Buying, Owning and Selling a Home in Canada E-Book

Margaret Kerr

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Sprache: Englisch

Seitenzahl: 551

Veröffentlichungsjahr: 2023

Beschreibung

Buying, Owning and Selling a Home in Canada

Leseprobe

Table of Contents

Title Page

Copyright Page

Acknowledgements

Dedication

buying a home

Chapter 1 - A MANUAL FOR HOMEOWNERS

DECIDING TO BUY A HOME (OR AT LEAST THIS BOOK)

ONCE YOU OWN A HOME

QUESTIONS THIS BOOK ANSWERS

IT’S GREAT TO LIVE IN CANADA . . . BUT . . .

Chapter 2 - WHAT CAN YOU AFFORD?

WHEN IS THE BEST TIME TO BUY?

KNOWING WHAT YOU CAN AFFORD

WHAT DOES IT COST TO BUY AND OWN A HOME?

HOW MUCH MONEY DO YOU HAVE FOR YOUR NEW HOME?

DOWN PAYMENTS

MORTGAGES

THE MAXIMUM PRICE TO PAY FOR YOUR HOME

Chapter 3 - WHERE DO YOU WANT TO LIVE?

THINK ABOUT WHAT YOU WANT

GO HOUSE-HUNTING WITH A REAL ESTATE AGENT

HOMES FOR SALE BY THE VENDOR

HOMES THAT AREN’T FOR SALE

Chapter 4 - EVALUATING THE HOMES YOU SEE

LOCATION OF YOUR HOME-TO-BE

FEATURES OF THE HOME

CONDITION OF THE HOME

SPECIAL CONSIDERATIONS FOR CONDOMINIUMS

SPECIAL CONSIDERATIONS FOR HOMES UNDER CONSTRUCTION

Chapter 5 - MAKING AN OFFER TO PURCHASE

GETTING THE HOME YOU WANT (AT THE RIGHT PRICE)

MAKING YOUR OFFER

THE NATURE OF THE AGREEMENT OF PURCHASE AND SALE

THE CONTENTS OF YOUR OFFER

IT’S IMPORTANT TO HAVE A LAWYER REVIEW YOUR OFFER

PRIVATE SALES

THE RESPONSIBILITY TO CLOSE

Chapter 6 - THE PURCHASER’S LAWYER

DO YOU NEED A LAWYER?

WHAT DOES A LAWYER ACTUALLY DO?

HOW MUCH WILL A LAWYER COST?

HOW DO YOU CHOOSE A LAWYER?

Chapter 7 - MORTGAGES

WHAT IS A MORTGAGE?

SPEAKING THE MORTGAGEE’S LANGUAGE

CHOOSING THE MORTGAGE OPTIONS THAT ARE RIGHT FOR YOU

WHERE TO GET A MORTGAGE

APPLYING FOR A MORTGAGE

INSURANCE WHEN YOU GET A MORTGAGE

MORTGAGES THROUGH THE VENDOR

AN EYE TO THE FUTURE

PAYING OFF AND DISCHARGING YOUR MORTGAGE

Chapter 8 - HOMEOWNER’S INSURANCE

WHY YOU NEED INSURANCE

A HOMEOWNER’S POLICY

WHAT CAN YOU INSURE?

WHAT CAUSES OF DAMAGE CAN YOU INSURE AGAINST?

HOW MUCH INSURANCE COVERAGE SHOULD YOU HAVE?

HOW DO YOU GET INSURANCE?

HOW MUCH WILL YOUR INSURANCE COST?

HOW DO YOU MAKE A CLAIM?

Chapter 9 - MOVING TO YOUR NEW HOME

PRELIMINARY PLANNING

CHOOSING THE RIGHT MOVER

DECIDING WHAT YOU WANT THE MOVER TO DO

PACKING FOR YOUR MOVE

MOVING DAY

AFTER YOUR MOVE

LONG DISTANCE MOVES

TAX BREAKS

owning a home

Chapter 10 - YOU’RE HOME. NOW WHAT?

PRACTICAL MATTERS

PROBLEMS IN YOUR NEW HOME

Chapter 11 - REPAIRS AND RENOVATIONS

WHY ARE YOU DOING THIS TO YOURSELF?

PRELIMINARY PLANNING FOR A RENOVATION OR MAJOR REPAIR

WHAT’S INVOLVED IN A RENOVATION OR MAJOR REPAIR?

WHO WILL DO THE WORK?

HOW DO YOU FIND THE HELP YOU NEED?

THE REPAIR OR RENOVATION CONTRACT

TIPS FOR SURVIVING YOUR RENOVATION OR MAJOR REPAIR

WHEN PROBLEMS ARISE

Chapter 12 - HOME SECURITY

NEIGHBOURHOOD WATCH

OUTSIDE YOUR HOME

WHEN YOU’RE AWAY

DOORS AND WINDOWS

ALARM SYSTEMS

PROTECTION FOR YOUR VALUABLES

IN THE EVENT OF A BURGLARY

Chapter 13 - HOME SAFETY AND ACCIDENT PREVENTION

FIRE SAFETY

CARBON MONOXIDE SAFETY

ACCIDENT PREVENTION

PREVENTING WATER DAMAGE

“ TO DO” LISTS

EMERGENCY PHONE NUMBERS

Chapter 14 - VISITORS WELCOME AND UNWELCOME

WHO CAN COME ONTO YOUR PROPERTY?

WHAT CAN YOU DO TO KEEP PEOPLE OUT?

WHAT CAN YOU DO IF SOMEONE GETS IN?

HOW SHOULD YOU TREAT THE PEOPLE WHO COME IN?

