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Buying a Home 101
*Keys to Smart Home Buying
*Understanding the Asking Price
*Getting Your Mortgage Application Started
*Negotiating the Offer and the Contract
*Preparing for the Cosing Dates
*Buying vs. Renting
*Home Inspection Process
Keys to Smart Home Buying
Buying a home is one of life's most important and exciting adventures. Even experienced buyers, however, can find this complex process a bit overwhelming. We will guide you through every step of the way. In addition to the crucial step of locating and presenting properties that match your search criteria, we will help you along the path between "I want this house!" and "I own this house!"
Understanding the Asking Price
Many factors influence the price that a seller expects to get for their home. While only you can decide how much you feel comfortable offering for a property, we can gather critical information for you regarding the factors that impact how much you should consider paying for the home. These factors include:
*How long the home has been on the market
*If the price has been reduced
*The prices for other comparable homes in the area
*If there are multiple offers
*Other items that might be included in the sale - furniture, hot tub, etc.
*Why the seller is selling
Getting Your Mortgage Application Started
Being pre-approved by a lender can put you in a much stronger negotiating position, because it shows the seller that you are a committed buyer, financially capable of buying the property, and more likely to close on the property. Keep in mind that pre-approval is different from pre-qualification. Pre-qualification is merely an estimate of what you may be able to afford. Pre-approval occurs when the lender has reviewed your credit and believes that you can finance a home up to a specific amount. However, neither pre-approval nor pre-qualification represents or implies a commitment on the part of a lender to actually fund a loan.
Here are some of the current documents you'll need to get started:
*INCOME
-Current pay stubs
-Tax returns, usually for last couple of years
*ASSETS
-Bank statements
-Investments/brokerage firm statements
-Net worth of businesses owned (if applicable)
*DEBTS
-Credit card statements
-Loan statements
-Alimony/child support payments (if applicable)
Negotiating the Offer and the Contract
You may make your offer subject to certain terms or contingencies, including securing of financing or perhaps the sale of your current home. You may also make the contract subject to various inspections by both you and professional inspectors. We will review with you every aspect of your offer. Together, we will plan a strategy for getting the most advantageous terms for you - the buyer - at the price you are willing to pay for the property.
Preparing For the Cosing Costs
A home purchase is a complex transaction involving many parties and associated fees. In addition to your deposit and down payment, there are a variety of other costs involved in the cosing, including:
*Loan origination fees, appraisals, and reports
*Lawyers
*Land Transfer Tax
*Inspections
*Mortgage insurance
*Taxes
*Title Insurance
*Recording fees and stamps
The lender will provide a good faith estimate of these costs prior to the closing, so that you will know in advance what to expect. Naturally, we'll walk you through each item in your good faith estimate to make sure you understand every detail.
Buying vs. Renting
Should you buy or rent a home?
Is home ownership the right path for you? Should you rent instead? If you rent will you be jeopardizing the possibility of home ownership in the future due to rising real estate values? How fast will your family grow and how much space is needed for your family and their activities? How much money do you have to pay for housing? When is the best time to buy a house?
With the rising cost of home ownership in Canada today, combined with low mortgage rates, many first time buyers are challenged by the answers to these questions:
Buying and owning your own home is more complicated than just having the money for the down payment and monthly mortgage payments. Owning a home requires a tremendous commitment of fund, time, and attention. For some people, owning is not the best, or only way, to have a comfortable and safe living environment.
The following topics should help make your decision a little easier.
*Advantages and disadvantages of renting a home
*Advantages and disadvantages of buying a home
*Defining your values
*Are you ready for home ownership
Advantages and disadvantages of renting a home
For some, renting can be the best option. Considering the high cost of a down payment on a home, financial considerations are of top priority. Renting can be viewed as a temporary solution while you plan your future.
The advantages of renting a home
*You are excused from the bulk of home ownership responsibilities such as:
-Grounds maintenance
-Appliance repairs
-Remodeling
-Home Improvements
-Property taxes
*Many rentals include amenities such as:
-Pool
-Tennis courts
-Social/activity rooms
-Laundry facilities
-Security
-Parking
*There is no large down payment, only a security deposit.
