The first question you're bound to ask is, "How much home can I afford?" That depends on a number of factors: Your selected location. Are you set on a specific area? Downtown? The suburbs? A rural setting? Your preferred type of home. Detached? Semi? Duplex? High-rise? Link? Townhouse? New or Resale? There are a variety of home styles you will want to explore. Your income. After all, it's not just the mortgage you have to take into account. There are property taxes, utilities, and in some cases condo or strata fees. As a general rule of thumb, your monthly home-carrying cost should not exceed 30-35% of your income. Market conditions. Is it a buyers', sellers' or balanced market? There are also additional costs to keep in mind. It's a good idea to work out exactly what you want and what you can afford before you begin the search. Be specific! After all, you don't want to suddenly come to the realization that your dream house has come with a nightmare of bills and expenses. Stick to looking at houses in your price range. The more you've thought it out, the better your sales representative can meet your needs. A part of deciding just what you can afford can be accomplished by meeting with your bank or a mortgage broker and negotiating a pre-approved mortgage. There are many types of mortgages and many different terms. Research all of your options. This ensures that there are no surprises once you're ready to make an offer. Once you've figured out your monthly expenses and what you can afford, you can start your search. It could happen that the first home you see is the one you want; or you might look at home after home with none of them catching your interest. Rest assured, the home you're looking for is out there, and when you find it, you're ready to make an offer. If your offer is accepted, the next steps are closing and moving into your new home. Purchasing a home is easy once you put your plans into action.
Homes come in every size, style and price range. Knowing what you can afford at the beginning of your search saves you time and disappointment later on. The following calculations outline the process financial institutions use to determine what you can afford.
FIRST AFFORDABILITY RULE
Lenders such as banks and trust companies allow you to spend approximately 32%* of your gross monthly income on housing costs (including property taxes, heating and, if applicable, 50% of condominium fees. The ratio of debt to income is referred to as the Gross Debt Service ratio or GDS.
The following calculation will you how much you can afford monthly for housing.
Your gross monthly income __________________________
Spouse’s gross monthly income ______________________
Other monthly income ______________________________
Total monthly income _______________________________
Monthly income x 32% = GDS ________________________
SECOND AFFORDABILITY RULE
The second affordability rule is that your entire monthly debt load shouldn't be more that 40% of your gross monthly income. This includes housing costs and other debts, such as car loans and credit card payments. Lenders add up these debts to determine what percentage they are of your gross household monthly income. This is your Total Debt Service (TDS) ratio.
The following calculation will you what you can afford for housing including your outstanding debts:
A) Monthly Income from your GDS Calculation Above x 40% = TDS____________________
B) Add up your monthly payments for loans, credit cards and other debts__________________
Monthly income left for housing costs (subtract the amount from (A) from the amount in (B).
In addition to GDS and TDS ratios, financial institutions base their lending decision on your credit history, job stability and the amount of your down payment. Interest rates also affect the amount of financing you will be able to obtain.
*Please note that many lenders are prepared to exceed these guidelines.
EXAMPLE
David earns $40,000 annually and his partner Ruth earns $43,500. They have a car payment of $350 per month and a credit card payment of $150 per month.
How much can they afford monthly for housing?
David’s monthly income $3,333($40,000 divided by 12)
Ruth’s monthly income $3,625
($43,500 divided by 12)
Total monthly income $6,958
GDS ($6,958 x 32%) $2,226.56
They can afford to spend no more than $2,226.56 on monthly housing costs. How much can they afford with their other monthly payments? Monthly debts Car payment $350
Credit card payment $150
monthly housing cost $2,226.56
Total $2,726.56
TDS ($2,726.56 divided by $6,958) = 39%
Because their total debt including housing costs and all other monthly debts does not exceed 40%, they can afford to purchase a home.
Sales Representatives
A real estate sales representative is a professional who can save you time and trouble. And possibly even a lot of money. You see, real estate sales representatives have the home buying experience most people lack. They know all of the steps and they are good negotiators who will work on your behalf.
A sales representative will:
- Fine-tune your wants/needs list
- Get special computer access to listing information
- Screen houses so as not to waste your time
- Arrange appointments
- Offer helpful advice about the neighbourhood
- Introduce you to trusted contacts who should be on your team, such as mortgage brokers, lawyers, and home inspectors.