SOCIAL HOSTS AND DRUNK DRIVERS

ANIMAL VISITORS

Chapter 15 - NIGHTMARES WITH THE NEIGHBOURS

NUISANCES AND ANNOYANCES

PROBLEMS WITH YOUR IMMEDIATE NEIGHBOURS

THE CONSTRUCTION ZONE

IF THE TABLES ARE TURNED

Chapter 16 - MONEY TROUBLES

SOME SOLUTIONS TO MONEY TROUBLES

MORTGAGE FORECLOSURE AND SALE

PROPERTY TAXES

FAMILY LAW CONSIDERATIONS

HOW LITIGATION MAY AFFECT YOUR HOME

BANKRUPTCY AND INSOLVENCY

EXPROPRIATION

selling your home

Chapter 17 - GETTING READY TO SELL

WHEN IS THE BEST TIME TO SELL?

GOOD NEWS ABOUT TAXES ON THE SALE OF A HOME

GETTING YOUR ACT TOGETHER

GETTING YOUR HOME’S ACT TOGETHER

Chapter 18 - PUTTING YOUR HOME UP FOR SALE

THE SALE PROCESS WHEN YOU USE A REAL ESTATE AGENT

HOW TO FIND A REAL ESTATE AGENT

THE LEGAL RELATIONSHIP BETWEEN YOU AND YOUR REAL ESTATE AGENT

THE SALE PROCESS WHEN YOU SELL PRIVATELY

Chapter 19 - FROM OFFER TO CLOSING

REVIEWING AN OFFER TO PURCHASE

BIDDING WARS

THE ANATOMY OF AN OFFER

THE VENDOR’S LAWYER

YOUR RESPONSIBILITIES UNTIL CLOSING

THE RESPONSIBILITY TO CLOSE

Chapter 20 - GOODBYE AND GOOD LUCK

APPENDIX

INDEX

Also by Margaret Kerr and JoAnn Kurtz

Copyright © 2001, 1997 by Margaret Kerr and JoAnn Kurtz

All rights reserved. No part of this work covered by the copyrights herein may be reproduced or used in any form or by any means—graphic, electronic or mechanical—without the prior written permission of the publisher. Any request for photocopying, recording, taping or information storage and retrieval systems of any part of this book shall be directed in writing to the CANCOPY, 6 Adelaide Street East, Suite 900, Toronto, Ontario, M5A 1H6.

The information contained in this book is not intended to serve as a replacement for professional legal or other advice. Any use of the information in this book is at the reader’s discretion. The authors and publisher specifically disclaim any and all liability arising directly or indirectly from the use or application of any information contained in this book. A legal or other appropriate professional should be consulted regarding your specific situation.

Care has been taken to trace ownership of copyright material contained in this text. The publishers will gladly receive any information that will enable them to rectify any reference or credit line in subsequent editions.

John Wiley & Sons Canada Ltd22 Worcester Road Etobicoke, Ontario M9W 1L1

Canadian Cataloguing in Publication DataKerr, Margaret Helen, 1954 -

Buying, owning and selling a home in Canada

2nd ed.

Includes index.

eISBN : 978-0-470-73967-9

1. House buying—Canada. 2. Home ownership—Canada. 3. House selling—Canada. 4. Home ownership—Law and legislation—Canada. 5. Vendors and purchasers—Canada. I. Kurtz, JoAnn, 1951 - . II. Title.

HD1379.K47 1997

643’.12’0971

C96-932059-0

Production CreditsCover & text design: Christine Rae Printer: Trigraphic Printing Ltd.

ACKNOWLEDGEMENTS

We thank the following for their help:

Michael Kerr, Elaine Chelin, Joe Agostino, Michael Engelberg, Joan Emmans, Sophie Ouellette, J. Brian Cornish, Denis Noel, W. Richey Clarke, Darryl Drover, Terence Morrison, Herbert Suderman, Bryan Salte, Jack Webster, Jane Eagleson, Insurance Bureau of Canada, Canada Mortgage and Housing Corporation, Canadian Real Estate Association, Canadian Gas Association, Canadian Standards Association, Canada Post Corporation, Consumer’s Gas, Monnex Insurance Brokers Limited, Sedgwick Limited, Armor Moving & Storage Ltd., AbbeyWood Moving and Storage Inc., Abell Pest Control, Addiction Research Foundation, Nova Scotia Real Estate Association, Ontario Real Estate Association, Prince Edward Island Real Estate Association, Ontario New Home Warranty Plan, Ontario Association of Architects, Office of the Land Registrar of Ontario, Halifax and Dartmouth Real Estate Board, Greater Toronto Homebuilders’ Association, Toronto Humane Society—and a special thanks to anyone in Canada who didn’t interrupt us while we were working.

This book is dedicated to

Helen Kathleen Porter Wood

and to

George and Irene Kurtz

buying a home

1

A MANUAL FOR HOMEOWNERS

DECIDING TO BUY A HOME (OR AT LEAST THIS BOOK)

If you’ve picked up this book and you don’t already own a home, you’re probably thinking about buying one. But buying a home can take a long time and you’ve got the itch to buy something right away. So now you’re thinking about buying this book. We want to encourage you to do that. You may think that we are acting only out of self interest, but in fact we’re doing you a tremendous service. After all, if you’re going to buy something on impulse, it’s better to buy a book about buying a home than it is to buy a home.

Actually, even a lot of people who put a great deal of time and effort into finding a home might as well be buying on impulse, for all they really know about buying, owning and eventually selling a home.

That’s where this book comes in. You wouldn’t buy a car without researching the available models, their features and price, and you wouldn’t drive the car without first having a look at the owner’s manual. A car only costs a fraction of what a home costs, yet the kind of information that you can easily get about cars is difficult, or even impossible, to get about homes. We think that you should have access to at least as much information about your home as about your car.

ONCE YOU OWN A HOME

If you already own a home, you still need this book. Your relationship with your home is a complex one and is just beginning when you buy a home. Buying is the first stage, but it’s followed by owning and then selling. Each stage has its joys, problems, and concerns. You don’t need our help to experience your own kind of joy, and you don’t need our help to find the problems either—they’ll find you. But this book should help you cope with the problems as they arise, and help you identify and deal with the important concerns.

Some of the problems and concerns of home ownership are legal, some are practical, and some are both. Practical books on home ownership tend to focus on hands-on matters like financing or plumbing. Legal books on home ownership are written for lawyers, and even lawyers don’t always understand them. This book, on the other hand, is both legal and practical. It’s designed to help you to avoid problems as much as to solve them. And it’s designed to give you the information you need all in one place and in language that you can understand.