*Many of your monthly expenditures (rent, utilities) are fixed making budgeting easy.
*You are not taking any equity risk on the property should there be a downturn in the market.
*Close proximity of neighbours often create a sense of security.
*If you do not like where you live, moving is relatively simple.
*It is easier, especially if you travel/commute often.
The disadvantages of renting a home
*No special tax deductions.
*There are no equity gains in the rising value of property.
*Space and storage is usually less than a home.
*Changes to accommodate your life or growing family cannot be made or are limited in scope.
*Rents can rise with inflation and or supply and demand in the rental market.
*You will probably have restrictions on noise level, pet ownership, or children.
Advantages and disadvantages of buying a home
The advantages of buying a home
*The home may increase in value, resulting in a significant gain in net worth.
*The emotional high derived from ownership and the sense of status created both at home and in the community.
*Homeowners tend to have better credit ratings.
*The longer you live in a home, the more equity you build that can be leveraged using an emergency loan.
*Mortgage payments contribute to an investment, particularly if the property is located where it increases in value over a period of years.
*If you have a fixed loan, your payment will remain relatively constant for the life of the loan.
*Ownership may contribute to security, especially in retirement years when income normally decreases.
*A homeowner can borrow against his/her equity, as the value of the home increases.
*More space may be available for family members and their activities.
*As a homeowner you have the freedom to make improvements and changes to the home and surroundings as desired (although a development or association may have restrictions and prohibitions).
*Home ownership can contribute to the general well-being and sense of "roots" of the family, especially for children.
*Homeowners generally are concerned about community affairs and how they may affect their property.
The disadvantages of buying a home
*A substantial down payment is needed in most cases.
*Owning a home requires a substantial commitment in time, emotions, and money.
*Homes may decrease in value if the neighbourhood deteriorates, changes quickly, or the real estate market suffers a decline.
*Due to the initial expense of buying a home, financial resources may be limited or reduced for other purchases or activities.
*Maintenance and repairs are inevitable and could be costly.
*Budgeting is cumbersome and a must in preparation for maintenance, repairs, home improvements, and/or home ownership/association dues.
*Depending on where you live property taxes could increase dramatically.
*The cost of buying a home should also include the cost of moving into it and furnishing it.
*Shifts in the neighbourhood could drastically affect one's lifestyle.
*Security is an issue if you are not home often due to travel.
*Unexpected loss of income due to job termination or unemployment may limit money available for home ownership costs.
Are You Ready for Home Ownership?
The Neighbourhood
Life can be greater than you thought or it can be a nightmare if you do not consider the neighbourhood as part of your decision. Here's a list of things to check and consider:
*Local history
*Local government
*Its proximity to: factories, trains, airports, traffic, highways, farms, sanitation
*Appearance
*Schools
*Whether the neighbourhood is appreciating or depreciating in value
*Safety and security
Accessibility
Little things like driving through traffic bottlenecks or through industrial zones to get to shopping, schools or work can be a real issue over time. Consider the convenience of your desired neighbourhood in relationship to:
*Work
*Shopping areas
*Schools
*Entertainment and lifestyle activities
*Places of worship
*Condition of the roads
*Available public transportation
Community Facilities
Unless you are on the Internet 24 hours a day, seven days a week, you will want to use the local resources to enhance your life. Consider looking into the following:
*Police
*Fire stations
*Health facilities
*Sanitation services
*After school activities
*Recreational facilities, such as parks, golf courses, hiking trails, etc.
Other considerations
If you are buying consider what the neighbourhood offers for you and your particular lifestyle. Furthermore, this might be a good time to evaluate your particular needs and how they might affect the potential to sell the home in the future. As an example, suppose you choose a home far from schools and children's parks because that is not a concern for you in your life now. What you might want to consider is how distance from these facilities might affect the ability to sell your home one day to a buyer who may have a keen interest in those things. Conversely if you are renting, these may or may not have a bearing on your life now or after you move.
The apartment or home itself
*Space, arrangement, and condition
*Bedrooms and bathrooms (enough space and privacy)
*Kitchen and work area (well planned and step saving, adequate work and storage areas)
*Dining and living areas (adequate for family entertaining and resting)
*Storage (adequate and well placed)
*Room sizes, shapes, and wall areas to permit use of furnishings and equipment on hand or planned
*Interior and exterior finishes (acceptable types, condition, and ease of maintenance).