- Above all, find a real estate sales representative who is a professional in the type of home you're looking for. A country home professional may not be the urban market specialist you need. And when speaking with your sales representative, be as clear as possible about your needs
Contractors
If you've decided to do some renovations on your home to make it more sellable, it's time to look for a credible contractor. Before anyone begins work on your home, it is important to do your homework.
- Ask for Referrals
- Evaluating a Quotation
- Are the specific details of the project outlined?
- Are the specific costs detailed?
- Is there a provision for extra costs?
- Has a cap been set for the total project?
- Is there a firm project timeline?
- Has the contractor allotted time for inspections?
- Have you indicated that you wish to see all material receipts?
- Will the work be subcontracted?
Your architect will make recommendations Your sales representative will offer some suggestions Contact friends or neighbours who have had similar work done Ask at your local builder supply store When you're interviewing contractors, ensure their credibility. Contact their references. Ask to see some samples of the contractor's work and speak to his clients to ensure that they were satisfied with the price, length of time in which the project was completed and overall, how the project was handled. Also, check with your local Better Business Bureau. Once you have the names of a few contractors that look promising, arrange to get estimates from them. By arranging for three quotes you'll get a good idea of the costs and quality of work. When going over the project with your contractor, ensure that he understands your needs and your budget. Each contractor will have a different idea on how to approach the work and they should inspect your home before giving an estimate. If contractors are bidding based on an architect's plans, be certain that they have detailed their approach to the job based on the drawings. What's more, if there is a significant difference in the price, ask the contractors to explain their estimates. And keep in mind that the lowest price is not always the best. A price that's too low may mean that the contractor has undercut to get the project and then may submit additional project costs once the project is underway. As well, a high price doesn't always mean that you're getting gouged. The contractor may have budgeted for higher quality materials and may offer workmanship that is of an overall better quality. In every case, before you sign the contract, be certain that it is as detailed as possible to the point of noting the specific finishes and brand names of the products to be installed.
Appraisers
Hiring an appraiser to appraise the value of a property you are considering to buy may seem sensible but it is highly unnecessary. Your lender will want their own personal appraiser anyway, so you could be wasting valuable money. As well, most sales representatives are competent and can do a "Comparative Market Analysis" for you, to establish a value range. The only situation where hiring an appraiser would become necessary is where the property is unusual with no comparable sales.
Lenders
The true test for a buyer is "What else can we buy for the same or less money?" In short, a lender is anyone who will give you money. There are private lenders and institutional lenders, like banks and credit unions. Even your brother-in-law can be your lender. Of course, when you're looking for a lender, you are looking for a long-term relationship and terms and rates which are beneficial to you. You really have a few options. You should go to a mortgage broker who will search the mortgage market for the best rates and conditions based on your circumstances. Usually, the broker is paid by the lender without cost to you. However, the cloudier your credit history, the more likely there will be a fee! A good mortgage broker will be connected to all major lenders through the mortgage market. You can also do your own search. With a good credit history, it's really not that complicated. Pick up your newspaper and you'll see what the different lending institutions are offering. Find the institution you feel you would be most comfortable with and one that offers the terms and conditions you're looking for. Then, go in person and negotiate your best deal. We'll go into more detail about this process in the arranging a mortgage section.
Mortgage Brokers
This is a person who will do the work in finding the institution which offers the mortgage terms and conditions that are right for you. Much like an insurance broker, this professional works for you and can offer you an unbiased referral. Although most brokers are paid a finders fee by the lender, some will charge 2% of the total mortgage to find you a lender.
Lawyers/Notaries
A lawyer is there to represent your interest, and to process the documentation required. The legal aspects differ from province to province. Your sales representative can recommend lawyers to advise you on the steps to be taken before the keys to your new home are presented to you. A lawyer helps ensure you are protected!!!
Home Inspectors
Have the home inspected! Whether you make it a condition of purchase or not, having the property pre-inspected by a qualified home inspector will give you the added confidence that you've made the right decision. Be very careful to verify the qualifications of your home inspector because there are no government standards or licenses for home inspectors. Some home inspectors in Canada do not have any form of accreditation. For your protection make sure your home inspector is a member of (PACHI) or (OAHI). This is your assurance that they have met their education requirements, have the experience and carry E & O Insurance.