However, this book is not a substitute for legal or other professional advice. There are times when you need a real estate agent, home inspector, mover, insurance broker, contractor, exterminator—even a lawyer. We try to tell you when it’s time to hire a professional. And we try to send you off with enough knowledge to make sure that the person you hire serves you well.

QUESTIONS THIS BOOK ANSWERS

Here’s a sampling of some of the questions this book answers.

About Buying a Home

• When’s a good time to buy a home?

• What does it cost to buy a home?

• How much can you afford to pay for your home?

• How large a down payment will you need, and where on earth will you find the money?

• How much will you have to pay for your home each month?

• What should you look for in a neighbourhood and a home?

• What can a real estate agent do for you, and can you do it yourself instead?

• How do you make an offer to purchase a home?

• Do you need a lawyer to buy a home?

• What is a mortgage and how do you get one?

• How can you survive moving day?

• What do you do if there are problems with your new home?

About Owning a Home

• What kind of home insurance do you need and how do you get it?

• How do you make an insurance claim?

• What renovations will increase the value of your home?

• How do you find a reliable contractor?

• How do you live through a renovation?

• What are construction or builders’ liens and how do you avoid them?

• What steps can you take to make your home secure against break-ins?

• How can you prevent accidents in your home?

• What happens if someone gets hurt on your property?

• Who is a trespasser and what can you do about one?

• How do you get rid of stray and wild animals?

• What do you do about noisy neighbours?

• Can you get your neighbour to pay for part of your fence?

• Can your neighbour cut down your tree?

• Can you object to your neighbour’s construction project?

• Can you do anything if your property taxes are too high?

• What happens if you can’t pay your mortgage?

About Selling a Home

• When is the best time to sell?

• Should you buy first or sell first?

• Do you need a real estate agent, or can you sell your home yourself?

• How do you make your home attractive to potential purchasers?

• Do you need a lawyer to sell your home?

• What must you leave behind when you move?

• How much money will you get from your sale?

Having the answers to these and other questions dealt with in this book should help you prevent many potential problems and solve others, either on your own or with professional help.

IT’S GREAT TO LIVE IN CANADA . . . BUT . . .

Canada is a big country and the law may vary considerably from province to province. (And don’t even get us started about the weather.) Because we’ve tried to write a book for all of Canada, we’ve often had to talk in very general terms. This means that we haven’t been able to take provincial variations into account on every topic. If you need specific legal advice, don’t just rely on this book. Speak to a lawyer.

2

WHAT CAN YOU AFFORD?

No matter how much money you have, the home of your dreams will always cost more than you can afford. That’s one of the universal truths of looking for a new home. You can take comfort from knowing that while the place you end up buying may not be your dream home, it is probably the dream home of someone who has even less money than you do.

We know it’s hard to put up with someone telling you to be realistic when you are all set to climb ev’ry mountain and follow ev’ry rainbow in search of your dream, and a lot of people don’t listen. But a lot of people also buy their dream home only to have it turn into a nightmare—when they wake up and realize how much they have to keep paying for it.

You can avoid the nightmare of buying a home that’s too expensive for you by knowing what you can afford before you start looking. This will help you concentrate your hunting efforts on homes in your price range. A good way to keep yourself from buying a home you can’t afford is not to look at homes you can’t afford. In this chapter we’ll help you figure out what you can afford.

WHEN IS THE BEST TIME TO BUY?

People often wonder whether they can get a deal on a home—or, put another way, afford a home that they couldn’t otherwise afford—if they buy at a certain time of year. The answer is maybe yes, maybe no. There are times (like Christmas vacation) when almost no one wants to go house-hunting. If you find something you like at that time of year, you may be able to buy it for a good price because there are very few purchasers competing with you for it. There are other times of the year when almost everyone is out looking. The home you find at that time of year may cost you more because other purchasers are interested in it too.

You may think, then, that it makes sense to shop when no one else is shopping. But sellers also know that they may get less for their home during slow periods, so there will probably be fewer properties on the market for you to choose from. Sellers are more likely to put their homes up for sale when they think there will be a lot of buyers. So you can choose between a smaller selection of homes at (maybe) a lower price, and a larger selection at (maybe) a higher price. If you want to try to buy during a slow sales period, ask a real estate agent for advice about when that might be in your area.

Whatever the time you’re looking, you may be lucky enough to find a “motivated seller,” someone who has to sell quickly for their own personal reasons. The reason is often divorce (and a split-up of family property) or a job-related move to another city. You can ask your real estate agent if he or she knows of any sellers who are anxious to make a deal.

Finding a suitable home can take a while, so even if you think you know when to buy to get the best price, you have to start looking before then. The best time to start looking for a home is when you’ve decided you want to buy a home. And if you find a home that you like at a price you can afford, that’s the home to buy and that’s the best time to buy it.

KNOWING WHAT YOU CAN AFFORD

To know what you can afford, you have to know

• what it costs to buy and maintain a home

• how much money you have for a down payment

• how large a mortgage you can afford

The most complicated of these three things is calculating how large a mortgage you can afford. This means preparing a budget...something you’ve probably put off longer than cleaning your oven—and you’re probably moving to get away from that dirty oven. Well, you can run, but you can’t hide. It’s either cleaning your oven and staying put, or doing a budget.

WHAT DOES IT COST TO BUY AND OWN A HOME?

The cost of buying and running a home is probably higher than you think. The actual cost of buying a home includes more than the purchase price, and the ongoing monthly costs of owning it include more than your mortgage payments. If you make the mistake of failing to take these additional costs into account, you will end up buying a more expensive home than you can afford.

What Are the One-Time Costs of Buying a Home?

