No one likes to think they will get old but we all seem to. Equally, no one likes to think that they will be living in their parents' basement until they're thirty-something! While saving for a mortgage may be the last thing on young minds preoccupied with sports, dating, or academics, it's never too early to plan for the future. A few small steps can become giant leaps towards financial security!
Every dollar counts!
If there are two key words every young adult and teenager should know they are "compound interest". A simple mathematical calculation demonstrates how savings can build. If the initial investment is $100 at a conservative interest rate of 5% per year, by the end of that year the investment will be $105. If the money remains invested through the next year, the investment will grow to $110.25 ($105 x 5% = $110.25). The following year it would be $110.25 x 5% = $115.76. So it is easy to see how quickly an investment can grow. It's a great habit to get into setting aside a certain amount from every paycheck. Regular "payments" to your investment not only result in greater savings, they can help even out the ups and downs of the marketplace. There is nothing worse than investing one large sum of money and immediately afterwards seeing the stock market or interest rates plummet. Also try to think of invested money as being out of reach and avoid dipping into those savings.
Elephants aren't the only ones with good memories…
A credit history can go as far back as the first loan (even those co-signed by a parent) or the first credit card. A bad credit rating can make it hard to lease a car, get a mortgage, or any type of loan. Always pay at least your minimum monthly credit card payment and pay it on time. Of course, the best plan is to never carry a balance. The lure of credit, however, can be too hard for anyone to resist especially for a young adult on a limited budget. If you can establish good habits early, think of how much you will save by avoiding years of paying 18-20% credit card interest. (That's compound interest too, by the way.)
A poor credit rating can haunt you for years but a good rating can help you get a loan or mortgage in the future. Most lenders need to see that a borrower is financially responsible. Credit cards can be a great beginning. Most credit card companies will give accounts to students in their last year of university or most applicants over the age of 21.
Research the area where you would like to live.
No one can predict where the future will take him or her. Society is more mobile than ever. Educational pursuits or new jobs often force people to leave their hometowns and relocate in other cities or provinces. Wherever a person decides to put down roots, it's important to research the market. Talk to local real estate agents. Most will be happy to share their knowledge and experience. Some important questions to ask include How much will I expect to spend in order to purchase a house with a certain number of bedrooms or a certain square footage? What sort of features should I look for in a home? Is there a strong resale market in this area? Also check out the local real estate companies on the Internet to get an idea of local home prices and sizes.
The best place to start is a mortgage calculator on the Internet. You can simply type in "mortgage calculator" and several options come up. (Ensure that you are using a Canadian mortgage calculator since rules differ between countries. A good calculator can be found at (www.canadamortgage.com.) A mortgage calculator is a quick, easy way to see what you can afford. If you enter an approximate home value and current interest rates, the calculator will show the required monthly payments and the value of the mortgage. By changing the amount of your down payment or the length of the mortgage payment period (amortization period) you can see how monthly payments change. Remember that this calculator only provides general information. When an individual applies for a mortgage the lender will take numerous factors into account including income, length of employment, and of course that omnipresent credit rating!
The tortoise and the hare…
Even if buying a home is years away it's a good idea to start planning today! The slow steady building of your investments pays off richly in the end. Save a specific percentage of your income on a regular basis starting from your very first part-time job. Also try to make payments to your credit card on time and don't carry a balance. Eventually we all get to the finish line but it's nice to get there in style!
It's an exciting time. Your offer has been accepted. You can't wait to move into your new home. But don't start celebrating yet. There is one final stage involved in purchasing a home -- closing the deal.
Closing is the point at which ownership and usually possession of the property is transferred from the seller to you. It takes place after the parties involved agree that all legal and financial obligations have been met. Your lawyer and your REALTOR® will do much of the work, but here's a checklist that will show you what to expect as the process unfolds:
Make sure a copy of the signed Agreement of Purchase and Sale is sent to your lawyer right away. Your REALTOR® will usually do this for you. Your lawyer needs to see any conditions that exist, and the date you and the seller have agreed to close. The lawyer will ask you how you (and others involved in the purchase) want to be registered on the title to the property.
Immediately begin satisfying any of the conditions of the agreement that require your action. These have definite dates attached to them and if you miss one you may have to arrange an extension or possibly risk losing the entire deal. As each condition is met, the REALTOR® will fill out a waiver form for signatures. Note that most lawyers won't be doing many of the tasks they need to do for closing until the conditions are waived.
Upon your direction and after the conditions have been met, your lawyer will begin searching title to the property. This is an exercise of going back through government records to ensure a clear title that is transferable. Electronic registration and title insurance have significantly changed the way titles on properties are transferred.
