Peter Kalicki

There’s a lot to know when it comes to financing your new home...
But it doesn't have to be intimidating.

The basic steps are simple:

1. Get pre-qualified for a mortgage
2. Make some financing decisions (payment frequency, terms, etc.)
3. Choose a lender.

Step 1 – Get Pre-Approved for a Mortgage

The first step to buying your new home or property should be finding out how much your bank is willing to lend you.  When you pre-qualify for a mortgage, your lender will take a look at your income, debts and your down payment and will give you a rough idea how much they will finance.  It’s important to take your pre-qualification to the next level right before house hunting by getting pre-approved for a mortgage.  A mortgage pre-approval will be in writing (typically it will be valid for 90 - 120 days) and will require you to prove your income and credit history.  The other benefit is that pre-approvals will include an interest rate guarantee.

Bear in mind, a pre-approval is not a guarantee that a lender will lend you the above amount of money for just any home.  The lender will want to know that the home they are buying with you (by lending you the money) is worth what you are paying for it.  Lenders generally order an independent appraisal of the property before they advance the mortgage money.

Getting pre-approved will let you know how much mortgage you can get, which in turn will help you know what price range that you should be targeting in your search.  This allows you to focus your efforts, and eliminates the uncertainty of financing once you find your ideal home.

Step 2 – Mortgage Decisions

Mortgage details can seem intimidating, especially for the first-time buyer.  Once you have qualified for a mortgage, there are a few basic decisions you will have to make: the term, amortization, interest rate and type of mortgage.

Mortgage Term and Amortization

The mortgage term and amortization period affect the amount you can borrow (and therefore the price of the home you can buy), and dictate how much your monthly payment will be.

Mortgage term

This is the amount of time a lender will loan you money for – anywhere from 6 months to 5 years.  When the term is up, the remaining amount is payable in full unless you arrange new financing for another term (known as renewing your mortgage).

Choosing a mortgage term will depend on a few factors, and requires you to be knowledgeable about trends in the marketplace (such as interest rates), as well as deciding the amount of risk you are willing to endure.  If you choose a 1 tear term, and interest rates increase drastically in that time frame, will you still be able to afford your home when you go to renew?

Amortization

Few (if any) of us can pay off the entire principal of a mortgage within a (whether it is a 1 to 5 year) term.  Imagine how big your payments would be!  To help you out lenders calculate, or amortize, the mortgage payments over a much longer time (typically as long as 25 years). They are not loaning you the money for a single 25-year period, they are just calculating the payment schedule as if it would take you that long to pay back the principal plus interest (at current rates).  You will probably renew the mortgage a few times during the amortization period, and you will have the option to change that period depending on market conditions and/or your financial situation.  The longer the amortization period, the lower your individual payments will be, however this also means you will be paying more overall due to/and in interest.

Payments

Most mortgage payments consist of two parts: principal and interest.  This is known as a blended mortgage payment.  Each payment reduces the balance owed on the mortgage by the portion of the payment that is credited to the principal.  Over time, the proportion of your payment that reduces the principal balance will increase (and the amount going to interest will decrease).  The faster you can pay down the remaining balance, the less total interest you’ll pay.  There are many ways you can pay down your mortgage faster, from accelerating your payments (e.g. paying biweekly instead of twice a month, for 26 payments per year instead of 24, or accelerated bi-weekly where you pay a payment equivalent to half a monthly payment every 2 weeks which ends up taking a few years off your amortization) to making lump sum payments on your mortgage; your lender can help define the right strategy for you.

Interest Rates

The interest rate you get is one of the biggest contributing factors as to how much you end up paying for your home, both on a monthly basis and overall

Interest is the cost of borrowing money.  Interest rates fluctuate with the economy.  The interest rate you commit yourself to at the beginning of the term can have a significant effect on the amount you pay every payment for your mortgage.  There are two basic types of interest rates used in mortgage financing: fixed-rate and variable-rate.

Fixed-rate mortgage – Essentially, this means committing to a single interest rate that will not change during the term of your mortgage.  This locks in how much of your monthly payment repays the principal vs. going to interest.  Fixed-rate mortgages are great in an economy where interest rates are going up, as you do not risk paying higher interest rates.  However, in an economy where interest rates are going down, you could be stuck paying more in interest than the going rate.

Variable-rate mortgage – With a variable rate mortgage, the dollar value of your monthly payments is fixed for a specific term, however the proportion of interest to principal floats in relation to the bank’s prime interest rate.  If rates go up, more of your payment is applied to interest and less is applied to the principal.  If rates drop, more of your monthly payment is used to pay off your principal and your mortgage is paid off sooner.  Variable rate mortgages can protect you if interest rates are high at the time you arrange your mortgage; when rates fall, more of your payment is applied to the principal.  But if interest rates increase, that could mean more of your payment is being applied to interest than you bargained for.  Some lenders will allow you to convert to a fixed-rate mortgage in this kind of situation.

