If you are a first-time home buyer, buying your first house in Calgary may be like life's other firsts: exciting, even romantic, and maybe a little bit scary as you wade into new waters. The same can also be said for a current home-owner who may be "moving up". Either way, you can ease the process and avoid being taken advantage of by reading the following points before taking the next step towards purchasing your house or condominium.
Know Your Agent
Will Rogers, the great cowboy wit, said "I've never met a man I didn't like." It's the same with Calgary real estate agents. You will seldom meet one that isn't friendly, smiling and brimming over with positiveness. Be sure to know what you're getting in terms of loyalty, knowledge and experience. The right agent is a tremendous help, and often a necessity when it comes to finding the right house. Take the time to interview any potential agents you are considering. You want an agent who's experienced in the area where you want to live and who deals with buyers & sellers in your price range.
A seller's agent works for and gives complete allegiance to the seller; a buyer's agent does the same for the buyer. A buyer's agent will point out—rather than gloss over—any flaws with the house or neighborhood, help you negotiate a good deal, explain your other options and be unquestionably on your side.
Don't Go Overboard
Buy only what you can afford. Everyone can agree that a four-bedroom, three-bathroom house in mint condition on three lushly landscaped acres with a pool has more appeal than a two-bedroom, one-bath on a small lot. But there's nothing worse than winding up with such a big monthly payment that you have nothing left over for a vacation, the kids' camp or your retirement. A good rule of thumb: Your total monthly debts, including your mortgage, should not exceed 35 percent of your income before taxes.
Remember that your mortgage payment is only one aspect of what you'll be paying. Budget for homeowner's insurance, property taxes, furniture, general maintenance and so on.
Pick The Right Mortgage
Mortgages are available from banks, mortgage companies and credit unions. You can also get one through a mortgage broker, who will contact several lenders for you to find competitive rates.
Get mortgage information from more than one source, and get the same information from each so you can compare the offers. It is recommended that in addition to finding out the basic interest rate you ask each lender:
- Is the rate fixed or adjustable? When interest rates rise, monthly payments for adjustable-rate loans eventually go up, too.
- What is the loan's annual percentage rate (APR)? This includes the interest rate, points, broker fees and any credit charges you may have to pay, expressed as a yearly rate.
- What will points be in dollars? Points are fees paid to the lender or broker for the loan. Ask each potential lender for a quote in the dollar amount (rather than just the number of points) so you'll know how much you will have to pay.
- Is mortgage insurance (MI) required? If you make less than a 25 percent down payment, the lender will probably require you to purchase MI, which protects the lender in case you fail to pay. Find out the exact monthly amount and how long you will be required to carry MI.
You will also have to choose the length of your mortgage. A 25-year mortgage will mean lower monthly payments but a higher interest rate. In the long run, you'll be paying more for your house because you'll be making more interest payments. With a shorter mortgage, the monthly bill will be higher but the interest rate lower; thus you'll pay less for your house because it will be paid off in a shorter period of time.
Have each lender provide you with a written statement of all fees connected to the loan. Then, ask each to reduce one or more of the fees. Use the lowest amount of fees to negotiate with the other lenders to see if they'll reduce their fees.
Get A Preapproval Letter
This gives you substantial leverage: Sellers immediately see you as a serious buyer. Not only will you know the exact price range you can afford, you'll be able to negotiate a better deal and move faster when you see a house you like. Work with your lender to get preapproval—you'll need to supply information to verify your income, credit history, debts and assets. The lender will then issue a letter stating that your mortgage is approved for a certain dollar amount for a certain time period. Don't confuse preapproval with prequalification: The latter is a non-binding estimate of how much mortgage you can afford.
Once you are preapproved for a mortgage, avoid taking on any serious new debt and make timely payments on all existing debts. Otherwise you risk degrading your credit rating partway through the buying process.
Tip: If you are charged a preapproval fee, negotiate to have it refunded at the closing.
Lock In Your Interest Rate
Once you get what you think are the best terms possible, ask for a written rate lock. It will include the interest rate, how long the lock-in will last and the number of points to be paid. A lock-in protects you from a rate increase if rates go up during the time your loan is being processed
Play It Close To The Chest
If you fall in love a house, keep your feelings to yourself. Don't let the seller or the seller's agent know. Handing over that bit of information will empower them to hold out for the asking price. Keep in mind that there's always another house at the right price.
Tip: Visit at night and on a weekday. Most people look at homes on weekends in the daylight. Before you buy, find out what the neighborhood is like at other times. Is it quiet? Noisy? Full of traffic? Dead as a doornail? Also, drive the surrounding few blocks in each direction from the house, to make sure there aren't unsavory areas or unexpected industrial sites nearby.
Before making an offer, ask the agent for a Comparative Market Analysis (CMA) for your Calgary property. The CMA lists the addresses of recently sold homes in the same neighborhood, with the date sold, the price and the number of bedrooms and bathrooms. Your offer should be comparable and not necessarily based on the seller's asking price.
Insist that the contract include two types of escape clauses: a financing (or mortgage) contingency and an inspection contingency. If you make an offer but then are ultimately turned down by lenders, the financing contingency will release you from the contract. You'll also get back your earnest money (your deposit).
If a professional inspection finds damage or structural flaws in the house, the inspection contingency will release you from the contract and your deposit will be returned. Usually you can also opt to use the inspection contingency to negotiate for repairs to the house or for a lower selling price. There are different types of inspection contingencies; work with your agent to put the type you want into the written offer you make on the house.
Tip: Hire your own inspector, rather than using someone associated with or recommended by the seller.
Watch Out For Predatory Lending
Every once in a while, warnings are issued about unscrupulous lenders. Signs of trouble:
- Being asked to include false information on your loan application.
- Being asked to sign a blank form.
- Being pressured into borrowing more money than you need or can afford.
- Being promised one thing but delivered another. If you get new numbers or new terms at the closing, ask for an explanation. Tell your lawyer you are prepared to walk away.
The bottom line is that "Knowledge is power." Written a long time ago by the English statesman Francis Bacon (1561-1626), it's as true today as then. Make it your personal mantra when buying or selling your home.