Insurance Brokers
You'll want to make sure your property and valuables will be covered. A broker offers independent advice and can save you time, trouble and money. Plus, the bank will insist that you carry full insurance since your property is used as collateral against your mortgage.
Conventional and High Ratio Mortgages
To qualify for a conventional mortgage, you simply have to have a 20% down payment of the purchase price, with the mortgage not exceeding 80% of the appraised value. If your down payment is less than 20%, then you qualify for a high-ratio mortgage. This type of mortgage requires loan insurance, which can cost an additional 0.6% to 4.50% of the mortgage amount. With this type of mortgage, you could also be limited to a maximum house price.
Second Mortgage
Of course, if you cannot add on to your mortgage, you may consider a second mortgage. Each mortgage uses your home as security and gives the mortgagee the right to take your home if you default on your loan. The first mortgagee gets paid first in cases of default and has the best chance of recovering all of its money. So it only goes to figure that subsequent mortgages usually come with a higher interest rate.
Mortgage Features
Every lending institution is different, and each will have their own customizable mortgage options. When you're hunting for a lender and a home, see how the following features could be beneficial to you.
Prepayment
This is a wonderful option if you receive regular bonuses or if your income fluctuates throughout the year. With a pre-payment privilege, you have the right to make payments toward the principal portion of your mortgage over and above the monthly payments. A mortgage with a pre-payment option is closed. An open mortgage means you can pay the entire principal sum without notice of bonus.
Portability
If you still have time remaining on that fantastic loan you negotiated, portability is one option you'll want to discuss with your lender. Quite simply, it means transferring the balance of your current mortgage at the existing rates and with the existing terms and conditions, to your new home.
Assumability
Let's say that the vendor has negotiated a dynamite mortgage. With an assumable mortgage you, the purchaser, simply assume the obligations of the mortgage. This is a wonderful feature especially if the terms are more favourable than the existing market conditions would allow. Remember, when it is time for you to sell, you may still be liable for any mortgage you allow the buyer to assume. This means if the buyer stops making payments, you could be accountable for the payments. Be sure to have the subsequent buyer approved for the assumption of the payments, thereby avoiding this potential land mine.
Expandability
If you need additional funds down the road, will your mortgage terms allow you to increase the principal amount? Usually, your new rate will be a blended amount of the initial mortgage rate and the prevailing rates. It's a great option to discuss with your lender if you foresee large expenses in your future like renovation or education costs.
Mortgage Term
Over the course of your amortization period, you may have many different mortgages. The term is simply the length of time that interest rates, payment schedules and obligations to the lender exist. When the term comes to a close, you will have the option to renew your mortgage at your current or new lending institution. You can also put a lump sum toward the principal without restriction, or pay off your entire mortgage without penalty. If you wish to change the structure of your agreement during the term you may have to pay a substantial fee to the lender.
Choosing Security or Flexibility
Mortgages are available with closed, open and convertible options, with fixed or variable rates. The options you choose will reflect your beliefs about the market -- is it going up or down? -- and your short-term goals and desire for long-term security.
Amortization
This is the amount of time over which the entire debt will be repaid. Most mortgages are amortized over 15-, 20-, or 25-year periods. The longer the amortization, the lower your scheduled mortgage payments, but the more interest you pay in the long run.
Open Mortgage
This type of mortgage offers a great deal of flexibility, as it can be repaid in part or full at any time without penalty. This is a great mortgage if you believe interest rates are moving down or if you plan to move in the near future. The term may be limited to six months or one year.
Closed Mortgage
Here the interest rate is fixed for the full term of the mortgage, and you will have to pay a penalty to change the agreement conditions. This type of mortgage is ideal for buyers who suspect that interest rates will rise and who are not planning to move in the near future. This type of mortgage is usually available in a wide variety of terms.
Convertible Mortgage
With this mortgage, you'll enjoy the same peace of mind as a closed mortgage, plus the flexibility to convert to a longer closed mortgage at any time without penalty. If you think rates will drop, this will allow you to wait until you feel they have hit bottom, or if rates rise, you can lock in.
