Answers to Common Home Buyer Questions
Answers to commonly asked questions for first-time home buyers.
While it may feel like an intimidating process, buying your first home is not only a reachable goal, but also an exciting one. Here are answers to commonly asked questions about becoming a home owner.
- How much do real estate agents charge a buyer?
- I’m ready to buy a home, what’s the first step?
- How much is the down payment for a home?
- What is the Government of Canada Mortgage “Stress Test”?
- What are the fees, taxes and other costs when buying a home?
- I am thinking about buying a condo, what do I need to know?
How much do real estate agents charge a buyer?
Lets just start with the elephant in the room: how do we get paid? Generally speaking, the seller of each home offers a commission. This means that the buyer does not pay a fee for the services of a real estate agent. Occasionally, sellers who represent themselves do not offer to pay us, but we can normally negotiate a commission with them. In a situation when there is no commission being offered by the sellers, we will have a conversation with you about if you would like to still view that property and continue our relationship within the terms of our buyer brokerage agreement.
I’m ready to buy a home, what’s the first step?
Buying a home is an exciting process! However, before diving right in it is important to have a strong sense of your budget and financial capabilities. This will help prevent a scenario where you fall in love with a home that is beyond your means. Before setting up appointments to view houses, the best first step would be to have a pre-approval in place from a mortgage broker or financial institution. Be careful of on-line “pre-approval” tools which often do not factor in the necessary information to give you a relevant and comprehensive answer. Talk with someone in person who has your best interests at heart. Don’t know anyone? Ask us! We work with great professionals in the mortgage industry every day. Once you have a budget in hand, it is time to go shopping!
How much is the down payment for a home?
Most mainstream lenders and mortgage products will require that you put a minimum of 5% of the purchase price down as a down payment. Thus, if your purchase price was $400,000, the minimum down payment would be $20,000. If you have less than 20% of the purchase price as a down payment, the lender considers your mortgage to be “high-ratio” meaning you have less than 20% equity in the home compared to borrowed funds. If the mortgage amount is greater than 80% of the value, the mortgage will need to be insured. The lender will require that the borrower (you) pay the cost of the insurance. Canada Mortgage and Housing Corporation (CMHC) is one of the largest providers of mortgage insurance in Canada and these additional fees are commonly called CHMC fees. In order to avoid these insurance fees, you will need a down payment of 20% of the purchase price or greater.
If you do not have 20% of the purchase price for a down payment do not despair! Many homebuyers do not have 20% to put down. You will need 5% as a minimum and for many people that is the amount that they have been able to save. If you do end up paying CMHC fees they are most often rolled into the monthly mortgage payments and will not affect your monthly budget substantially.
What is the Government of Canada Mortgage “Stress Test”?
As of January 1, 2018, a mortgage in Canada is required to qualify using an interest rate which is the greater of the contract interest rate, or the Bank of Canada’s conventional five-year fixed posted rate. This is called the “stress test”. The purpose of the stress test is that it requires the borrower to prove that they can qualify at an interest rate which is typically higher than the contract rate. Thus, if interest rates rise during the current term of the mortgage, it stands to reason that the borrower can still afford the mortgage when they re-new at the end of the term. Again, the actual interest rate with your lender will likely be lower, but this higher qualifying rate can impact your borrowing capacity.
What are the fees, taxes and other costs when buying a home?
Below is a list of the most common expenses that home buyers will incur but it is important to remember that your individual situation may be unique and as such your expenses may vary…
Home Inspection – We recommend a home inspection on any home you are about to purchase, and making your offer conditional to it. Generally, these cost around $400 for a condo or $550 for an average house. If you are purchasing a rural property, there are additional recommended inspections such as water quality, flow rate, septic system, etc, each at additional costs.
Lawyer Fees – This will generally include your lawyer’s time, adjustments to taxes etc, disbursements, and title transfer. Roughly (depending on what you are buying), you should budget $1200-$1500 for this.
Mortgage Insurance – If you are putting less than 5% down, this will apply to you! The cost will vary depending on your down payment, so refer to your mortgage broker for an accurate cost.
Deposits and Down Payments – Generally speaking, an initial deposit will accompany any offer you write which will be deposited within a day or so of your offer being accepted. Be prepared to a write a cheque in the ballpark of 1-2% of the purchase price depending on the circumstances of the offer. An additional deposit may be required after the removal of all conditions. All deposits count towards your total down payment, which must be at least 5% of the purchase price.
Home Insurance – As of noon on the possession date, you are responsible to insure the property. Rates can vary widely depending on what you are buying, so it is wise to shop around a little.
Title Insurance – While not widely used on real estate transactions in Alberta, this can be used in conjunction with (or in the absence of) a real property report, and will occasionally be recommended by your lawyer. Generally, this costs under $500 and will cover you for your entire length of ownership.
Utilities Set Up/Deposits – Most companies will need a deposit when you are setting up a new account with them.
Moving/Movers – If you are planning on hiring movers, phone around and get some quotes. We recommend talking to your friends and family about who they used and their experience with them.
Land Transfer Tax – We do not have a Land Transfer Tax in Alberta which saves home buyers a significant amount of money compared to other provinces!
I am thinking about buying a condo, what do I need to know?
There is a lot to know when you are buying a condo. Our team has a wealth of experience and knowledge representing clients in the purchase of condominiums. Rest assured we will be your experts when it comes to condos. Here is some information to get you going in the right direction.
A condominium is a style of ownership that can come in many different shapes and sizes! Most people immediately think of an apartment style building, but a condo can also be in the form of a town house, duplex, detached house or plot of land!
When you buy a condo, you are purchasing a private dwelling called a “unit”, as well as sharing ownership of common areas and assets of the corporation. These common areas and assets vary from condo to condo, so it is important that we do the proper research to discover what exactly you are buying into.
Along with purchasing a condominium, you will also have to pay your portion of condo fees. The condo fees can include items such as upkeep and replacement (when necessary) of common elements, an insurance policy, utilities and services such as snow removal and professional management. What is included in your condo fees varies for each condo project, so research is necessary to confirm what exactly you are getting for your payments.
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Buying a home is one of the largest financial decisions in life. That's why we believe you should be guided with the highest level of professionalism and knowledge. Our advisors will make sure you always have the right data, resources, and professional advice you need at every stage of the buying process, so you can be 100% confident in your home decision.