Advice Thread for First Time Home Buyer?

[hoolio]

I think this is officially the last winter I'll be able to handle in my apartment, and I think it's time that if I move, that I get a house rather than throwing any more money down the drain at an apartment. I need a deck to fire up the BBQ all year round and enjoy a nice thick steak.

With that being said, I've done a little reading on various sites, talked to a few people, but I'm sure I'm only scratching the surface on the wealth of data you need to get into the housing market. I thought I'd tap into some of the local knowledge rather than just randomly browsing boards and see what kind of wisdom I can collect here so that I don't end up screwing myself over.

I'd be willing to listen to good advice not limited to the following;

Money Side

• How much of your net income do you want to devote to a mortgage, and still be able to entertain yourself from time to time?
• What are some hidden costs that a first time home buyer wouldn't think about until he's stuck with the bill? (Lawyers, etc)
• Best type of Mortgage, and how to go about getting the best rate? (haggle with banks, use a broker)
• Down-payment: Use everything I have or save a bunch for after you move in?
• The housing market: Are house prices going to drop, or will fewer number of houses being built keep prices steady? When to buy?

Choosing a House

Currently looking at the Chapman Mills / other Barrhaven sub-divisions. Don't really want to go Kanata or Orleans so the first point may be irrelivant, but I'm putting it there anyway.

• Location: Best places to buy?
• Buy a pricier house finished how you like, or renovate after moving in?
• Things to watch out for when buying? (Roof, foundation, etc)

Informative Sources / Good Reading

Every time I search for home buying advice, I seem to end up on a site of a business that would be selling me something in the future like a bank or mortgage broker. If anyone knows a good site the covers the following I'd be up for a read;

• General home buying advice from a reputable, impartial source. An informative blogger would be good.
• Comparing mortgage rates / services from different lenders.

That's all I have for now because I have to head out, but I'm sure I can make the thread bigger. With any luck, I won't be the only one benefiting from any knowledge thrown out here.

Many thanks in advance.

[jvincent]

Here you go.

Money.
1. Most of the banks will give you a calculator that will tell you how much they will lend you. Generally speaking, these are overly optimistic, i.e. they will try to lend you more than you should really borrow. The best way to do it is to make out a budget and figure out how much you can devote to mortgage after everything is taken into account. Include everything you spend money on (taxes, water, hydro, gas, internet, phone, beer, food, golf, etc) and use what's left as your mortgage number.

2. There are definitely lawyers fees and transfer taxes. A high ratio mortgage will add a certain percentage to the cost, can't remember how much. You might also need to pay for a survey if the home owner hasn't already got one. Don't forget moving costs and potentially hookup/new service costs for utilities.

3. The good news is that rates are at an all time low. The bad news is that there's not much haggle room as a result. For the last 25 years or so it has always been best to go with a variable rate mortgage as the rates have always worked out lower than a fixed rate.

4. Definitely keep some cash handy for after you move in. You'd be surprised how things add up especially if it's an older house.

5. Ottawa has been pretty steady for prices because of the government types. Will that last? Do I look like Kreskin? As far as time to buy, right now is the best time. Prices tend to be higher in the spring as people are trying to buy then so they can get a closing date before the next school year.

Choosing a house.
1. Location, location, location. Some areas will always be more expensive than others but in reality unless you're buying as an investment don't sweat that too much. Buy based on what your lifestyle dictates. I.e. do you like to be close to work or close to golf? Do you want to be stuck in commuter traffic? Are schools a priority?

2. This really depends on how long you plan on staying. Something that can be renovated in a few years can be a good investment.

3. For an older house it's a good idea to make any offer conditional on a home inspection. Get recommendations for the inspector since some are better than others.

Info

The Ottawa Real Estate Board (http://orebweb2.oreb.ca/index.shtml) has a bunch of good info and also has a link to the MLS listings.

Good luck with the hunt.

[Indio]

http://www.cmhc.ca/en/co/

Lots of great info for homebuying here with links (what, I have to put in a plug for my employer!)

Make sure you clic on the 'Homebuying step by step interactive demo' on the left side of the page.