Additional Costs
Before you calculate the amount of your down payment and determine what you can afford, it's a good idea to set aside a few thousand dollars to cover the extra costs that seem to spring out of nowhere. Here is an overview of costs you could encounter. The good news is that not all of them will apply.
Property Taxes
If the Vendor has paid a portion of the taxes in advance, you will be responsible for reimbursing the Vendor on closing. Plus, if you have a high-ratio mortgage, your lender may require that you have your property taxes added to your mortgage payments.
Utility Fees
Utility fees are calculated through a meter so you will be responsible for paying what you have used up on the meter
Land Transfer Tax
This applies in most provinces and ranges from 1% to 4%. For instance, in Ontario, you'll pay 1% of the first $55,000 - $250,000 and up to 2% of any amount over $400,000.
Survey Fee
Your lender will require an up-to-date survey. You can make it a condition of the Offer to Purchase that the Vendor provide a survey, or you will have to have one done. If there is no survey available, you may purchase "Title Insurance" in lieu of a survey which saves you about $500 - 700.
Appraisal Fee
A basic appraisal usually costs under $250.
Property Insurance
Your lender will insist that you have insurance on your property because your home is used as security for the mortgage.
Service Charges
You'll be charged for telephone, cable and a variety of other services that you hook up at your new home.
Lawyer (Notary) Fees
Each real estate transaction requires the assistance of a legal professional to review the Offer to Purchase, search the title, draw up the mortgage documents and take care of the details on the day of closing. Lawyers fees range widely depending on the complexity of the transaction. Ask your sales representative to recommend a lawyer. And remember, fees can be negotiated.
Mortgage Loan Insurance Premium and Application Fee
Mortgage loan insurance will be necessary if you have a high-ratio mortgage (less than 20% down payment). The application usually costs $75 with a valid appraisal, otherwise it's $235. The actual insurance premium will range from .5% to 3.75% of the purchase price and is added to the mortgage.
Mortgage Broker Fee
Some brokers may charge as much as 2% of the total mortgage to find you a lender. In most cases though, the broker is paid by the lender. Buyers with good credit should not have to pay a fee.
Moving Costs
Whether you've decided to do it yourself or hire a moving company, now is the time to budget for the costs involved.
Condominium Fees
These monthly fees vary from complex to complex. The fees are applied to everything from grounds keeping and carpet cleaning to security personnel and health club maintenance. Depending on the type of structure, these fees will usually be a few hundred dollars.
Status Certificate
If you're moving into a condominium (complex not necessarily a high-rise) this certificate outlines the condominium corporation's financial and legal state. It will cost you up to $100, usually paid for by the seller if agreed to in the Offer to Purchase.
Home Inspection Fee
For around $300, depending on the size of your home, you'll receive a complete written report about the condition of the structure. Do your research and hire a reputable firm
Renovation and Repairs
Your home inspection may indicate the need for some general repairs or a major project. Have some money set aside, particularly if you are purchasing an older home.
Redecoration
Your taste will be different from the previous owner. Set aside money to paint and wallpaper. Prepare a list of things you can live with for now.
Water Quality Certification
If you are purchasing a home with a well, you'll want to ensure the quality of the water. This will cost approximately $50 to $100.
When it comes time to make an offer, your Real Estate Sales Representative can provide current market information which will aid you in presenting your offer. Your Sales Representative will communicate the offer, sometimes known as an Offer to Purchase, to the seller, or the seller's representative, on your behalf. Sometimes there may be more than one offer on a property. Your Sales Representative will guide you through this process as smoothly and effortlessly as possible.
Firm Offer to Purchase
Usually preferred by the seller because it means that you are prepared to purchase the home without any conditions. If the offer is accepted - the home is yours.
Conditional Offer to Purchase
Usually means that you have placed one or more conditions on the purchase, such as "subject to home inspection", "subject to financing" or "subject to sale of buyer's existing home". The home is not sold until all the conditions have been me
Acceptance of Offer
Your Offer to Purchase will be presented at the earliest possible opportunity. The seller may accept the offer, reject it, or submit a counter-offer. The counter-offer could be in reference to any number of factors, including the closing date and/or the purchase price. The offers may sometimes go back and forth until both parties have agreed upon an offer or until one or the other ends the negotiations.