Types of Mortgages

Conventional mortgage – Aptly named because they are the most common type of mortgage.  The lender will loan you up to 80% of the appraised value or purchase price of the property (whichever is lower), and you will need to come up with the other 20% as a down payment.

Second (and third) mortgages – These are additional financing arrangements behind an existing mortgage, also secured by your property.  Secondary financing is generally arranged at a higher interest rate and for a shorter term than the first mortgage.  Some homeowners explore this avenue for financing larger renovations when their property has appreciated in value, and therefore has more equity.

High ratio mortgage – When you do not have the 20% down payment required to get a conventional mortgage, a high ratio mortgage can advance you up to 95% of the home’s appraised value or purchase price.  However, since you are borrowing more than the usual 80%, the government insists that the mortgage is insured against default and that you pay the cost of the insurance.  That cost can be a few percent of the mortgage amount, and is added to the mortgage principal. This is what is referred to when you hear of CMHC.

Step 3 – Choose a Lender

There are many lenders and mortgages out there.  It’s a good idea to use either of these two options:

1. Your own bank.  They have your bank accounts, credit cards and investments so they should be motivated to give you a good rate.
2. A mortgage broker.  Mortgage brokers work with many different lenders and will go to them on your behalf to find the best mortgage rate and terms.  Usually, broker fees are paid by the banks, so it’s a good way to comparative shop without having to do all the leg work yourself.  Another benefit to using a broker is that they only need to pull your credit report once, but they can use it to shop all of the lenders that they deal with.

Not all of these decisions have to be made before you start looking for a home.  The only crucial and highly recommended step is to get a pre-approval from a lender.  With this you’re ready to start the search!  Details regarding term, rate and even which lender you use can be decided upon after the actual purchase (all the way up to reasonably close to your closing date...the date you take possession of your new place).

The more you understand about your options, the better prepared you will be when the time comes to choose.

Mortgage Affordability Calculator

Mortgage Calculator by 

Now that we have a budget (and initial financing out of the way), it's time to put pen to paper!

Step 1 – Create your Wish List

Knowing what you need and want in your home is critical. What are your must-haves, your nice-to-haves, and your no-way-absolutely-nots? How many bedrooms do you need? What kind of outdoor space do you want? What about counter-tops, appliances and floors? You can’t get what you want if you don’t know what you want. Of course, location will be a big decision – what neighbourhood makes you feel at home? In a province with a hot market like ours, compromise is sometimes a part of the process. Almost everyone needs to compromise on something, and it usually comes down to: size, finishing, location and/or price. Would you rather live in a larger home or in the heart of downtown? Are you OK spending more money for a renovated home or would you buy a cheaper one and do the renovations yourself? Would you consider living on a busy street to more affordably be in a better neighbourhood with access to better schools? Your "Wish List" should consider the following:

1.  What type of home are you looking for?

This first question will be the foundation upon which all other factors will be based upon.  Are you looking for a lot, an acreage, an estate, a house, town home, a condo, a cottage, a vacation property, investment, etc.?

2.  What features do you NEED?

How many bedrooms and bathrooms?  Is there a minimum square footage you need to be comfortable?  Do you need a garage...if so, for how many vehicles?  If it is a condo, how many parking stalls will you need?  Do you need a large fenced yard, or something low maintenance?  Is a patio or balcony important?  How about an ocean or mountain view?  Is a pool of fitness center on the property required?  Does your situation require a single level, or are stairs acceptable?  Does the property need to be pet friendly?  If it is a strata/co-op, are there age or rental restrictions?

3.  What is your ideal (or preferred) location?

Where you live usually revolves around your lifestyle (or it can affect it).  Is living close to work preferred to minimize the commute, or is this flexible if you are close to other amenities?  If you have children (or are planning to), do you have any preferences on which school they attend?  Is a quiet suburban neighborhood ideal, or do you prefer living close to the action, entertainment, and city life?  Is easy access to transportation or highways required?

4. What features do you WANT?

Separating your needs from your wants will usually help you find a property with a lower price.  This can add value as you will be able to tailor and customize your home to your liking through making updates, upgrades, or renovations.  Do you want a fireplace, or heated flooring?  Is a fully connected home with automation features desirable?  Carpet or hardwood flooring?  Do you prefer something renovated, shiny and new, or would you like something you can fix up on your own?