*Heating and lighting (adequate and efficient systems)
*Outdoor space (patio, deck, lawn, garden space, outdoor storage)
How much house can you afford?
Buying a house commits you to a long-term relationship with a mortgage and requires a considerable amount of time and energy that most homeowners will tell you becomes second nature. How much each family spends on housing depends on many factors.
Three basic considerations that can help a family determine how much home they can afford:
*The amount of take-home pay the family can reasonably expect.
*The family's living costs and other debt payments.
*The total amount of housing expenses, including: taxes, insurance, energy, furnishings, maintenance and mortgage payments.
The Home Inspection Process
*What is a home inspection?
*How to choose a home inspector?
*What's the big deal about home inspection?
*Do new homes need inspection?
*The inspection report is not a repair list for the seller.
*Home inspection is limited to what is visible.
*How to negotiate after a home inspection?
*Most common defect found during a home inspection.
What is a home inspection?
A home inspection is a thorough and systematic evaluation of the condition of a residential property. It is a complete physical exam of the general integrity, functionality, and overall safety of a home and its various components. The purpose of this process is to ensure that home buyers know exactly what is being purchased, prior to completing the transactions.
In the course of a home inspection, the inspector will evaluate the foundation, framing, roofing, site drainage, attic, plumbing, heating, electrical system, fireplaces, chimneys, pavement, fences, stairs, decks, patios, doors, windows, walls, ceilings, floors, built-in appliances, and numerous other fixtures and components.
In all homes, even brand new ones, some building defects will inevitably be discovered during the inspection. All pertinent findings will be detailed in a written report for the buyer's reference and review, and the inspector will make a complete verbal presentation of these conditions for those who attend the inspection.
This information enables a home buyer to make educated decisions about a home purchase: whether to complete the transaction, whether to ask the seller to make repairs, or whether to buy the property as is. Buyers can also determine how much repair and renovation will be needed after taking possession, which problems are of major concern, which ones are minor, and what conditions compromise the safety of the premises.
A thorough inspection enables a home buyer to avoid costly surprises after the closing. It is an indispensable component of a well planned purchase.
How to choose a home inspector:
Home inspectors are not created equal. As with any profession, some practitioners inevitably outshine others. To aid in choosing a qualified home inspector, interview each prospect, using the following criteria:
Inspection Experience:
Home inspectors are often perceived as general contractors who happen to inspect homes. This view underlies an essential misunderstanding of he home inspection process. Although building knowledge is essential to a home inspector, construction itself has little or no relation to the skills of forensic investigation. A home inspector is primarily a property detective - someone who observes and ascertains defects. In as much as a traffic patrolman is not a crime detective, home inspectors should be viewed as distinct from other contracting professionals. The average apprenticeship for a home inspector is approximately 500-1000 inspections. For contractors who disagree, I propose the House Detective Challenge: Call the nearest professional home inspector with at least three years of full time field experience, and conduct separate inspections of the same building. Then compare findings. That's where the consumer protection difference becomes apparent.
Errors & Omissions Insurance:
A critical aspect of professional accountability is insurance for a faulty inspections. Undiscovered defects can range from minor maintenance problems to structural failure; from leaking faucets to major fire hazards. Inspectors who take their business seriously carry insurance for these untimely mistakes. Note: there are two types of E & O insurance. The best of these is a 'per occurrence' policy, because coverage remains in effect, even after the inspector goes out of business. The other type is called 'claims made'. This can be effective on the date of inspection but invalid when it's time to file a claim.
Building Code Certification:
The primary focus of a home inspection is not code compliance. Nevertheless, property defects often have their basis in code-related standards. To ensure inspector competence in this area of knowledge, seek someone with building code certification. This is required for municipal building inspectors in most areas of North America.
Ask for a Sample Report:
The proof is in the product: so request a copy of a previous report. The best format should be not only detailed and comprehensive, but easily interpreted, making a clear distinction between defective building conditions and 'boiler plate' verbiage. Some reports are so encumbered with maintenance recommendations and liability disclaimers, that pertinent information about property is obscured. A quality report lets defect disclosure stand out distinctly, in contrast with less pertinent data.