AMORTIZATION
The period of time required to reduce the mortgage debt to zero when all regular blended payments are made on time and provided the terms (payment and interest rate) remain the same.
ANNIVERSARY
Most lenders allow borrowers to make a payment on the anniversary mortgage. (For a mortgage assumed on June 1, a payment can be subsequent June 1 for the term of the mortgage). It is applied against principal and is a good way of reducing a loan.
APPRAISAL
A process for estimating the market value of a particular property.
APPRECIATION
The increase in value of something because it is worth more now than when you bought it.
APPROVED LENDER
A lending institution authorized by the Government of Canada through CMHC to make loans under the terms of the National Housing Act. Only Approved Lenders can negotiate mortgages that require mortgage loan insurance.
ASSESSMENT
The value of a property set by provincial assessors, for the purposes of calculating property tax.
ASSUMABLE MORTGAGE
A mortgage that can be transferred to a new owner. The new owner then assumes responsibility as the guarantor for the unpaid balance of the mortgage.
ASSUMPTION AGREEMENT
A legal document signed by a homebuyer that requires the buyer to assume responsibility for the obligations of a mortgage by the builder or the previous owner.
BALANCED MARKET
Where demand for property equals the supply of available property and usually accept reasonable offers and houses generally sell in sufficient periods. Prices remain stable and there are usually a good number of them to choose from.
BALLOON PAYMENT
The final payment of a mortgage loan when it is larger than the regular payment. It usually extinguishes the debt.
BLENDED MORTGAGE
A combination of two mortgages, one with a higher interest rate than the other, to create a new mortgage with an interest rate somewhere between the two original rages.
BLENDED PAYMENT
A mortgage payment that includes principal in interest. It is paid regularly during the term of the mortgage. The payment total remains the same, although the principal portion increases over time and the interest portion decreases.
BRIDGE FINANCING
Interim financing to bridge between the closing date on the purchase of the new home and the closing date of the current home, which is sold firm.
BROKER
A person licensed by the provincial government to trade in real estate. Real estate brokers may form companies or offices, which appoint sales representatives to provide services to the seller or buyer, or they may provide the same services themselves. In parts of Canada, brokers are referred to as agents.
BUYER'S AGENT
A person or firm representing the buyer. A Buyer’s Agent’s primary allegiance is to the buyer.
BUYER'S MARKET
When there are a higher number of homes to choose from than buyers. Prices of homes tend to be lower and they remain available longer. Buyers usually have more leverage in negotiating a purchase.
BUYER BROKERAGE AGREEMENT
A written agreement between the buyer and the buyer’s agent, outlining the agency relationship between the two parties and the manner in which the buyer’s agent will be compensated.
CHATTEL
Removable personal items that are not normally included in the sale of a home, but may be added to the purchase price to make the property more attractive to buyers. (Examples include microwave ovens, portable dishwashers, washers and dryers.)
CLOSED MORTGAGE
A mortgage that cannot be prepaid or renegotiated before the term's end unless the lender agrees and the borrower is willing to pay in interest penalty. Many closed mortgages limit prepayment options such as increasing your mortgage payment or lump sum prepayment (usually up to 20% of your original principal amount).
CLOSING COSTS
Costs in addition to the purchase price of the home, such as legal fees, transfer fees and disbursements, that are payable on the closing day. They range from l.5% to 4% of a home's selling price.
CLOSING DATE
The date at which the sale of a property becomes final and the new owner takes possession.
COMMISSION
An amount agreed to by the seller and the real estate broker/agent and stated in the listing agreement. It is payable to the broker/agent on closing and shared, if applicable, among those salespeople involved in the sale.
COMMITMENT LETTER - MORTGAGE APPROVAL
Written notification from the mortgage lender to the borrower that approves the advancement of a specified amount of mortgage funds under specified conditions.
COMMON ELEMENTS
The portions of a condominium development owned in common (shared) by the unit owners.
CONDITIONAL OFFER
An Offer to Purchase that is subject to specified conditions, for example, the arrangement of a mortgage. There is usually a stipulated time limit within which the specified conditions must be met.
CONDOMINIUM
Shared ownership in property. Owners have title (ownership) to individual units and a proportionate share in the common elements.
