There’s nothing like buying your first home! But what about all the traps and pitfalls you might fall into? Here’s a survival guide.
Before you begin your search for a house, the first thing is to define what you want now as well as later on:
- Do you want to live in the city, the suburbs or the country?
- Do you need lots of room because you’re planning a family sometime in the future, or just a small home because the kids have all moved away and you’re retiring soon?
- Do you prefer an apartment, house or duplex?
- Do you need several bedrooms, two bathrooms, an office or a garage?
- Are you looking for air conditioning, extra storage space, a workshop, a fireplace or a pool?
- What about the neighbourhood? Does it have the services you’re looking for (such as schools, daycare, public transportation, shopping centres, a library, hospitals)? Is it quiet? Clean? Are there trees, parks or parking? Could commercial buildings go up? Or highrises? Is it on a flood plain?
Are you looking for a building that is new or already built? Each option has its pros and cons. Often with a new house, you can customize it to your taste, such as the exterior cladding, the landscaping or the size of the closets. Plus, it will meet all building codes and the latest standards regarding electrical material and energy efficiency. A new home is protected by a guarantee, and you have no maintenance costs for at least a few years. On the down side, if the whole area is new, it may be a while before schools, stores and other services are built. Plus, the purchase of a new home is subject to the goods and services tax (GST). And then there are all those extra costs such as landscaping, paving the driveway, having a fence built and finishing the basement. An older home is usually part of an established neighbourhood with all the services already in place. It comes landscaped and fenced. It might have a fireplace, a finished basement or a pool. But you’ll probably want to renovate it the way you’d like – you might even have to undertake some major repairs, such as fixing the roof or replacing doors and windows.
If you go the new-home route, make sure the builder is qualified. See if he is a member of a recognized contractors association (the ACQ or the APCHQ), if he has a licence from the Régie du bâtiment du Québec and if he has a guarantee plan for the new homes. Why not ask some owners who’ve already bought from him if they’re satisfied with the after-sale service? Also ask them about how the contractor was at meeting deadlines, and if the developer was easy to get along with. Ask the builder to make the contract as detailed as possible in terms of work to be done. And withhold the final payment until the work is completely finished. If you choose a home that’s already been built, visit several houses before settling on one. And make sure you see those that interest you in full daylight at least once – this is the best way to find any structural problems and any needed major repairs (such as foundation, roof and windows). You’ll also get a better look at surrounding homes. Take notes on each home you visit so that you can compare them all later. Include the costs of public services, property taxes and major repairs. Ask for a copy of the electricity bill, heating bill and so forth. Speak to your potential neighbours. When you visit a home, don’t let yourself be distracted by the decor and accessories. Rather, focus on the number of rooms and their sizes, storage space (open the closets and cabinets), security (locks, doorbell, window locks and alarm system), the condition of the electric wiring and the plumbing (water pressure and hot water), the basement (evidence of flooding, humidity and cracks), the furnace, and doors and windows. Examine the outside: landscaping, amount of sunlight, play area for the children, the state of the front walk, cladding (paint, aluminum or brick), the gutters, window frames, doors, railings, exterior lighting, the roof and the chimney.
Determine exactly what you can afford
Does is take a lot of cash to buy a house? That depends on several factors. But usually you make a down payment and borrow the rest from a bank or other mortgage lender.
The down payment is equivalent to a percentage of the purchase price, generally from 5 to 20%. However, down payments less than 20% require mortgage insurance. The best plan is make the highest down payment you can in order to reduce your mortgage payments and interest.
Then you need to look at the highest monthly payment you’re ready to make. Analyze your present financial situation. Make a realistic budget, taking into account your spending habits (such as trips, dining and entertainment), living expenses (lodging, food, clothing, medication, school fees, personal loans, car loans, credit cards, line of credit) and your savings.
Your monthly housing expenses (mortgage payments, heating and taxes) should not exceed 32% of your household’s gross income per month. If applicable, this amount should also include half of the monthly condo fees. And the total amount of your debts (lodging, loans, credit cards, etc.) should not exceed 40% of your gross monthly income. If your debts and financial obligations (such as school fees and trips) are high, you will have to consider reducing your housing expenses or look at where you can make some sacrifices to speedily lower your indebtedness (cut out those trips, for example). But remember that the goal of buying a house is to improve your standard of living, not to be cooped up in it because you can’t afford to do anything. Nor do you want to be so strapped financially that you’re left without room for manoeuvring.