Let the Choice Be Yours:
When choosing a home inspector, don't rely on others. The final selection should be your own. New and inexperienced inspectors often obtain professional recommendations, regardless of competence or lack thereof. You want the most meticulous, detailed inspector available - the one who will save you from costly surprises after the closing. The best inspectors are often labeled as 'Deal Killers' or 'Deal Breakers'. Someone with this reputation is likely to provide comprehensive consumer protection.
Avoid Price Shopping:
Inspection fees vary widely. Lower fees should be regarded with suspicion, as they often identify those who are new to the business or who spend insufficient time performing the inspection. A home is the most expensive commodity you are likely to purchase in a lifetime. One defect missed by your inspector could cost 100 times what you save with a a bargain inspection. The best method of price shopping is to shop for quality.
What's the big deal about home inspection?
Why does my Real Estate Agent harp on getting a home inspection? Do you think this is a needless expense? Think again.
Since the late 1980's, disclosure of property defects has become the primary focus of most residential real estate transactions after first emerging as a service during the mid - 1970's. Gaining gradual recognition over the past decades, home inspectors attained prominent acceptance as a distinct and essential profession providing the service of inspecting and disclosing property defects.
To those who approach real estate with the old 'as -is' mind-set, the advantages of home inspection are not immediately apparent. But make no mistake; a thorough inspection can shield you from costly discoveries after the closing. It's one of the best consumer protection services available.
Every home, regardless of age or quality, harbors a small, medium, or large list of defective conditions. Some are obvious, while others are only apparent to those who know how and where to look, when you hire an experienced, qualified home inspector, there is no question as to whether unknown defects will be found; but rather what, where, and how serious, dangerous, or expensive the defects will turn out to be.
Most home buyers spend fifteen minutes to an hour walking through a home prior to making an offer. At best, this provides a general impression of the overall physical condition. But what about foundations and structural framing, attic construction, insulation, ventilation, and roof conditions? These are just a few of the hundreds of considerations included in a home inspection.
Above all, let's not forget building safety. An inspector can alert you to red flag issues involving the electrical wiring and fixtures, fireplaces and chimneys, gas fixtures such as furnaces, water heaters, cook tops, and ovens, railings at staircases and decks, tempered safety glass in required locations, and automatic reverse of garage door openers.
Furthermore, an inspector can forewarn you of problems involving faulty ground drainage, defective plumbing,substandard construction, firewall compliance, building settlement, leakage, general deterioration, inoperative fixtures, and so much more.
Clearly, your agent understands this process and the importance of equipping you to make an informed purchase decision. Be thankful that your agent is working to protect your financial interests. With a a detailed home inspection, you will know what you are buying, before you buy it. And that could save you thousands of dollars and years of regret.
Do new homes need inspection?
The belief that a new home is flawless, simply because it is new, is an unfortunate piece of popular mythology. Since when is a brand new product exempt from possible defects We often hear of brand new cars recalled by Detroit; experienced sailors can tell you of brand new boats that have leaked; and even brand new parachutes have been known to fail when the ripcord was pulled. As for new homes, anyone who has worked in building construction knows that contractors and trades people, as typical members of the human family, are prone to occasional, or not-so-occasional, errors and oversights.
Inspectors polled from across Canada on new home defects unanimously agree that most, if not all, new homes are not totally free of defects. None have ever discovered a perfect specimen, regardless of the quality of construction or the integrity of the builder.
Even when the builder warrants the work for one full year, such guaranties are of no benefit unless inherent defects are discovered. unfortunately, many types of building problems and safety violations do not become apparent for many years. A faulty wiring condition might not be revealed until it damages your computer or causes a fire. Other defects might only be discovered when you finally resell the property, and the buyer decides to hire a home inspector.