CONDOMINIUM FEES
A mortgage loan up to a maximum of 75% of the lending value of the property. Typically, the lending value is the lesser of the purchase price and market value of the property. Mortgage loan insurance is usually not required for this type of mortgage.
CONVERTIBLE MORTGAGE
A mortgage that you can change from short-term to long-term, depending on your financial needs.
COUNTER-OFFER
If your original offer to the vendor is not accepted, the vendor may counter-offer. This means that the vendor has amended something from your original offer, such as the price or closing date. If a counteroffer is presented, the individual has a specified amount of time to accept or reject.
CREDIT REPORT
The main report a lender uses to determine your creditworthiness. It includes information about your ability to handle your debt obligations and your current outstanding obligations.
CURB APPEAL
How attractive the home looks from the street. The first impression you have of a home is important. A home with good curb appeal will have attractive landscaping and a well-maintained exterior.
DEBT-SERVICE RATIO
The measurement of debt payments to gross household income which may include, in addition to the main wage earner’s salary, salaries of other wage earners, commissions, bonuses, overtime, etc.
DEED
A legal document that is signed by both the vendor and purchaser, transferring ownership. This document is registered as evidence of ownership.
DEFAULT
Failure to abide by the terms of a mortgage loan agreement. A failure to make mortgage payments (defaulting the loan) may give cause to the mortgage holder to take legal action to possess (foreclose) the mortgaged property.
DELINQUENCY
Failing to make a mortgage payment on time.
DEPOSIT
Money placed in trust by the purchaser when an Offer to Purchase is made. The real estate representative or lawyer/notary holds the sum until the sale is closed and then it is paid to the vendor.
DEPRECIATION
The decrease in value of something because it is now worth less than when you bought it.
DISCHARGE
The removal of all mortgages and financial encumbrances on the property.
DOWN PAYMENT
The portion of the home price that is not financed by the mortgage loan. The buyer must pay the down payment from his/her own funds or other eligible sources before securing a mortgage. It generally ranges from 5% to 25% of the purchase price but can be more.
DUAL AGENT
A real estate Broker or salesperson who acts as agent for both the seller and the buyer in the same transaction. Both buyer and seller are the agent’s clients.
EASEMENT
This is where someone else has the right for access to or over another person’s land for a specific purpose, such as a driveway or public utilities.
ENCROACHMENT
An intrusion onto an adjoining property. A neighbor’s fence, storage shed, or overhanging roofline that partially (or even fully) intrudes onto your property are examples of encroachments.
ENCUMBRANCE
A registered claim for debt against a property, such as a mortgage.
EQUITY
The difference between the value of the property and the amount owing (if any) on the mortgage.
FIRST MORTGAGE
The first security registered on a property. Additional mortgages secured against the property are “secondary” to the first mortgage.
FIXTURES
Permanent improvements to a property that are normally included with the purchase unless specifically excluded in the Agreement of Purchase and Sale. Examples include wall-to-wall carpeting and built-in appliances.
FORECLOSURE
The legal process where the lender takes possession of your property and sells it to cover the debts you have failed to pay off. When you default on a loan and the lender feels that you are unable to make payments, you may lose your home to foreclosure.
GROSS DEBT SERVICE
The amount of money needed to pay principal, interest, taxes and sometimes, energy costs. If the dwelling unit is a condominium, all or a portion of common fees are included, depending on what expenses are covered.
GROSS DEBT SERVICE RATIO
Gross debt service divided by household income. A rule of thumb is that GDS should not exceed 30%. It is also referred to as PIT (principal, interest & taxes) over income. Sometimes energy costs are added to the formula, producing PITE, which moves the rule of thumb GDS to 32%.
HIGH-RATIO MORTGAGE
A mortgage loan higher than 75% of the lending value of the property. This type of mortgage may have to be insured – for example by CMHC or a private company – against payment default.
INTEREST
The cost of borrowing money. Interest is usually paid to the lender in regular payments along with repayment of the principal (loan amount).
INTEREST ADJUSTMENT DATE (IAD)
A date from which the accrued interest on the mortgage advance is calculated and paid in your first regular payment. This date is usually one payment period before the first regular mortgage payments begin.
JOINT TENANCY
The ownership of property by two or more persons who took title at the same time, in the same manner, in equal portions and on the death of one, the survivor(s) retain ownership.