5.  What is your budget?

Being pre-approved for an amount, doesn't mean that you want to spend this whole amount (and be "house poor").  This is wise thinking if your income fluctuates, is unpredictable, you are saving up for retirement, or prefer to have a buffer to travel and play.  If this is an income property, do you want the tenant to cover the mortgage payments, taxes, etc. only, or do you want to generate revenue on top of the equity/credit the property is building for you?  Or are you willing to adjust your spending habits so that you can afford your ideal property?  Using the "How Much Can I Afford?" mortgage tool on my website will help give you an idea of what you can spend.  That being said, only a qualified mortgage broker will be able to give you an exact figure.  This is why I recommended it as the first step.  I can refer you to someone qualified that has an excellent track record and reputation for successfully acquiring approval for his/her clients.

Step 2 – Give me a call!

Buying a house or condo will likely be the biggest purchase you’ll ever make – but don’t worry, you don’t need to do it alone.  As your REALTOR, I will make the process of purchasing your new home easier, more enjoyable, efficient, and less expensive than if you were to do this on your own.  As your knowledgeable advisor, I will locate properties that check all the boxes on your wish list and help you assess these properties as well.  If you have any questions, I'll get you the answers.  From our initial conversation, going on tour, making an offer, looking over the inspection report, and all the way until closing.  Your satisfaction is my goal, and my top priority is to make sure that the whole process is efficient, painless, and successful.

Step 3 – Searching for Houses and Condos Online

Over 90% of Canadians search for their home online. While there are endless real estate websites out there, here are the ones you should consider: 1.  REALTOR.ca is the website owned by CREA (the Canadian Real Estate Association). It pulls all of the available properties for sale directly from the system that Realtors use (the MLS: multiple listing service). REATOR.ca is a great tool to explore what’s for sale and start to get a feel for what’s available, Canada wide. 2.  The Search tool on my website! – Of course I'm a little biased, but my home search tool pulls all listings directly from the MLS every hour.  You can save your favorite properties, and email me directly from each listing if you find a property that appears to be a match. 3.  Custom Listings emailed to you from me.  Another way to get quick and easy access to what’s available (without having to search) is to have me setup your criteria in my system to automatically e-mail you listings of available homes/properties that match what you’re looking for.

Tips when looking for a home online:

• Be open-minded. Photos aren’t always  an accurate representation of what the place looks like in real life.
• Don’t always believe the description and read between the lines. ‘Ready to put your own touch on it’ typically means it needs a full reno as the owners either got used to living there, or didn't want to bother with doing a lot of work. And ‘dream home ... only 20 minutes from downtown...’ probably means 20 minutes, at 2:00 am.
• Remember that the asking price can be very different than the sale price. In a hot market, houses often sell for far more than the listing price. If you want to know actual sale prices, ask me to show or email you the reports that give you the inside scoop.
• If you’re shopping for a condo, keep in mind that what’s included in the maintenance fees varies from one building to another, so it isn’t easy to compare condos. A lower maintenance fee might mean higher actual monthly costs if it does not include heat, hot water, electricity, and cable.  Also, remember some condo's are co-op's and some are strata's.
• Take some time to learn how to read an MLS listing, or ask me what they mean– all of those acronyms are guaranteed to confuse you.

Step 4 – Home Hunting in Real Life

This is your opportunity to get a feel for the different neighbourhoods, refine your wish list, and ask questions. While a wish list seems to be a logical and useful tool in deciding which properties to visit, the truth of the matter is that often times, most people walk into their perfect home and just feel it. Of course, it helps when it satisfies your needs and wants too, but don’t underestimate the power of ‘just knowing’ when you are there. You can visit properties for sale in a private showing with me, your Realtor, or by attending a public open house. Keep in mind that not all properties will have open houses, so working with a Realtor is the only way to guarantee that you’ll be able to see the properties you want to see (and on your schedule!).

Tips for looking at homes in real life:

• Make a plan.  If you’re like most people, you have a few target neighbourhoods. Try to focus on one neighbourhood at a time and don’t forget about traffic and the time it takes to park.
• Car pool. If you’re new to the area or we are looking at a few properties, let me do the driving. Your attention is better focused on the looking around the actual neighbourhood rather than when to turn.  If you’re checking out open houses, walking, cycling or biking to them might be more efficient as street parking can be a drag, and you can make an afternoon of exercise and exploring out of it.
• Wear slip on/slip off shoes with socks.  Seriously.  You’ll be taking your shoes off dozens of times, so save yourself the hassle of lace up shoes. Wearing socks will also save you in the ‘not-so-tidy’ houses.
• Don’t just focus on the house or condo, focus on the neighbourhood too.  Drive around the neighbourhood. Locate the schools, parks and grocery stores. Take a walk down the street and check out the neighbours. Make a point of going to a cafe, restaurant or pub in the area.
• Vary the time of day that you house hunt.  Everything looks better when the sun is shining, but it’s important to get a feel for the property and the neighbourhood during the day AND evening.
• Experience the bad with the good.  Every neighbourhood has its drawbacks, so make a plan to experience them.  Thinking of buying a property with only one way to access the neighbourhood?  Check it out during rush hour if that is when you will be commuting.
• Take notes.  It’s surprising how quickly you can forget the first home or condo you saw.  Take notes of every property. Compare them when you are all done to make your shortlist.
• See past the superficial. You’ll probably be surprised to find out how some people live, but don’t let someone’s bad decorating styles, outdated tastes and lack of housekeeping get in the way of finding your perfect home.
• Don’t fall in love with the seller’s stuff.  This happens all the time.  That beautifully staged condo won’t look nearly as nice with your IKEA collection.  Try to imagine your furniture and style, and see if that condo fits.

