into a strata corporation, monthly strata maintenance fees are obligatory.

Do I have to pay the Property Transfer Tax and how much will it be?

It depends. First time homebuyers are exempt from paying this tax if the property is priced under $325,000. For other buyers, the fee is 1% on the first $200,000 and 2% on the balance.

Can I use my RRSP's for my down payment?

One way to add to your down payment amount is to tap into your RRSP's. While it's true that normally you'd probably pay penalties and income tax on any RRSP withdrawal, there is an exception to the rule. As a first time homebuyer you may withdraw up to $20,000 ($40,000 per couple) from your RRSP's under the Home Buyers' Plan. These funds can be used to increase your down payment and are not counted as income and subject to income tax. But there are some conditions attached that you should be aware of:

  • The amount withdrawn must be repaid within 15 years from the date of withdrawal.
  • You must purchase your home by October 1st in the year following your withdrawal.
  • You must start repaying your withdrawal in the second year after your withdrawal.
  • Repayments are not tax deductible.

Do I have to pay GST?

Yes, GST is inevitable even on something as essential as having a roof over your head. New homebuyers are subject to GST on their purchase, which will vary from 4.48% to 7%. The variation is determined by the price of your new home. If it is under $350,000 and is self-occupied the GST is 4.48%. If the price is over $350,000 a sliding scale is used to determine GST up to 7% at $450,000. Investors are subject to 7% GST at any price.

When do I make my first mortgage payment?

Because of high demand, you may want to put a deposit on a home in the pre-construction or pre-completion stage. Mortgage payments, however, only commence on the completion of the home - you don't have to make payments immediately after you pay the deposit. A good thing too as it could be some months before you can move in.

What do the strata fees include?

If you're buying a home within a strata corporation, be sure to check the disclosure statement to see what is included in your strata fees. The services and amenities they cover will vary from community to community.

As a general rule strata fees include maintenance of common property - usually everything not inside the residences: if your fridge breaks down that's your responsibility. They will also cover insurance for common areas, landscaping of the grounds, garbage and snow removal, as well as membership in the community clubhouse if one exists.

Strata corporations always have a contingency fund for major repairs and a percentage of the fees will be earmarked for that. If you're going to be a second or third owner in a strata corporation, be sure to check out the amount of the contingency fund and consider the age of the building.

What does "closing in escrow" mean?

Unfamiliar legal and financial phrases are very much part of buying a home. You may encounter the term "closing in escrow" if one or more of the stipulated conditions for the completion of the contract have not been met. This could be as simple as unforeseen delays at the land title office or in the transfer of funds. Until the situation is resolved, a third party holds the money or documents in escrow.  Escrow closes when all of the conditions of the transactions have been met and the title of the property is transferred to the buyer.

What about buyer restrictions? For example, pets, age, rentals, etc.

When you buy into a strata title community, be sure to check the bylaws of the strata so that there's no surprises - you don't want to find out that a much-loved pet can't share your new home. Each community's bylaws will vary depending on the style of community and its location. New bylaws can be passed or existing ones changed by the strata council, but this can be a complex and time consuming process.

The home buying process - Canadain Home Builders Association

Frequently asked questions about buying a new home

The home buying process should begin with questions - lots of questions to help you to make the right decisions about the builder you choose and the home you buy. Asking questions helps you to understand the buying process and eliminate any uncertainty you may have about it. Here are some of the common questions that home buyers ask in consumer seminars, in calls to local Home Builders' Association offices and in builders' sales centres.

How do I make sure that I choose the right new home builder?

Talk with several new home builders first. Check out each company and the quality of their homes. Visit model homes or sales offices. Get facts and figures about every builder: How long have you been in business? Where have you built before? Where are you building now? Can I visit one of your construction sites? Are you a member of the Canadian Home Builders' Association? And so on. Ask about their customer service and third-party warranty. Ask for references from past customers and follow up on them.

How long will it take to build my home?

The time required to build a new home can vary considerably, depending on development of the land, availability of labour, size and design of the home and a number of other factors. In larger developments, construction of your home may not begin until a certain percentage of the homes have been pre-sold to ensure an efficient and cost-effective construction process. Your builder will provide you with a detailed schedule of events and milestones, so you'll know exactly what to expect and when.

Can I make changes to the design?

Today, customizing is the norm, not the exception. Often, your chosen plan can be modified, before the foundation is built, to suit your own needs and desires - e.g., moving walls, expanding closets, adding windows. However, each builder has a different approach, so ask about flexibility and limitations in the design. Do I have choices? Can I make changes and when? In larger developments, the exterior style elements and colour scheme may be architecturally determined, so there are fewer opportunities for changes to accommodate personal preferences.

Can I visit the construction site to watch the progress of my home?

Seeing your home take shape can be an exciting aspect of buying a new home. Ask your builder about the company's policy on site visits and how to make arrangements. Can you tour your home while it is in progress and when? During construction hours, in the evening or on weekends? Keep in mind that, for safety reasons, you should not enter the construction site for an unscheduled visit.

What if there is a delay in finishing the home?

Both you and the builder want to see your home completed on time, and in the vast majority of cases, your home will be ready as scheduled. Occasionally, a delay may happen as the result of the unforeseeable - most often, sudden shortages of materials or labour. When a delay is unavoidable, your builder will work hard to minimize any inconvenience to you and your family. Ask your builder to explain in detail what you can expect in case of delay.

I have heard about the "other costs" of buying a home. What are they?

By far, the largest cost of home buying is the price of the house. However, there are some accompanying costs that you should be aware of. These costs vary from one region to another, but typically include lawyer's fees, an appraisal fee (for mortgage purposes), fire insurance and adjustments if you are selling your current home. Ask your builder or lender to give you a list of items and an estimate of costs. (Home buyers are often encouraged to set aside between 1.5% and 2.5% of the price of the house.) At the same time, make sure to ask about the projected taxes for the new home, and the builder's estimate for utility bills.

What kind of products will my builder use?

Professional builders use only products with a good reputation and a proven track record, products that are made by established manufacturers, meet Canadian standards and come with a warranty. The use of brand-name products in new homes offers a double benefit - you know what you are getting, and so does your builder.
I am not sure about my builder's construction methods and technologies. How do I know they really work?
Home building has advanced tremendously even over the last 10 years, and technically, new homes are more sophisticated than they used to be. If you have questions about any aspect of how your home is built or how any of the systems or products work, such as the furnace or ventilation equipment, don't hesitate to ask. Professional builders will be happy to explain things in detail. They often have cut-aways or examples in their model homes or offices, or they can give you manufacturers' information or third-party (such as government) reference material.

What is warranted and for how long?

Professional builders provide third-party warranty on their homes to protect purchasers against faulty materials or workmanship, usually for one year, and against major structural faults for up to five years (up to 10 under extended warranty options). The warranty also protects deposits up to a certain amount. Warranty programs vary from one province to another, so make sure to have your builder explain exactly what's covered, or call your program office for more information.

What else should I know about?

Home buyers ask many other questions, depending on the specific circumstances. For instance, when you are buying from a model home or from a drawing, you want to know if there are any differences between what you see and what you get. You also want to know about your choice of features, if you can supply your own fixtures or materials, and if you get a credit or refund when eliminating items included with the home. In large developments, ask to see the utility plan: Where are the electrical boxes or panels placed? Streetlights and postal boxes? Where is the bus stop? Also find out about the landscaping plan and when the roads will be paved.

Professional home builders welcome your questions. They know that a well-informed customer is most often a satisfied customer - the greater your confidence in them, the more satisfying the process for both you and your builder.

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