LAWYER FEES
Each real estate transaction requires the assistance of a legal professional to review the Offer to Purchase, search the title, draw up the mortgage documents and take care of the details on the day of closing. Lawyers’ fees range widely depending on the complexity of the transaction.
LIEN
A claim against a property for money owing. A supplier or a subcontractor who has provided labour or materials but has not been paid may file a lien.
LISTING AGREEMENT
The legal agreement between the listing Broker and the seller, setting out the services to be rendered, describing the property for sale and stating the terms of payment. A commission is generally payable to the Broker upon closing.
LOAN TO VALUE RATIO
The ratio of the loan amount to the lending value of a property expressed as a percentage. For example, the loan to value ratio of a loan for $90,000 on a home, which costs $100,000, is 90%.
LUMP SUM PREPAYMENT
An extra payment, made in lump sum, to reduce the principal balance of your mortgage, with or without penalty. A closed mortgage typically restricts the amount and frequency of the prepayments you can make. With an open mortgage, however, you can make a lump sum prepayment at any time without penalty. Making prepayments can help you pay off your mortgage sooner and ultimately save on interest costs over the life of your mortgage.
MARKET PRICE
The price at which real estate sells.
MARKET VALUE
The price which a property will command, from a willing and informed buyer for property offered on the open market, allowing for reasonable exposure, while not acting under duress or unusual circumstances.
MATURITY DATE
The last day of the term of the mortgage. On this day, the mortgage loan must either be paid in full or the agreement renewed.
MLS – MULTIPLE LISTING SERVICE
A multiple listing service is a real estate agents’ cooperative service that contains descriptions of most of the homes that are for sale. Real estate agents use this computer-based service to keep up with properties they are listing for sale in their area.
MAINTENANCE FEE
A monthly fee paid by condominium owners for maintaining the development’s common areas.
MORTGAGE
A mortgage is a security for a loan on the property you own. It is repaid in regular mortgage payments, which are usually blended payments. This means that the payment includes the principal (amount borrowed) plus the interest (the charge for borrowing money). The payment may also include a portion of the property taxes.
MORTGAGE BROKER
A person or company having contacts with financial institutions or individuals wishing to invest in mortgages. Appraisal and legal services may or may not be included in the fee.
MORTGAGE LIFE INSURANCE
Mortgage life insurance provides coverage for your family should you die before your mortgage is paid off. This insurance can be purchased through your lender and the premium added to your mortgage payments. However, you may want to compare rates for equivalent products from an insurance broker.
MORTGAGE LOAN INSURANCE
If you have a high-ratio mortgage (more than 75% of the lending value of the property) your lender will probably require mortgage loan insurance, which is available from CMHC or a private company.
MORTGAGE PAYMENT
A regularly scheduled payment that is often blended to include both principal and interest.
MORTGAGEE
The person or financial institution lending the money, secured by a mortgage.
MORTGAGOR
The property owner borrowing the money, secured by a mortgage.
NET WORTH
Your financial worth, calculated by subtracting your total liabilities from your total assets.
WARRANTY (NEW HOME WARRANTY PROGRAM)
A guarantee that if something covered under the warranty needs to be repaired it will be. If the builder doesn’t repair it, the repair will be made by the organization that provided the warranty.
OFFER TO PURCHASE
A written contract setting out the terms under which the buyer agrees to buy the home. If the seller accepts the Offer to Purchase, it forms a legally binding contract that binds those who have signed it to certain terms and conditions.
OPEN MORTGAGE
A mortgage that can be prepaid or paid off or renegotiated at any time and in any amount without interest penalty. The interest rate on an open mortgage is usually higher than a closed mortgage with an equivalent term.
OPERATING COSTS
The expenses that a homeowner has each month to operate a home. These include property taxes, property insurance, utilities, telephone and communications charges, maintenance and repairs.
ORIGINATION FEE
A fee or charge for work involved in the evaluation, preparation, and submission of a proposed mortgage loan.
PORTABILITY
An option available on a mortgage that enables the mortgagor to take a current mortgage loan with them to another property without penalty.
POWER OF SALE
Should default occur it is the right of the mortgagee to force the sale of the property without judicial proceedings.
