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The story behind it all
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First time home-buyers: Check out these tips
Oct 31, 2014
The financial post put together some useful tips:
You have saved up your downpayment for your first home. Purchasing your dream home could become a nightmare if you are not prepared.
The following are examples of challenges some homebuyers had to face.
1) You have the money to buy a home but is it ready to go and in one place? Buyers could take for granted the time it may take to move money around. One couple experienced 24 hours in panic buying their first home. They put a bully bid in and the seller accepted and they now had 24 hours to come up with a $30,000.00 deposit. Half the money would be from the savings account and the other half from a credit card. He was told to move money from his savings would take 24 hours and 1-3 days to get a cashiers cheque. Luckily the bank came through 2 hours ahead of deadline. TD warns that a personal cheque in your account can take anywhere from 4-5 business days to process. An electronic money transfer takes 1-2 business days.
2) Same rules apply when the closing date approaches. If the money is not ready you could be in default, forfeit your deposit and face a lawsuit.
If you are using the Home Buyers Plan, speak to your financial institution to ensure timely access. One couple waited too long to transfer the required funds and when they brought a certified cheque to deposit they were told it would be held for 15 business days because it was U.S. currency. Their parents had to help to avoid requesting an extension which would have cost $250.00 for seller’s lawyer fees, interest paid by the seller to extend the closing date and possibly having the seller ask for an additional deposit that would be forfeited if they didn’t close on the agreed extended date.
3) In bidding wars, buyers sometimes include a condition on financing hoping the pre-approval will be enough. A pre-approval is not a full approval. If you are pre-approvedfor $300,000.00 but due to the bidding war you pay a lot more than the list price the bank can cancel the loan if the appraisal shows the house is not worth what youpaid. If you have a cushion of 5% of your purchasing price in case the lender decides to lend you less money.
4) Buyers in hot markets are also waiving inspections. This is a terrible risk. There could be water seepage in the basement, termite damage and asbestos in the insulation. If you buy in Summer and find out the furnace doesn’t work in Winter it can cost $3500-$5000 to replace plus there is the health issue of a furnace not working properly producing carbon monoxide.
If you think you are going to be in a few bidding wars consider working out a deal with a home inspector to inspect a number of houses for a discount. If the seller has a pre-existing home inspection ensure the inspector is reputable.
At the very least, walk around the house with a knowledgeable friend. Peek under the area rug for cracks,lift the microwave to look for holes, open and close windows. Recent renovations sometimes are covering problems. A HOME INSPECTION STARTS AT $400.00. WORTH EVERY PENNY!
5) Mark everything down that you expect to receive and include it in the contract under fixtures and chattels clause. One person went in their new home and all the light bulbs were taken, another the shed from the backyard. A lawyer bought a place and they took out all the toilets.
6) Budget for closing costs such as home inspection($400), lawyers fees($1500) and land-transfer tax(you could be eligible for a rebate as a first-time homebuyer). Also considermoving costs, property tax adjustments and property insurance. If you have under-budgeted, perhaps, your lender will give you an unsecured line of credit.
7) Make sure you can afford a house. Mortgage payments, condo fees, property taxes and utilities should not exceed 32% of your gross income. Work out your expenditures and see if the remaining amount is enough to live the life you want. How much can you allow for retirement contributions or vacation? Also consider the ramifications of rates rising in the future and make sure you have a contingency plan in place in case of emergency : loss of job, illness etc.