The one-time costs of buying a home are all the things you pay for at the time the home is purchased. They include

• the purchase price

• sales taxes

• lawyer’s fees and related expenses

• professional home inspection

• mortgage costs

• adjustments

• new home warranty costs (optional in most provinces), if you’re buying a newly-constructed home

• relocation costs

• renovation costs

Some of the money you thought you could use for a down payment has to be used to pay these one-time costs. So you’ll either have less money for your down payment than you thought, or you will have to borrow more money than you planned.

The Purchase Price

The purchase price is what you agree to pay for the home itself. Many people think of this amount as the entire cost of their home. While it is the major part of the cost, it is not the only cost—as you’ll see if you keep going.

Sales Taxes

In several provinces there is a special kind of sales tax charged on the sale of real estate, called a land transfer tax. This tax is calculated as a percentage of the purchase price and can be several hundred to several thousand dollars.

You pay this tax to the provincial government at the time you close the deal for your home. Ask your lawyer or your real estate agent if there’s such a tax in your province, and for an estimate of what it would be for a home in your price range.

The purchase price of your home may include things like appliances and curtains which are being sold with the home. (These things are called chattels.) If so, you will also have to pay provincial retail sales tax (H.S.T. where applicable) on the value of the chattels.

If you are buying a newly constructed home, you will have to pay G.S.T. (G.S.T. is often included in the purchase price and not calculated separately—ask your builder whether it’s included). But if your house costs less than $450,000, you can apply for a G.S.T. rebate of up to 2.5 per cent of the purchase price. Your builder will help you with the paperwork.

Lawyer’s Fees and Related Expenses

Your lawyer will charge you for legal services provided in helping you buy your home. The amount of lawyer’s fees varies greatly, but you can expect to pay at least several hundred dollars, and up to several thousand dollars if there are problems with completing the deal. We’ll discuss the role of the purchaser’s lawyer in more detail in Chapter 6.

Inspection Fees

Some people have their home inspected by a qualified home inspector before they complete the purchase, to make sure that it’s in good structural condition and has no plumbing, wiring, or other problems. An inspection can cost several hundred dollars or more.

Mortgage Costs

If you are borrowing money by taking out a mortgage, the mortgage lender may insist on having the property appraised (inspected to decide its value). Sometimes mortgage lenders charge an appraisal fee in the range of $100 to $200. If you get your mortgage through a mortgage broker instead of an institutional lender like a bank or trust company, the broker may charge a brokerage fee. The fee charged could be 1 to 2 per cent of the amount borrowed.

Monthly mortgage payments are usually due on the first of the month. If your home purchase is closing (being legally completed) on another day of the month, the mortgage lender may deduct, from the mortgage money that is being given to you to close the deal, an amount to cover the interest for the time from the closing date to the first day of the next month. (That means you may have to come up with some extra money on closing day to cover any shortfall in the amount of money that the mortgage lender actually gives you.)

If your mortgage is for more than 75 per cent of the purchase price, you’ll almost certainly have to get mortgage insurance, which is arranged through the Canada Mortgage and Housing Corporation (CMHC). If you need CMHC mortgage insurance, you will have to pay an insurance application fee of $75 if your mortgage lender provides an appraisal, or up to $235 if your lender does not. You will also have to pay a premium for the mortgage insurance. The amount of the premium varies with the value of the house and the size of the loan, but the highest rate charged is 4.25 per cent of the amount of the mortgage loan. You can make a one-time payment of the premium or have it added to your mortgage and pay it on a monthly basis.

There’s much more about mortgages in Chapter 7. Flip there now if you can’t stand the suspense.

Adjustments

If the person selling the home (the vendor) has paid such things as property taxes and utilities in advance, you may have to pay the vendor back for your share of these expenses. You have no way of knowing how much this will be at the time you make your offer to buy the home. Your lawyer will tell you the exact amount just before the deal closes.

New Home Warranty Costs

All provinces have warranty programs for newly constructed homes. Participation in these programs is optional in most provinces. If your new home comes with a warranty, there will be an enrolment fee that the builder will pass on to you, either by including it in the purchase price or as a separate charge. If you are buying a newly constructed home, be sure to find out whether there is an additional charge for a warranty. Depending on the province and the purchase price of the home, the charge can be between about $200 and $1200.

Extra Charges Associated with Newly-Constructed Homes

If you’re buying a house in a new development, you may have to pay an extra charge for a lot that’s wider or deeper than the standard lot, or that backs onto green space or that has a west-facing backyard or that’s on a corner. If you’re buying a condo in a high-rise, you’ll pay an extra charge for a suite that’s on a higher floor or that has a good view. These charges are typically a few thousand dollars.

You’ll also have to pay more to upgrade from standard features. The model you look at may be full of upgrades (high quality carpeting, hardwood floors, expensive tiles and countertops, built-in kitchen appliances, luxury bathroom fixtures, central air), and you may not be thrilled with what the base purchase price will buy you. The upgrades you want could cost several hundred to several thousand dollars (although they could be less expensive if you arrange purchase or installation on your own later).

Relocation Expenses

You should budget for your moving costs, unless you’ll be arriving at your new home with nothing but a suitcase and a can opener. The amount will depend on whether you hire a mover or boldly go yourself. If you hire a mover, the cost tends to go up the more things you have to move and the further you have to move them. Moving with a mover can cost several thousand dollars. We tell you all about moving with a mover in Chapter 9. If you’re a do-it-yourself type, you can rent a small moving van or a trailer if you or your friends don’t have a suitable vehicle. The rental cost varies with the length of time you need the van or trailer and the distance you drive it.

Once you are in your new home, you will have to get telephone and cable television service, not to mention hydro and water service and maybe natural gas or oil service. You’ll have to pay a fee to open a new account or to transfer the services (you can probably figure on $25 to $50 per service). You may also have to pay installation fees for telephone and cable TV.

Renovation Expenses

Not many people move into a home that is in perfect condition, so don’t forget to budget for renovations, repairs, redecoration, painting, and cleaning. Also, be sure that you have left yourself enough money to pay for any new appliances or furniture that you may need.

What Does All This Mean?

It means you need more money than you were planning to spend on your new home—maybe several thousand dollars more than you had planned on. It’s a good thing you’re reading this before you made an offer on a home that was calculated to take every penny you have! (At least we hope you’re reading this before.)