If you decide to have the home inspected, your offer should contain a condition that the property passes inspection.
If no current land survey exists on the property, arrange for one soon. Your lender may require it, and you'll want it for your own peace of mind, anyway.
Contact your lending institution to begin the process of finalizing mortgage documents. Ask if your lawyer can draw up the documents; this will usually save money.
Your lawyer will contact the seller's lawyer with any questions or issues regarding title and costs.
Your lawyer will check with local utilities (hydro, gas, water) to ensure there are no outstanding claims and to get final meter readings on the day of closing. You should contact the utilities and telephone and cable companies well in advance to arrange for services in your name.
Meanwhile, your lawyer is busy making sure that property taxes on your new home are up-to-date, local zoning and building restrictions have been met and there are no liens on personal property, such as appliances, to be sold with your house. You want your lawyer to make sure that what you've agreed to buy is what you'll get -- nothing more or less.
Well before closing; contact your insurance agent to arrange homeowner's insurance coverage to become effective on the date of closing. Your agent can give you a "binder" letter, certifying coverage is in place. If you're moving from your current owned (rather than rented) home to another, your agent will handle the homeowner's insurance transfer for you.
Your lawyer will review and verify the draft deed, statement of adjustments and other closing information provided by the seller's lawyer, and will deal with any problems as they arise.
A day or two before closing, you'll meet with your lawyer to go over and sign the closing documents. Bring the certified cheque(s) to cover costs involved. Your lawyer will let you know the amounts in advance.
The big day arrives. You don't need to be present, usually. The lawyers for both parties exchange documents, keys and cheques and then register the deed and mortgage. Soon thereafter you'll be given the keys to your new home.
Now the celebration begins.
There are lots of reason why you should meet with a mortgage broker before you start looking at houses. One being; pre-approved mortgage will give you the confidence of knowing exactly what you can spend on a home before you start looking. It just causes disappointment in the end. You will also be protected against interest rate increases while you look for your new home. Usually the rate is guaranteed for a month or two.
Together Your Mortgage Specialist and I will answer your questions and help you determine which financing terms and options are right for you. Your Mortgage Specialist and I work as a team to help you find the perfect house for you and your family. That's Our Job. Give me a call today if you are interested in getting into the real estate market. It's a great time to buy!
Once you've found the home you want to purchase, there are some documents you'll probably be asked for in order to finalize your financing. They will include:
* A copy of the real estate listing of the property. If the home is still to be built, the mortgage lender will need to see the architect's or builder's plans and details on lot size and location.
* A copy of the offer to purchase or the building contract, if this document has been prepared.
* Documents to confirm employment, income and source of pre-approval.
If you have a pre-approved mortgage, it's a simple matter of finalizing a few details which your Mortgage Specialist will explain to you.
Let's Get Moving!
It takes experts to buy or sell a home
Buying or selling a home is a big business transaction. That's why it's so important to select, in advance, an experienced team of experts and professionals you can trust.
These skilled and knowledgeable individuals can vary, but usually include the services of a REALTOR®, a lender, a lawyer, a home inspector and an insurance agent.
In Ontario, a REALTOR® is a licensed real estate professional who is a member of a local real estate board as well as the Canadian Real Estate Association (CREA) and the Ontario Real Estate Association (OREA). This individual has successfully completed an intensive course of study and has skills, knowledge and experience that most buyers and sellers don't have. He or she must adhere to provincial law and abide by a National Code of Ethics, ensuring you a high level of service, honesty and integrity.
The REALTOR® you select should be someone that knows the neighborhood you live in or want to live in and who can provide you with sound, effective advice. A REALTOR® also acts as a mediator during the real estate transaction and can advice you on when to bring in the other experts or professionals.
Few people buy a home for cash. Most home buyers usually combine savings with money borrowed through a financial arrangement called a mortgage. Before looking for a lender, ask your REALTOR® to explain the many mortgage options available today.
When deciding which financial institution or lender to deal with, start with your own bank, credit union or trust company. They already know who you are. Then shop around and compare what different lenders have to offer. You should begin your search for a lender when you start your search for a home.
Whether you are buying or selling, a lawyer will represent your interests. It's a good idea to have one on stand by from the start. Documents such as the agreement for purchase and sale are complex and should be reviewed by an experienced lawyer. It's also a good idea to have a lawyer review an offer to purchase before signing anything.
When an agreement is reached, your lawyer will ensure you receive valid title to the property and that it is clear of any registered claims. He or she will also calculate any taxes and adjustments that will compensate the seller for money already paid on services and other matters related to the property.