[spackler]

Just random info:

• When we bought 5 years ago, the ratio was 25% down and you didn't have to pay CMHC fees, so that's where we aimed. Remember, those fees go directly into Indio's pockets.
• I want to say our closing costs were around $2K, but I can't quite remember. Pretty sure the lawyer charged me $400, then there was title insurance, land transfer tax...we had to get the house appraised before the mortgage company finalized the terms, that was another $200.
• We're also extremely debt averse, so we wanted to get into a situation where we would be able to pay off the mortgage quickly. Keep that in mind when you're looking at mortgage terms, sometimes you're very limited in what you can pay down on the principle. Know all the terms going in.
• We used a mortgage broker because I found it easier. On our mortgage, he negotiated a 10 year rate and got a $1000 commission, and $100 of that he gave to the people who referred us to him. Theoretically, that $1000 paid to the broker is room you should be able use to beat that rate, but it's tough. If you want to go that route, let me know. I can give you his name, and if you go with him and he sends me $100, I'll just pass it back to you.
• When looking for a house, don't sign on with a buyers agent. It's too limiting, and there can be some extra motivation for a selling agent to get their clients to come down on price when they're staring at a double commission (the selling agent will act on your behalf and get both the sales and buying commissions). You must have done your research on price (which you should do anyway) if you go this route.
• Definitely get a good home inspector. S/He'll be able to tell you the big stuff. Age and condition of roof, furnace, foundation condition, etc. In older houses you'll want to make sure there's no knob and tube wiring, a lot of times you can't get house insurance if that's the case and it's a minimum $10K fix to rewire a house. Probably not a problem where you're looking, but something to keep in mind if you look in older neighbourhoods.
• Watch out for private sales, people selling their homes this way are not generally looking to pass on the savings from commissions to the buyers and can be a royal PITA to deal with. We had a really bad experience with a couple of private sellers that may have coloured my opinion, so take that for what it's worth.
• Factor in property taxes. They add up, I'll be paying over $5K this year.

[hoolio]

Good stuff guys, really appreciate the info...

[Wilster]

If you are buying used , think about getting a real estate agent , they will do the leg work and research for you , and it doesn't cost you a thing , but they will get you to sign an exclusive contract , where they represent you for any sale.
This of course has a down side , if for example you find a property for sale on " grapevine " or "for sale by owner" in which case the real estate agents tend to steer you away from these properties , as their comission is considerably smaller on these deals , hence less money in their pocket.
The other option is to buy new , which i am currently doing myself , and i would recommend you look into in great detail , i regret not looking into this further when i first moved to Ottawa.
But of course ,it too has a down side, new houses have smaller lots , and building time may be over a year till completion. But... everything is new , which is a huge load of your mind for a number of years , windows, roofing, plumbing, etc,and you pick out everything that you want for your house .
Plenty of food for thought , i hope it didn't confuse you too much.

[justsomeguy]

Lots of good info here. Here's a few more things on the "Money" side:

1) Look at doing biweekly or semi-monthly mortgage payments (whichever suits your payday schedule and budget better). Not only will you save significant $$$ over the life of the mortgage, it spreads out the mortgage hit on your bank account every month.

2) Most financial institutions will try to sell you mortgage insurance - I would recommend you buy term insurance from an insurance company instead. Not only is term insurance usually a LOT cheaper than mortgage insurance, but the payout remains the same over the term while the payout for mortgage insurance is only on the mortgage balance - which declines with every payment you make. Sakuraba could probably help you out with this.

3) Talk to a financial adviser about this and other programs specifically for first-time home buyers (I can recommend one if you want):

http://www.cra-arc.gc.ca/tx/ndvdls/t.../menu-eng.html

Just so you know, you don't need to already have RRSPs to take full advantage of this. We signed up for the maximum through RRSP loans and used our big tax refund to pay for our closing costs. We then canceled the loans and set up monthly RRSP deposits to meet our HBP obligations to "pay back" our RRSPs.

[Chambokl]

Lots of good stuff here.

Yes, keep a few bucks for after you bought the house. You will need snow blower, shovels, lawn mower, hedge trimmer, tools (including power tools), rakes, etc...

On the inside you might want to change some carpets, paint some rooms, etc...

Like you said, keep an eye on roof, foundation, ceiling, electricity (service), etc...

Don't get discourage with all of these advice... there is nothing like sitting on the back deck with friends, having a few brews and cooking some dogs on the BBQ...lol.

[314314]

Money Side

• How much of your net income do you want to devote to a mortgage, and still be able to entertain yourself from time to time?

A: The rule is no more than 30% that's what the lender look at.

• What are some hidden costs that a first time home buyer wouldn't think about until he's stuck with the bill? (Lawyers, etc)

A: PROPERTY TAXES, INSURANCE, (2% FOR CLOSING COST, layers, insurance title, etc), paint, window treatments (most expensive), appliances, etc.

• Best type of Mortgage, and how to go about getting the best rate? (haggle with banks, use a broker)

A: Get a mortgage broker (you don’t pay them; they get paid by the mortgage company) the 1 year close is the best over time. Yet, I currently have a line of credit instead of a mortgage (depends on how thick your skin is)

• Down-payment: Use everything I have or save a bunch for after you move in?

A: You can avoid CMHC fees by 25% (maybe less these days) but I am ok by putting as little as 10%
You should look at paying the less money as possible for your payments so that you know you can make the minimum. Yet, you can always pay more every month or single lump payment every year.