As for the lending institutions, caveat emptor! They tend to be very willing to lend very large sums of money, but they do not take into consideration all the financial obligations that a couple or an individual may have. It’s your responsibility to do the math. One rule of thumb is that if you usually spend one quarter of your gross family income on lodging, then that’s the proportion you should stick with. A mortgage can be amortized over 30 years, and sometimes even over 40! Ideally, the longer term is not the best choice. Sure, by spreading out the loan over several years your monthly expenses will be perhaps more affordable. But you’ll also be paying a lot more interest! Better to save up your money and wait a few more years before buying.
The real estate broker
It’s all good and well to know what kind of house you want to buy and the neighbourhood you want to live in, but you still have to find it. You can look by yourself and deal with the vendor’s broker (or with the vendor directly, if it’s a “for sale by owner”), or call a real estate broker who will work on your behalf. That broker will help you unearth the ideal home, draw up an offer to purchase, negotiate in your name to help you get the best price possible, provide you with important information on the area, and take care of having the property inspected. Usually, it’s the vendor who pays a commission to the broker once the transaction comes to a close. When you choose a real estate broker, don’t be shy about asking them questions, mostly about their years of experience in the area, how they operate, references, as well as eventual service charges. Also check whether the broker is a member of the Association des Courtiers et Agents Immobiliers du Québec. And beware of the agent who insists a little too much that you sign an offer to purchase under the pretext that there is another buyer in the picture. The broker just might be more interested in the commission than looking out for you.
Whether or not you have a real estate broker, it’s in your best interest to do your own research into the “real sale value” of the house you’re interested in buying. All you have to do is compare it with other houses of the same category that were recently sold in the area. You can do this by going to brokers’ Internet sites or by calling the city’s registration bureau. If the owner must sell quickly, he could ask a good price.
More buying expenses
Once you’ve established the approximate price that you can pay, you must then calculate all the other related expenses. That way you’ll be sure you’re ready for it financially:
- Adjustment fees. You are obliged to reimburse the vendor your share of bills already paid up, such as property taxes, unused heating oil, and so forth.
- Home insurance. This is required by the mortgage lender because the property is offered as
collateral. The amount of this insurance must cover the cost of rebuilding the house and replacing its contents. If the value of the new house is higher than that of the old one, your premiums will go up accordingly. Coverage must begin the day of the title transfer.
- Survey certificate. The lender may require a survey certificate before paying out the loan. If the
vendor does not have this certificate and is not willing to assume the cost (from $1,000 to $2,000, on average), you will have to pay for it.
- Water-quality inspection. If the water comes from a well, you must make sure it is potable and that there is enough of it in reserve. You may negotiate the cost of this inspection with the vendor and mention it in your offer to purchase.
- Legal fees, building-inspection fee, and transfer tax (the “welcome tax”)
- Gardening tools, lawnmower, snow-removal equipment, window trim, decorating material (paint,
landscaping material, etc.); the cost of moving, renovating and or making repairs, service hook-ups (phone, cable, electricity); and condo fees, if applicable.
The offer to purchase
At last you’ve found your dream home. All that’s left to do is present your offer to purchase. This consists of a written agreement defining the conditions of the sale. Be aware that this “offer” is just as binding as a contract. Once accepted by the vendor, it must be respected. That’s why, before presenting it, it’s best to prepare an offer to purchase with your broker, a notary or a lawyer.
The offer to purchase must contain all the details of the sale, such as the price offered, the amount of the down payment, all goods included in the sale, the date of the title transfer and the expiry date of the offer to purchase. You may also add other conditions, such as it being valid only upon passing inspection, mortgage approval or the sale of your current house. The offer to purchase will become final only once these conditions are met. The last step is to go to the notary’s to sign it.
As a new home is a major investment, you’ll want to have the house inspected before concluding the purchase. This way you’ll know whether the property is in good condition and you’ll avoid any unpleasant surprises such as finding contaminants like pyrite or urea formaldehyde. The building inspector will visually examine the structure’s main systems and accessible components. He must note down the existing and perceptible general condition for the purposes of revealing any defects and signs of potential problems. The average price of an inspection is between $400 and $600 for a property valued at $150,000. Be aware that there are no laws governing this profession, so be careful whom you choose. Hire an experienced inspector who is a member of a professional association and who has professional-responsibility insurance. And ask for a full written report on the state of the house, including the necessary repairs, and with photos where possible.
Thanks to Jacques Gobeil, architect and director of CAA-Quebec Residential Advisory Services, as well as the Canada Mortgage and Housing Corporation (CMHC) for their cooperation.
By Jacqueline Simoneau
Translated by John Woolfrey