The list of faulty conditions that have been found in new homes is extensive and includes such items as, defective roof installation, improper fireplace construction, errors in electrical wiring, excessive water pressure, fire safety violations, unsafe venting of heater exhaust, leaking drains, faulty site drainage, hot water piping connected to the toilet (can you imagine a steaming bowl?), etc, etc. In one infamous case, a new home was built and approved on a concrete slab without a perimeter foundation. Obviously, we're not likely to find a major list like this in any particular new home, but every new structure contains a few undisclosed defects, sometimes minor, sometimes not. New homes are often presumed to be exempt from human error, and consequently many close without the benefit of a final examination. For buyers preparing to make such a large investment, assumptions about quality of workmanship can be financially fatal.
Your best advice is to take nothing for granted. The cost of an inspection is incidental when compared to the price of a new home. A qualified home inspector will most assuredly find items that need repair. Better to discover them now than after the closing.
Inspection report not a repair list for seller
So, you've hired a home inspector to make a complete repair list for the home you're buying. The inspector did a thorough job and disclosed some serious problems with the property. Maybe it was in the plumbing, or the electric wiring. Perhaps it was the roof. But the seller refuses to fix anything. Is the seller responsible to make these repairs? Were you under the impression that the sellers must repair the problems discovered by home inspectors?
This can be all very disillusioning. This is a common misunderstanding about the purpose of a home inspection. People often view an inspection report as a mandatory repair list for the seller. The fact is sellers are not required to produce a flawless house. They have no such obligation by law or by contract.
With a home inspection, most repairs are subject to negotiation between the parties of a sale. Typically, buyers will request that various conditions be repaired before the closing, and sellers will usually acquiesce to some of these demands. But with most building defects, sellers make repairs as a matter of choice, not obligation; to foster good will or to facilitate consummation of the sale. There are, of course, those few rigid sellers who will flatly refuse to fix anything, even at the risk of losing the sale. Fortunately, this response is the exception, rather than the rule.
Before you make any demands of the seller, try to evaluate the inspection report with an eye toward problems of greatest significance. Look for conditions which compromise health and safety or involve active leakage. Most sellers will address problems affecting sensitive areas such as the roof, fireplace, gas burning fixtures, or electrical wiring.
Routine maintenance items warrant a lesser degree of concern and should not be pressed upon the seller. If the house is not brand new, it is unreasonable to boldly insist upon correction of all defects. Such demands can alienate the seller and kill the sale. Your willingness to accept minor problems may persuade a seller to correct conditions of greater substance.
The purpose of a home inspection is not to corner the seller with a repair list. The primary objective is to know what you are buying before you buy it. All homes have defects; it's not possible to acquire one that is perfect. What you want is a working knowledge of significant defects before you close. As the old sea captain once told me: 'It doesn't matter if your boat has a leak, as long as you know it's leaking.'
Home inspection is limited to what is visible
Home inspectors have established standards of practice and codes of ethic, which define the general scope of a home inspection. These guidelines have come to be the acknowledged standards by which qualified home inspectors perform their services.
According to these criteria, a home inspection is limited to conditions that are visually discernible. Specifically excluded from an inspection are conditions which are concealed from view, such as items contained within walls, ceilings, and floors, or which are buried beneath the ground. According to Home Inspector standards, inspectors are not required to perform dismantling of construction or excavation of ground surfaces to discover conditions that are not normally visible.
For clarification of the standards by which your inspector performed his services, I recommend that you review the inspection report. Most inspectors are careful to define the scope and limitations of their inspections. These parameters are generally outlined in either the contract or the report or both. Nearly all home inspection contracts clearly specify that concealed items are outside the scope of the inspection is to be performed.
How to negotiate after a home inspection?
The home you're buying is scheduled to be inspected. When you get the inspection report, how do you know which problems the seller should fix and which ones to accept as is? Are there some rules or guidelines to determine how this works?
In most cases, a residential sale is contingent upon the buyers' acceptance of the home inspector's report. This means that you, as a buyer, have a specified number of days to accept or decline the property in "as is" condition. If you decline acceptance, you have four basic choices:
1. Ask the seller to make a few repairs
2. Ask the sellers to make many repairs
3. Ask the sellers to reduce the sales price
4. Decline to purchase the property
If you request repairs or a price adjustment, based upon the home inspection report, the sellers also have choices. They can:
1. Agree to all of your requests
2. Agree to some of your requests
3. Agree to one of your requests
4. Decline to sell you the property
If the contract specifies an "as is" sale, the sellers may refuse to make repairs of any kind or to adjust the price in any way. Most common defects found during a home inspection.