• The housing market: Are house prices going to drop, or will less number of houses being built keep prices steady? When to buy?

A: You should buy around winter with closing dates in spring (avoid heating bills). New construction is slowing down. If you buy private you save the realtors commissions.

Choosing a House

Currently looking at the Chapman Mills / other Barrhaven sub-divisions. Don't really want to go Kanata or Orleans so the first point may be irrelivant, but I'm putting it there anyway.

• Location: Best places to buy?

A: As close as downtown as you can afford. You must consider resale value. I personally will not buy in the places that you mentioned Chapman Mills (too far) and Barrhaven as they were building too many houses so good luck trying to sell your house in a few years (lots of competition).

• Buy a pricier house finished how you like, or renovate after moving in?

A: You should buy a house in which you do not have to spend any money after you move in.

• Things to watch out for when buying? (Roof, foundation, etc)

A: You MUST get an inspection done in the house by an independent inspector (not associated with a realtor or the seller)
Also, the realtor lies, the seller lies. If is not in writing, it’s a lie.
Informative Sources / Good Reading

Every time I search for home buying advice, I seem to end up on a site of a business that would be selling me something in the future like a bank or mortgage broker. If anyone knows a good site the covers the following I'd be up for a read;

• General home buying advice from a reputable, impartial source. An informative blogger would be good.

A: You can attend to the realtor seminars (you don’t have to buy from them) but they do provide useful information. The CMHC site is good source of information.
Interview several of your friends who have recently closed a deal. Ask them about their experience and recommendations

• Comparing mortgage rates / services from different lenders.

A: Check the sites of mortgage brokers (Banks have the highest)

Good luck

[Pinshark]

Don't be afraid to use a realtor when buying...won't cost a thing. However watch out for realtors trying to get you to sign a contract this can hurt you later on.

A HOME INSPECTION IS A MUST, SOMEONE YOU CAN TRUST. This goes for all homes regardless of age. I have been in the trades for a while in Ottawa and new or old every house has problems, some you wouldn't expect in a new home.

Variable rate mortgages are great, don't forget to pay your mortgage weekly, as this saves bundles on interest.

[hoolio]

I forgot to ask about lump-sum additional payments to the mortgage. Are they beneficial or are you just paying off interest that you'll be paying later anyway?

I assume the more you can pay off in the early stages of a mortgage really affects the amount of compound interest that will be accumulated on that payment amount later on.

[Weazl]

Any lump sum payments you make, above your normal monthly payments go directly to the principal. All lending institutions usually cap this at 20% so check the terms of your mortgage first but make payments when you can as it will help decrease the mortgage significantly.

[mpare]

The only thing that I would add is that you might want to think about paying down your other bills (credit cards or lines of credit, for example) if their interest rates are substantially higher than that of your mortgage.

Any lump sum payments you make, above your normal monthly payments go directly to the principal. All lending institutions usually cap this at 20% so check the terms of your mortgage first but make payments when you can as it will help decrease the mortgage significantly.

[spackler]

I forgot to ask about lump-sum additional payments to the mortgage. Are they beneficial or are you just paying off interest that you'll be paying later anyway?

I assume the more you can pay off in the early stages of a mortgage really affects the amount of compound interest that will be accumulated on that payment amount later on.

Like Weazl says, most fixed rate mortgages cap you at 20% of the principle per year for lump sum payments, but by all means pay as much down as you can. The way mortgages are amortized, you are paying hardly anything against the principle at the beginning of a mortgage. If you pay down the principle, you skip the interest you would have paid on it. For instance, if you have a $200K mortgage at 5.1% and put 20% down in the first year ($40K), you'll only be paying interest on $160K. So instead of paying $150K interest over the 25 years (with $200k mortgage), you pay $122K. So by paying down $40K that you have to repay anyway, you save yourself almost $30K in interest. That $40K is actually $70K. The impact on interest dwindles as you get further down your amortization schedule, so paying off as much as you can at the start can save you big $$$ down the road.

Here's a good calculator to fool around with.

http://www.canequity.com/mortgage-calculator/

[Sakuraba]

Well well. My 1st suggestion would be to pick up that kegger fundonny is selling in the classifieds.
2nd suggestion is that you move up to Renfrew. With the recent pulp & paper mill closure, and the various lumber mill closures, and the call centre closure, the home prices will be dropping faster than your index once you re-join Renfrew Golf Club.

[Shivas Irons]

Make bi-weekly payments rather than monthly ones. It's also easier to add extra onto to your bi-weekly (or monthly) payment, rather than making lump sum payments that never seem to materialize. (at least for me anyway)
Also, if you can afford it, don't get you taxes added on to your mortgage payment.