As a buyer, you can avoid expensive surprises by bringing in a home inspector as a condition of your offer to purchase. The older the home, the more likely there will be problems. Being aware of any structural defects, will help you decide whether to buy the property at all, or negotiate a lower price to compensate for anticipated major repairs.
Creditors and mortgage lenders, almost without exception, require insurance on the home you buy. This insurance must be in place before any purchase can be finalized. Although you may be able to negotiate a better rate using the same insurance company you have other policies with, it still pays to shop around.
Hints for choosing your team
Interview a minimum of three individuals in each field of expertise before choosing the right one. Real estate is a very competitive market; you can afford to be selective.
Check their qualifications and record by asking for references.
Question them in detail about their experience and familiarity with the kind of real estate transaction you require their services for. Are they familiar with the neighborhood you are buying or selling in?
Ask about their fees and how/when they expect to be paid. Can you afford their services? If their rate is too high for your budget, you may not use them as much as you need to because of the expense.
Do you feel comfortable with these individuals. Are they friendly and approachable? Do they offer advice? If you feel uneasy, you may not use them as much as you should.
Paying extra amounts on your mortgage can make a big interest saving over time. When we select a mortgage company, privilege payments options are something that we look for. A 20% privilege payment will allow you to pay off up to $20,000 per year on a $100 000 mortgage. It is important that the privilege payment also be flexible to allow you to pay smaller payments on the mortgage and as often as you wish. An extra $1000 periodically paid on a mortgage can help you become mortgage free faster.
The options for mortgages available can be very confusing for most mortgage shoppers. Terms for mortgages vary between variable and fixed rate, 6-month terms to 10 year terms. Taking a variable or floating rate mortgage can have savings. Typically the shorter the term or guarantee of the rate, the lower the rate will be. This does not always happen, depending on the market place and the economy, but history has shown that short-term rates tend to be lower than long-term rates. The up side of variable rate is the strong potential for interest rate savings. The down side is the fact that you are accepting the interest rate risk without a guarantee. If you are considering a variable rate mortgage you need to look at your own risk tolerance, and your cash flow available to deal with potential increased payment. Considering projections of rates and where we see interest rates heading can also be important in this decision. Make sure you talk to an expert when you are making this decision.
As mentioned above, when you put a 25% down payment on your purchase you can avoid the CMHC premium. More importantly the larger the down payment, the lower the amount of interest you will pay over the life of your mortgage. It is important to note that it may not be wise to stretch yourself to increase your down payment and end up borrowing on credit cards or a line of credit at a higher rate.
When you require a mortgage for more than 75% of the purchase price of a property, that mortgage must be insured by Canada Mortgage and Housing (CMHC) or GE Mortgage insurance. The premium charged by these company`s decreases as the down payment increases. When you finance your property at 95%, a premium of 2.75% is added to the mortgage. By increasing the down payment to 10% of the purchase price the premium can be reduced to 2.5%. If you can put down 25%, you can avoid any additional insurance fee. Depending on your situation there are ways that you can structure this financing to avoid the CMHC or GE insurance premium.
Most mortgages have the option to allow payments to be made on a weekly or bi-weekly basis. This option may be desirable for two reasons. The first is it can save you money as you can expect to pay off your mortgage about 4 years sooner. This can save you dramatically over the life of your mortgage. The other reason why these options are so popular is that if your employer pays you on a weekly or bi-weekly basis, you can simplify your budgeting by making the payment line up with the way you paid.
When it comes time to make an offer, I can as your Real Estate Professional provide current market information and will assist you in drafting your offer.
As your Real Estate Professional, I will communicate the offer, sometimes known as an Offer to Purchase, to the seller, or the seller's representative, on your behalf. Sometimes there may be more than one offer on a property coming in at the same time. As your Real Estate Professional, I can guide you through this process.
Firm to Offer Purchase
Usually preferable to the seller, because it means that you are prepared to purchase the home without any conditions. If the offer is accepted, the home is yours.
Conditional Offer to Purchase
Usually means that you have placed one or more conditions on the purchase, such as "subject to home inspection", "subject to financing" or "subject to sale of buyer's existing home". The home is not sold until all the conditions have been met.
Acceptance of Offer
Your Offer to Purchase will be presented as soon as possible. The seller may accept the offer, reject it, or submit a counter-offer. The counter-offer may be in reference to the price, the closing date, or any number of variables. The offers can go back and forth until both parties have agreed or one of you ends the negotiations.