Construction defects and safety violations are surprisingly common, but the majority of home inspection findings tend to be routine in nature. Some, in fact, rear their unsightly heads as often as the sun rises; not just in older homes, but often in brand new ones, even before the smell of new paint has waned. The following therefore, is a list of common defects likely to appear in a typical home inspection report:
Roofing Defects
Problems with roofing material, either due to aging and wear or to improper installation, are likely to be found in a majority of homes. This does not mean that most roofs are in need of replacement, but rather that most are in need of some typer of maintenance or repair.
Ceiling Stains, Indicating Past or Current Roof Leaks
The problem here is that you often can't tell if the roof still leaks, unless it is inspected on a rainy day. Some stains are merely the residual effects of leaks that have been repaired. There is also the possibility that ceiling stains were caused by a former plumbing leak in the attic.
Water Intrusion
Water intrusion into basements or crawlspaces due to ground water conditions can be pervasive, difficult to resolve, and often very damaging to buildings correction can be as simple as regrading the exterior grounds or adding roof gutters. Unfortunately, major drainage improvements are often the only practical solutions, requiring costly ground water systems such as French drains designed by experts such as geotechnical engineers.
Electrical Safety Hazards
Electrical safety hazards, especially (but not always) in older homes: Examples are ungrounded outlets, lack of ground fault interrupters (shock protection devices), faulty wiring conditions in electrical panels or elsewhere in a building, etc. Such problems may be the result of errors at the time of construction, but very often they are due to wiring that was added or altered by persons other than qualified electricians.
Rotten Wood
Rotted wood at building exteriors and at various plumbing fixtures: In places where wood stays wet for long periods, such as roof eaves, exterior trim, decks, around tubs and showers, or below loose toilets, fungus infection is very likely to occur, resulting in a condition commonly know as dry rot. If left unchecked, damage can become quite extensive.
Building Violations Where Additions and Alterations Were Constructed without Permits
Homeowners will often tell a home inspector, "We added the garage without a permit, but it was all done to code." This statement is a red flag to most home inspectors, because no one could possibly know the entire building code, and the average person without professional involvement with the code is likely to know very little of it. Whenever an owner offers code assurance problems are likely to be found.
Unsafe fireplace and Chimney Conditions
These can range from lack of maintenance, such as neglecting to hire a chimney sweep, to faulty installation of fixtures. Most common among these are the lack of spark arrestors and substandard placement of wood-burning stoves. Free-standing fireplaces are typically installed by home owners and handymen, people without an adequate knowledge of fire safety requirements. The most common violations in these cases involve insufficient clearance between hot metal surfaces and combustible materials within the building. Fire hazards of this kind are often concealed in attics, where they remain undiscovered until a roof fire occurs.
Faulty Installation of Water Heaters
In most localities, less than 5% of all water heaters are installed in full compliance with plumbing code requirements. Violations can include inadequate strapping, improperly installed overflow piping, unsafe flue conditions, or faulty gas piping. If should also be remembered that today's water heaters are designed with a shorter lifespan. In fact, leaks can develop in units that are only five years old.
Hazardous Conditions Involving Gas Heaters
Most gas-fueled heaters are in need of some maintenance, if only the changing of an air filter or a long-overdue review by the gas company. In some cases, however, gas heaters contain life-threatening defects that can remain undiscovered until too late. These can range from fire safety violations to the venting of carbon monoxide into the building. A cracked firebox, for example, can remain undiscovered unless found by an expert or until tragic consequences occur.
Minor Plumbing Defects
These are commonly found, including loose toilets, dripping faucets, slow drains, leaking drains, hot water at the right faucet, and so on.
Failed Seals Around Windows
This condition is routinely found at dual pane windows, resulting in fogging. This is most common with windows manufactured during the 1980's.
An unabridged list of likely home inspection findings would probably fill a few volumes. For home buyers, this underscores the importance of a thorough evaluation prior to closing. This is why your agent will strongly advise you to obtain a Home Inspection.
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