What are the Monthly Expenses of Owning a Home?

Everybody knows there will be monthly mortgage payments after they buy a home, but many people forget about the other regular monthly expenses. These expenses include

• property taxes

• utilities

• home insurance

• maintenance and repairs

Mortgage Payments

A mortgage is a loan that is repaid in instalments, usually on a monthly basis. The monthly payments include an amount to repay the amount borrowed and an amount to pay interest. The amount of the payment will therefore depend on how much you borrow and the interest rate. If you had to get mortgage insurance and you elected not to make a one-time payment, the monthly payment will also include the insurance premium.

Property Taxes

Every municipality charges property taxes that are used to pay for municipal services and in most provinces for local schools. They are payable in instalments over the course of the year, sometimes monthly and sometimes at other intervals. Annual property taxes can be many thousands of dollars, depending on the value of your home and the tax rate set by the municipality. Some mortgage lenders pay property taxes for you and require you to repay them on a monthly basis with your mortgage.

Utilities

You should find out the approximate monthly cost of heating, water, and electricity for any home you are interested in buying to make sure you can afford these utility payments. Since they can vary greatly from home to home (especially heating costs), it’s a good idea to find out what the current owner has paid in the last year. Your real estate agent will get the information for you.

Home Insurance

Every homeowner needs home insurance. The cost varies from home to home but will probably be $500 to $1000, or more, per year. Most insurance companies allow homeowners to make monthly premium payments instead of insisting on a single annual payment.

Maintenance and Repairs

If you don’t want to spend time in the great Canadian outdoors shovelling your own driveway or mowing your own lawn, you should budget for snow removal and lawn care.

You should also keep in mind that things in your new home will break and have to be repaired or replaced—usually when you can least afford it. Make sure that your budget allows you to deal with these unexpected but necessary expenses.

What Does This Mean for You?

Whatever you think you can afford to pay on a monthly basis for a home, don’t plan to spend it all on just your mortgage payments. If you spend too much on mortgage payments, you won’t have enough money to cover your other expenses.

HOW MUCH MONEY DO YOU HAVE FOR YOUR NEW HOME?

When you buy your new home, you should pay only what you can afford. (It’s amazing how often books like this one give you the same advice as your mother.) What you can afford depends on a combination of how much money you have for a down payment, plus how large a mortgage you can afford to carry.

TABLE 1: HOW MUCH MONEY DO YOU HAVE FOR A HOME?

DOWN PAYMENTS

A down payment is the part of the purchase price that you pay in cash when your offer to purchase a home is accepted by the vendor. The rest of the purchase price is financed by a mortgage.

It’s usually easy to calculate how much you have for a down payment. It’s the money you have saved in the bank, or the money you can beg or borrow from your family (we don’t recommend stealing), or the money you can raise by selling property that you already own. Remember, though, that this money has to cover not only your down payment but all of the other one-time costs of buying a house, unless you’re willing to take out a bigger mortgage (assuming that a mortgage lender is willing to give you a bigger mortgage).

Minimum Down Payments

For most people, a large part of a home’s purchase price is financed by a mortgage. Institutional mortgage lenders (banks and trust companies) prefer you to have a down payment that covers at least 25 per cent of the purchase price of your home. A down payment of this size will qualify you for a conventional mortgage.

If you don’t qualify for a conventional mortgage, you’ll still be able to get a mortgage thanks to the Canada Housing and Mortgage Corporation. CMHC insures high ratio mortgages (mortgages for more than 75 per cent of the purchase price), thus calming the fears of the institutional lenders that you might be a deadbeat and unable to make your mortgage payments. If you can’t keep up with your payments and default on your mortgage, and your home is sold for less than the outstanding amount of the mortgage, CMHC will pay your mortgage lender the shortfall. CMHC makes it possible to buy a home with a down payment as small as 5 per cent of the purchase price, leaving up to 95 per cent to be financed by a mortgage. You can check out CMHC’s website at www.cmhc.ca.

Finding the Down Payment

If you already own a home, most of your down payment will probably come from the money you have left from the sale of that home, after paying off your mortgage and paying the other expenses of the sale. If you don’t own a home, or if you can’t get as much as you need out of your home’s sale price, you must look to other sources for your down payment, such as:

• savings in your bank account, bonds, or GICs

• any other investments

• gifts or loans from your family

• RRSPs

• provincial home ownership savings plans

RRSPs

The Canadian government will allow you to withdraw, without tax penalty, up to $20,000 per person or $40,000 per couple from your RRSPs for the purchase of a home. You must repay the amount you withdraw within fifteen years, repaying a minimum of one-fifteenth each year, or there will be a tax penalty.

You can only borrow from your RRSP if neither you nor your spouse has owned and lived in a home as your principal residence within the last four years. There are other restrictions on borrowing as well. For more information, speak to the institution that holds your RRSP, or go to Canada Customs and Revenue Agency’s website at www.ccra-adrc.gc.ca and hunt for the Home Buyers’ Plan.

Provincial Home Ownership Savings Plans

Some provinces have home ownership savings plans. You must meet certain requirements to be eligible. If you save for your down payment by depositing money into such a plan, you will receive a credit against your provincial income tax for the year. Ask your bank or trust company whether your province has a plan and what the details are.

MORTGAGES

A mortgage (a hypothec in Quebec) is a special kind of loan available to home purchasers or owners, and we talk a lot more about them (as we have mentioned) in Chapter 7.

An Affordable Monthly Payment Equals an Affordable Mortgage

When you take out a mortgage, you should borrow only the amount of money you can afford to repay. The amount you can afford to repay is governed by the monthly mortgage payments you can afford to make. The monthly mortgage payments for any mortgage depend on

• the amount borrowed (the mortgage principal)

• the mortgage interest rate

The larger the amount being borrowed and the higher the interest rate, the larger your monthly mortgage payments will be.