PRINCIPAL
The amount that you borrow for a loan. Each monthly mortgage payment consists of a portion of the principal that must be repaid plus the interest that the lender is charging you on the outstanding loan balance. During the early years of your mortgage, the interest portion is usually larger than the principal portion.
P.I.T.H.
Principal interest, taxes and heating – costs used to calculate the Gross Debt Service ratio (GDS)
PROPERTY INSURANCE
Insurance that you buy for the building(s) on the land you own. This insurance should be high enough to pay for the building to be rebuilt if it is destroyed by fire or other hazards listed in the policy.
PROPERTY TAXES
Taxes charged by the municipality where the home is located based on the value of home. In some cases the lender will collect a monthly amount to cover your property taxes, which is then paid by the lender to the municipality on your behalf.
RATE (INTEREST)
The return the lender receives for loaning you the money for the mortgage.
REAL ESTATE
Includes real property, leasehold and business whether with or without premise, fixture, stock in trade, good of chattels in connection with the operation of the business.
REAL ESTATE BOARD
A non-profit organization representing local real estate Brokers/salespeople, which provides services to its members and maintains and operates a MLS system in the community.
REFINANCE
To pay off a mortgage or other registered encumbrance and arrange a mortgage, sometimes with a different lender.
RESERVE FUND
This amount is set aside by the homeowner on a regular basis so that funds are available for emergency or major repairs. Setting aside 5% of your monthly take-home pay will give you a well-funded reserve.
ROLLOVER MORTGAGE
A mortgage loan where the interest rate is established for a specific term. At the end of this term, the mortgage is said to “roll-over” and the borrower and lender may agree to extend the load. If satisfactory terms cannot be agreed upon, the lender is entitled to be prepaid in full. In this case the borrower may seek alternative financing.
SECOND MORTGAGE
An additional loan on a property that becomes second in position behind the first mortgage. Generally at a higher interest rate and shorter terms than a first mortgage.
SELLER’S MARKET
More buyers are looking for homes than there are homes for sale. There is a smaller inventory of homes available for sale and many buyers looking to make a purchase. House prices generally increase and homes sell quickly.
STATEMENT OF ADJUSTMENT
A balance sheet statement that indicates credits to the vendor for the purchase price – and any prepaid taxes and credits to the buyer’s deposit, and the balance due on closing.
STATUS CERTIFICATE
Is a certificate that outlines a condominium corporation’s financial and legal state.
SURVEY
A professionally prepared document that provides accurate details about a property’s location, boundaries, size and legal description, as well as any improvements to the property including buildings, fences, etc.
SURVEY OR CERTIFICATE OF LOCATION
A document that s property boundaries and measurements specifies the location of buildings on the property and states easements or encroachments.
TENANCY IN COMMON
The ownership of property by one or more people, which is not passed on as a right of survivorship, but rather is an asset and can be willed.
TERM
The term of a mortgage is the length of time that the mortgage conditions, including the interest rate you pay, are carried out. Terms are usually between six months and ten years. At the end of the term, you either pay off the mortgage or renew it, possibly renegotiating its terms and conditions.
TITLE
A freehold title gives the holder full and exclusive ownership of the land and building for an indefinite period. A leasehold title gives the holder the right to use and occupy the land and building for a defined period.
TITLE INSURANCE
Insurance against loss or damage caused by a matter effecting the title to immovable property, in particular by a effect in the title or by the existence of a lien, encumbrance or servitude.
TITLE SEARCH
A detailed examination of the ownership documents to ensure that there are no liens or other encumbrances on the property, and no question regarding the seller’s ownership claim.
TOTAL DEBT SERVICE RATIO (TDS)
The percentage of gross monthly income required to cover the monthly housing payments and other debts, such as car payments.
VARIABLE-RATE MORTGAGE
A mortgage in which payments are fixed, but the interest rate moves in response to trends. If interest rates go up, a larger portion of your payment goes to interest; if the rates go down, more goes to cover the principal.
VENDOR TAKE BACK MORTGAGE
This is where the vendor rather than a financial institution finances the mortgage. The title of the property is transferred to the buyer who makes mortgage payments directly to the seller. These types of mortgages, sometimes referred to as take-back mortgages, can be helpful if you need a second mortgage to buy a home.
ZONING LAWS
Municipal laws restricting the use of land for specific purposes.