How I can help you on your hunt

• I will help you match what you want with the greatest opportunity for Return On Investment.  Together, we will examine your needs, wants and must-haves to create a picture of your ideal home or investment property.
• I will stay on top of new properties as they come on and off the market.  I will send you new listings of what’s available and monitor what’s happening, as it happens.
• I will be your home-hunting partner on YOUR schedule.
• I will save you time. I can preview properties on your behalf and screen what is or is not for you, saving you time and hassle.

We found it!

The house hunting has paid off, and you have found the right home:

• It meets your needs
• It satisfies your wants
• It is in your price range
• It just feels like the right home

The offer process is both, exciting and filled with anxiousness.  Don't worry, I will walk you through it. I will begin by drafting an Agreement of Purchase and Sale.  This is the legally binding document which contains everything from the price you are prepared to pay, the inclusions you want (fixtures and chattels), your ideal closing date (the date you take possession), to the conditions (subjects) that need to be met for the deal to go through.  Once I have submitted your offer, the seller can accept it, reject it or come back with a counter offer. During the back-and-forth negotiations, you may have to compromise on some things, but I will work hard to get you what you want.  If you’re in a bidding war, I will make sure you to guide you through the facts about bidding wars and what strategies we can employ to win in a multiple offer situation.  

Meet the Conditions and Provide a Deposit

Conditions (or subjects, as they are commonly referred to) are requirements within the Agreement of Purchase and Sale that must be met for the deal to go through.  In your offer, you may have included a condition for financing, a condition that requires that your lawyer reviews the legal details of the property, or a home inspection.  These conditions are placed into the offer to protect you, my client.  You wouldn't want to be bound to go through with the purchase if issues are discovered during inspection (or you can use this to leverage price), or if financing falls through.  I will discuss all of the options available to safeguard you. Once the offer is accepted, we will move forward through inspection and all the related conditions.  Once the conditions have been satisfied (typically called subjects removed), the agreement is firm, you will need to provide a deposit (usually around 5% of the purchase price), which will be held in trust by the brokerage until the closing date.  Then, it’s time to celebrate the approaching closing date. And of course, it's time to start packing!

Closing time

Once subjects have been removed, and you have a firm deal (you’ve submitted a deposit, both you and the seller have agreed on the price and terms, and there are no more conditions to waive), the closing process starts. This process requires you to be in close contact with your lender (to finalize financing) and your lawyer (they will need some information and signatures).

During the final days before you take possession you will need to sign a lot of paperwork, provide a certified draft for the balance owing and of course, pick up the keys to your new home.

The closing date is the day when the ownership and possession of the property are transferred from the Seller to you. This happens after all legal and financial obligations have been met. Closing the purchase will be a team effort: in addition to yourself, your lawyer and your lender will all be involved in helping close the deal.  Of course, I will be there to answer any questions that you may have.

At the time of closing, your lawyer, accountant and real estate agent can help you estimate your costs. Some of the fees you can expect to pay are:

• Property Transfer Taxes (you can calculate these using my calculator HERE, but they are 1% on the first $200,000, then 2% on the portion of the fair market value greater than $200,000 and up to and including $2,000,000, then 3% on the portion of the fair market value greater than $2,000,000, and if the property is residential, a further 2% on the portion of the fair market value greater than $3,000,000 (effective February 21, 2018).  If the property is classified as residential and farm, or is residential mixed class (such as residential and commercial), you pay the further 2% tax on only the residential portion of the property. 
• Lender fees, if applicable (appraisal fees, application fees, etc.)
• Adjustments (the seller may have pre-paid taxes, utilities or other expenses past the closing date which you will need to reimburse them for during the closing process)
• Legal fees (plus applicable taxes)

Your lawyer will calculate the final amount owing, and you (or your lender) will need to provide him/her with a bank draft for the full amount before the property title comes into your possession.

If you are a first time home buyer, you will qualify for some great government programs that can save you thousands of dollars in closing costs such as property transfer taxes.