The first step in figuring out how much you can afford to borrow is to figure out how large a monthly mortgage payment you can afford. In order to know what mortgage payment you can afford to make, you have to calculate your net monthly income and then deduct all your monthly expenses to see what you have left for a mortgage.

TABLE 2: MONEY AVAILABLE FOR MORTGAGE PAYMENTS

What is Your Net Monthly Income?

Let’s start this procedure by calculating your net monthly income.

What is Income?

Income is money that is earned. If you have a job, your salary or wages are your income. If you are self-employed, your income is the fees you collect for the goods or services you provide. Other forms of income include

• commissions

• tips

• interest

• dividends

• rent received

Gross Income and Net Income

If you are paid wages or a salary, your employer makes deductions from your pay cheque every pay period. Common deductions include income tax, Employment Insurance premiums, Canada Pension Plan or Quebec Pension Plan contributions, union dues, insurance payments, and private pension plan contributions. These amounts are deducted automatically. The amount you are paid before the deductions are made is called your gross income. The small amount you actually receive (after the deductions are made) is called your net income.

Since you can spend only the income you receive after deductions are made, you should use your net income rather than your gross income for the purposes of calculating what you can afford.

Calculating Your Monthly Income

Different people receive their income at different intervals. You may be paid weekly, every two weeks, bimonthly (twice monthly, but it’s different from every two weeks—it’s less frequent), or monthly. Self-employed people may receive their income at other less regular intervals.

Because mortgage payments are normally made monthly, it’s necessary to see what your income is on a monthly basis, no matter when you are actually paid. To convert your net income to a monthly amount, use the following table:

TABLE 3: CALCULATING YOUR MONTHLY INCOME

If you are paid:Multiply the net amount of your pay cheque by:weekly4.33every 2 weeks2.165bimonthly2

What Are Your Monthly Living Expenses?

Once you have determined your net monthly income, the next step is to deduct your monthly living expenses. Before you can deduct these expenses, you have to know what they are.

Identifying Your Living Expenses

Your living expenses are made up of all the money you spend on things other than housing, such as groceries, transportation, clothing, and entertainment. If you have receipts for the past year, go through them rather than relying on your memory of what you’ve spent. Table 4 on page 19 will help you identify your monthly living expenses.

Calculating Your Living Expenses on a Monthly Basis

Now that you’ve calculated your income on a monthly basis, you have to do the same for your expenses so you can subtract them from income.

CONVERTING YOUR EXPENSES: Some expenses are incurred on a weekly basis, the most common example being groceries. To calculate your monthly expenses for these items, estimate what you spend in an average week, then convert this weekly amount to a monthly one by multiplying it by 4.33. People are always tempted simply to multiply the weekly amount by 4, but that doesn’t work because the average month has more than twenty-eight days in it. If you calculated every month as having only four weeks, you would end up with a year of forty-eight weeks instead of fifty-two. (Now you know exactly why bimonthly is not the same as every two weeks.)

Some expenses are incurred on a monthly basis, such as telephone and cable TV. Just use the amount from your monthly bill. Some expenses are incurred on a yearly basis, such as insurance premiums, car licence fees, and membership dues. To convert these annual amounts to monthly amounts, divide by 12. Finally, some expenses—car repairs, clothing, and vacations—are incurred on an irregular basis. The simplest way to deal with these is to estimate the total amount for the entire year (or add up what these things cost last year) and then divide by 12.

TOTALLING YOUR EXPENSES: After you have converted all of your expenses to a monthly figure, total them and deduct this total from your net monthly income (Figure A). What you have left out of your monthly income (if anything) is what you have to spend on mortgage payments and other housing expenses. This will probably be very depressing.

It is at this point that many people realize they will have to make some sacrifices in order to own a home. (There we go, sounding like your mother again.) So the next step is to go through your living expenses again and see where you can make cuts. It’s very important to be realistic here, because the money you cut from your living expenses will end up being committed to mortgage payments. You won’t be able to get it back if you decide you need it—at least not without paying off your mortgage first.

It’s not a good idea to reduce basic expenses like groceries and child care. Be careful in reducing other expenses as well. Are you sure that you can live through a Canadian winter without a vacation in the sun? Do you want to go through the year with fewer new clothes or dinners out?

You can use the following table to help you figure out both the expenses you have now and the adjustments you would be willing to make in order to buy a home.

TABLE 4: MONTHLY LIVING EXPENSES

ExpenseActual monthly amountSlash-and-burn monthly amountHousehold expenses$ __________$ __________Grocerie____________________ousehold supplies____________________Household help____________________Telephone____________________Cable TV____________________Loan payments$ __________$ __________Credit cards____________________Bank loans____________________Car loan____________________Other____________________Transportation$ __________$ __________Car insurance____________________Licence fees____________________Maintenance____________________Gasoline____________________Parking____________________Public transit____________________Other____________________Clothing$ __________$ __________Self____________________Spouse____________________Children____________________Personal grooming$ __________$ __________Haircuts____________________Dry cleaning____________________Other____________________Health$ __________$ __________Insurance (health,disability, life)____________________Uninsured medical services____________________Drugs____________________Dentist/orthodontist____________________Other____________________Entertainment$ __________$ __________Eating out____________________Movies, plays, andsports events____________________Newspapers, books,and magazines____________________Club fees____________________Vacation_____________________Sports equipment____________________Gifts____________________Other____________________Children’s expenses$ __________$ __________Day care____________________Babysitting____________________School fees____________________Lessons and activities____________________Summer camp____________________Other____________________Pets’ Expenses$ __________$ __________Food____________________Day care____________________Vet bills____________________Savings$ __________$ __________Charitable Donations$ __________$ __________Total (This is FIGURE B.)$ __________$ __________

Money Available for Monthly Non-Mortgage Housing Expenses

Now let’s look at non-mortgage housing expenses for the home you want to buy, so we can deduct them from income too. We’re inching closer to knowing what an affordable mortgage payment is.

The non-mortgage expenses of owning a home include

• property taxes

• utilities

• home insurance

• maintenance and repairs

What your monthly non-mortgage housing expenses will be will depend on the particular home you buy. Some homes have low property taxes, cost little to heat, and will require relatively little maintenance; others are very expensive to run on a monthly basis. Some of the expenses of running the home may be set out on the feature sheet prepared by the seller’s real estate agent when a home is listed for sale. If all the information you’d like isn’t there, ask your real estate agent to try to find out more. You may have to estimate some amounts, based on your own experience or on friends’ experience.

As with your living expenses, you must figure out how much you will spend on non-mortgage housing expenses on a monthly basis. Use the following Table 5. The less you spend on these monthly expenses, the more money you will have available each month to pay your mortgage.

TABLE 5: ESTIMATED MONTHLY NON-MORTGAGE HOUSING

EXPENSESExpenseMonthly amountProperty taxes$ __________Water__________Electricity__________Natural gas__________Fuel oil__________Home insurance__________Repairs and maintenance__________Gardening__________Snow removal__________Condominium common expenses__________(if you’re buying a condo, these maintenance and repairs, and gardening replace some of the and snow removal)Total (This is FIGURE C.)$ __________

Money Available for Monthly Mortgage Payments

Now you’re ready to calculate how much money you have available to make your monthly mortgage payments. Take the amounts from your previous calculations and insert them into the following table:

TABLE 6: MONEY AVAILABLE FOR MORTGAGE PAYMENTS

Net monthly income$ ________(Figure A)less:Your monthly living expenses$ ________(Figure B)Your monthly non-mortgage housing expenses equals:$ ________(Figure C)Total available for mortgage payments$ ________(FIGURE D)

Calculating the Principal Amount of Your Affordable Mortgage

Using Figure D and Figure E, you can calculate how much mortgage principal you can afford to borrow. Go to Table 8 on page 25. It shows mortgage principal, based on different monthly payments and interest rates. Move down the left-hand column until you find the figure closest to your Figure D, then move across the page to the column that’s under the interest rate closest to your Figure E. That amount will be approximately the mortgage principal you can afford to borrow.

THE MAXIMUM PRICE TO PAY FOR YOUR HOME

Add the amount of mortgage principal you can afford to borrow to the sum of money that you have for a down payment. The total is the maximum price you can afford to pay for a home, including the particular home you’re looking at.

A Word of Warning

Think carefully before you spend the maximum amount you can afford. All the mortgage calculations you do in this chapter are based on current interest rates. However, as you will see in the chapter about mortgages, any mortgage you get will probably have to be renegotiated before you have paid it in full—perhaps several times. If interest rates have gone up at the time your mortgage comes due, your renegotiated mortgage will have a higher interest rate and your monthly payments will go up. You should leave yourself some leeway for such a possibility.

The Price Range of Homes You Should Be Looking At

The amount you can afford each month for your mortgage will depend on the particular home you buy. That’s because non-mortgage housing expenses vary from home to home. So you might be asking yourself: How can I know what price range of homes I should be looking at? To figure out this price range roughly, fill out the following Table 7:

TABLE 7: TOTAL MONEY AVAILABLE FORMORTGAGE AND NON-MORTGAGE HOUSING EXPENSES

Net monthly income$ __________(Figure A)less:Monthly living expenses$ __________(Figure B)Total available for mortgage and all housing expenses$ __________

Go to Table 8 to find out how much mortgage money you could afford to borrow if you could use this total amount of money to pay your mortgage. The amount you get from Table 8 will be quite a bit more than you can in fact afford, because you will also have to pay all non-mortgage housing expenses out of it. Take the amount of mortgage principal you calculated using Table 8 and add it to the money you have for a down payment. Start looking at houses below this price range.

Pre-Approved Mortgages

Many banks and trust companies will allow you to apply for a mortgage before you have found the home that you’d like to buy. Getting pre-approval for a mortgage lets you know in advance the maximum amount of money that will be available to you.

While the bank or trust company will not actually give you the money until you buy the home, they will commit themselves to lending you a maximum amount at a specified interest rate, so long as you buy a suitable home within a fixed period of time (usually no more than 60 days).

So now you’ve figured out what you can afford! You can start to think (rather than dream) about where you want to live and what kind of home you want.

TABLE 8: HOW MUCH MORTGAGE PRINCIPAL YOU CAN BORROWAT VARIOUS INTEREST RATES AND MONTHLY PAYMENT AMOUNTS

3

WHERE DO YOUWANT TO LIVE?

Now that you know what you can afford, you can start to think about where you want to live: what features you want in a home and what location. For some of you the size and appearance of a home are the most important things. For others, location is everything. For many of you, what you want may not be what you can afford. In the end, your choice of a home will probably involve a trade-off among price, features, and location.

THINK ABOUT WHAT YOU WANT

Before you start to look at homes, you should have an idea of the features and location you want. Make a wish list for your ideal home. Then have a preliminary look around to see whether or not what you want is available in your price range. You may have to make changes to your wish list to reflect what you can actually afford.

Location

When we talk about location, we don’t mean where in Canada you want to live. We assume that you already know both the province and the general area. Within that general area, you still have a wide choice: Would you prefer to live right in the city, in a suburb, in a smaller town, or in the country? You should also think about the kind of community you want to live in, how close to your family and friends and place of work you want to be, and whether the services you want are nearby.

Features

When we talk about features, we mean the size and appearance of the home. How many bedrooms are there? Are there new bathrooms and kitchen? Is the place in move-in condition or is it a handyman’s special? How large is the lot? When you list the features you want in a home, don’t just think about whether a home meets your present needs. Think about your future needs as well.

The Wish List

To help you identify your wishes and needs for your new home, use the following checklists. Distinguish between the things that you absolutely must have and the things that you would merely like to have if you could.

HOME FEATURES

Must haveWould likeSingle-family detached____________________Single-family semi-detached____________________Multiple family____________________Townhouse____________________Number of storeys____________________Apartment-style condo____________________Exterior (brick, wood, siding)____________________Number of bedrooms____________________Number of bathrooms____________________New bathrooms____________________Master ensuite bathroom____________________Large kitchen____________________New kitchen____________________Family room____________________Separate dining-room____________________Sunroom____________________Fireplace(s)____________________Finished basement____________________Basement apartment____________________Nanny’s quarters____________________Lots of closet space____________________Type of heating____________________Central air-conditioning____________________New plumbing____________________New electrical system____________________Municipal water and sewers____________________For a house or townhouse:Large property____________________Backyard with fence____________________Swimming pool____________________Trees and landscaping____________________Deck or patio____________________Finished basement____________________Attached garage____________________One- or two-car garage____________________Private drive____________________For an apartment-style condo:Recreational facilities____________________Large grounds____________________24-hour security____________________Ample visitor parking____________________Move-in condition____________________Other (list)____________________

HOME LOCATION

Must haveWould likeType of locationcity____________________suburb____________________small town____________________country____________________Easy commutingclose to work____________________close to public transit____________________snow plowing____________________adequate parking____________________Character of the neighbourhoodsize and appearance of homes of homes____________________restrictions on activities____________________quiet street____________________compatible neighbours____________________safety____________________mature trees____________________sidewalks____________________wildlife____________________Servicesclose to good schools____________________close to shopping and other services____________________nearby emergency services____________________recreational facilities and programs____________________close to parks____________________sidewalk snow removal____________________garbage pick-up____________________mail delivery to door____________________water and sewage systems____________________Low property taxes____________________Stable property values____________________

Have a Preliminary Look Around

Once you have some idea of the features and location you’d like, you should have a look around to see whether what you want is available in your price range. You can do this the traditional way by looking at real estate ads, by driving around to see what homes are up for sale, and by going to open houses. If you see something, you can call the agent named in the ad or on the sign (or you can call any real estate agent) for more information.

More and more people are becoming less and less traditional when they take a preliminary look. Now instead of opening the paper or getting into the car they turn on the computer and check out homes for sale using the Internet.

Hunting for a Home on the Internet

The smart way to browse on the Internet is to go to one of the “gateway” sites that will give you access to many properties listed on the Multiple Listing Service. Try the Canadian Real Estate Association’s site (www.mls.ca), or the local board in your target area such as the Toronto Real Estate Board (www.realestate.ca), or the Calgary Real Estate Board (www.creb.ab.ca). You can select neighbourhoods and homes by price range; and when you click on a home that looks interesting you should be able to get interior and exterior pictures of it as well as a description of its features. If you want more detailed information, or if you want to visit in person, there’s a contact number for the vendor’s real estate agent. Actually, you can contact any real estate agent, you don’t have to work through the vendor’s agent.

If you’ve seen a home advertised for sale, you may also be able to get pictures and information on a website set up by the listing agent or the agency named in the ad. Some websites give out property addresses so you can go to the street and walk or drive by even before you contact an agent. The agency’s website may be mentioned on the “For sale” sign or in their ad or use a search engine to find out whether the agent or agency has a website.

If you’re looking for information about an unfamiliar city or neighbourhood, many cities and towns have their own website with maps that will allow you to locate things like shopping centres and schools, and to download transit schedules.

Fine-Tune Your Wish List

After some preliminary looking around, you should have a realistic idea of what is out there. It’s unlikely that you will have found an affordable home that fully satisfies your wish list.

You will have discovered that similar homes have different price tags depending on their location. Since what you can afford is fixed, you will probably find that you have to compromise either on features or location. Have another look at your wish list and change it if necessary.

At this stage you should have a good idea of what kind of home you can get for the price you can afford, and where. You have narrowed your choice of features and location. You are now ready to start serious house-hunting—with buying in mind.

GO HOUSE-HUNTING WITH A REAL ESTATE AGENT

Unless you are only interested in a home to be constructed in a new development or building, the best way to find homes is to look with the help of an experienced real estate agent. Now you probably want to know

• what a real estate agent can do for you

• the cost of a real estate agent

• how to find a real estate agent

• how to work with a real estate agent

• the legal relationship between you and your real estate agent

What a Real Estate Agent Can Do for You

A real estate agent can:

• help you fine-tune your wish list

• get special access to information about the many homes listed for sale

• screen those homes to choose the ones most likely to be of interest

• arrange appointments for you to view the selected homes

• get information about neighbourhoods

• help you evaluate the condition of homes you view

• help you decide how much you should pay for a particular home

• help you make up an offer to purchase, and negotiate with the vendor

• put you in contact with building inspectors, mortgage lenders, contractors, movers, and other useful people

You may think that you don’t need a real estate agent to find and look at homes that are for sale. But you’re wrong. For one thing, real estate agents are hard to avoid. Most vendors use a real estate agent, and if you want to view a home that’s listed with an agent, you’ll either have to deal with that agent or some other agent. For another thing, using a real estate agent will get you access to a lot more information than you could find on your own and will also save you a lot of time.

Most homes that are up for sale are put on a multiple listing service or MLS. Only real estate agents have full access to the information on the multiple listing service, which includes details about the price, location, and features of each home. So a real estate agent will know more about the homes that are on the market than you could ever find out on your own.

A real estate agent will review all the MLS information, zero in on the homes most likely to be of interest to you, and take you to see only those homes. You won’t waste your time looking at the wrong properties.

Cost of a Real Estate Agent

The general rule is that there will be no cost to you as the purchaser for using a real estate agent’s services. The real estate agent involved in a purchase of a home is usually paid a commission by the vendor.

How to Find a Real Estate Agent

You could be spending a lot of time with your real estate agent and you need the agent to know and understand what’s important to you in a new home. So you want to find someone you like, trust, and feel comfortable with, maybe someone who is of a similar age, background, and stage in life.

You also want an agent who is professional, has time for you, and will work hard. So it’s best to find someone who has experience and works full-time. Try to avoid an agent who has so many homes listed for sale or is working with so many purchasers that he or she won’t have enough time to spend with you. Look for an agent who is knowledgeable about the neighbourhoods that interest you the most. Finally, choose someone with a pleasant personality. It will not only be easier for you to work together, but the agent will be a more successful negotiator on your behalf.