Buyers FAQ

Buyers most frequently asked questions

What price home can I afford?

As a "rule of thumb" you can afford to buy a home equal in price to twice your gross annual income. More precisely, the price you can afford to pay for a home will depend on six factors:

  1. Your income
  2. The amount of cash you have available for the down payment, closing costs and cash reserves required by the lender.
  3. Your outstanding debts
  4. Your credit history
  5. The type of mortgage you select
  6. Current interest rates

Lenders will analyze your income in relation to your projected cost of the home and outstanding debts. This will determine the loan amount you can borrow. Your housing expense-to-income ratio is determined by calculating your projected monthly housing expense, which consists of the principal and interest payment on your loan, property taxes and hazard insurance. The sum of these costs is referred to as "PITI."

Monthly homeowner association dues, if you're purchasing a condominium or townhouse, and private mortgage insurance are added to the PITI. Your housing income-to-expense ratio should fall in the 28 to 33 percent range. 28 percent of your gross monthly income is allotted toward PITI. 33 percent of you gross monthly income is allowed for PITI and all long term debt. Some lenders will go higher under certain circumstances.. Your total income-to-debt ratio should not exceed 34 to 38 percent of your gross income. Additionally, consider how much you are comfortable paying biweekly or per month. The amount you qualify for and the amount you are willing to pay may be two completely different things!

First and foremost it is strongly recommended that you hire a professional person to inspect the home. Home Inspectors are now licensed (as of September 2011) and have strict guidelines to follow. Visit CAHPI for a full list of standard practices, their membership and the process of a home inspection.

In the listing agreement, sellers are required to indicate any significant defects or malfunctions existing in the home's major systems and in turn, the listing agent is required to disclose them. These defects can include leaky basements, roof issues including known hail damage, types of insulation, shingles or sidings that might pose a health or environmental hazard, aluminum wiring or previous history of grow-op and remediation.

Other property disclosures not pertaining directly to home inspections that can come up: if permits were taken out from the city to complete renovation work, if renovation work was done professionally or by the homeowner and often buyers want to know about the mechanical system - the year of the hot water tank, how often maintenance was done on the furnace and ducts and the condition of the humidifier or any water softener or filtration systems. Occasionally I have a buyer that wants to know if anyone ever died in the home, even if by natural causes. The seller will provide the answers to these questions to the best of his/her ability but ultimately the home inspector is your best source to determine the condition of the home.

People buying a condominium must be told about covenants, codes and restrictions or other deed restrictions, if the homeowners association has any authority over the subject property and ownership of common areas with others. Be sure to ask questions about anything that remains unclear or does not seem to be properly addressed by the forms provided to you. Buyers should always include a condition in their purchase contract allowing them to read, review and approve all condo documents.

If purchasing in a new (or newer) community or subdivision, the seller (in this case often the builder) should also disclose if there are any architectural guidelines or restrictions. The big one I see in Calgary is fencing. Often you are required to install certain fencing materials, such as chainlink between homes, or that only corner homes are allowed wood or composite fencing. Your REALTOR® can help you sort through the architectural guidelines to ensure they do not contravene your vision for the home.

There are always some sellers who for some reason must sell quickly, however in general, a very low offer in a normal market might be rejected immediately. In a strong buyer's market, the below-market offer will usually either be accepted or generate a counteroffer. If few offers are being made, an outright rejection of offers becomes unlikely. In a strong seller's market, offers are often higher than full price. While it is true that offers at or above full price are more likely to be accepted by the seller, there are other considerations involved:

  1. Is the offer contingent upon anything, such as the sale of the buyer's current house? If so, such an offer, even at full price, may not be as attractive as an offer without that condition.
  2. Is the offer made on the house "as is," or does the buyer want the seller to make some repairs before the closing or make a price concession instead?
  3. Is the offer all cash, meaning the buyer has waived the financing contingency? If so, then an offer at less than the asking price may be more attractive to the seller than a full-price offer with a financing contingency.
  4. Are there any requests for seller concessions, such as asking the seller to contribute towards or closing costs, bring a woodstove/fireplace up to code, complete a basement development? If so, the offer is not really full price.

Different sellers price houses very differently. Some deliberately overprice, others ask for pretty close to what they hope to get and a few (maybe the cleverest) underprice their houses in the hope that potential buyers will compete and overbid. A seller's advertised price should be treated only as a rough estimate of what they would like to receive.

Some buyers believe in making deliberate low-ball offers. They don't want to go in with their best offer, always allowing room to negotiate. While any offer can be presented to the seller, a low-ball offer often sours a prospective sale, makes the seller believe the buyer is not a serious buyer or cannot afford the home and discourages the seller from negotiating at all.

Before making an offer, your REALTOR® will research comparable properties in the area to determine fair market value. Your REALTOR® will also develop a strategy to present the most attractive offer to the sellers without compromising your negotiating position.

The deposit is an essential part of the offer on the home and not enough discussion is spent with buyers on the appropriate amount and why it is required.

The deposit on your home is the same as the deposit on that special order item at the department or boxtop store. It is your commitment to the property, to act in good faith and to complete the sale. Under law, you are required to pay a deposit of some amount "in consideration" of the purchase. All deposit monies are held in trust usually by the listing brokerage and all of these monies go towards the purchase price agreed on by the buyer and seller. But how much?

There are a couple of methods. Assuming a closing day within 30 days of the offer, you may wish to offer a higher deposit because your money isn't making much interest in the bank, and you want to send the message to the seller that you are seriously committed to getting the transaction completed quickly. You can even split the deposit into two payments: one accompanies the offer and the other is paid upon removal of all your conditions. Sometimes buyers are waiting for the proceeds of the sale of their home, which isn't yet complete and won't be until after the condition period. In this case the buyer will be restricted in cash flow and may need to offer a smaller deposit. In this case, my general philosophy is not to offer less than $1000. I have offered less as a REALTOR® and accepted less as a seller's agent, but as a buyer you need to show the ability to pay the transaction. You can always offer additional deposit upon receiving the proceeds of your home, or a letter from your bank confirming the sale of your home and the down payment that will be applied to this purchase.  For a higher priced home or in competing offers, the higher the deposit the better and my suggestion is not less than $20,000. Deposit amounts are completely individual based on the buyer and on the property being purchased, so there is no right or wrong amount, but you must give a deposit and understand what happens once you write the cheque.

Your deposit will be cashed within two business days of an accepted offer. That means when you write that deposit cheque, have the money in your bank account or know that it will be transferred to your bank account immediately. The brokerage will hold your deposit in trust without any interest earned for the duration of the purchase contract until it is transferred to the lawyer responsible for conveyancing.

If you do not waive conditions on your purchase contract for a valid reason, you will get your deposit money back. For example, the home inspection reveals extensive water damage in the basement that will cost too much for you to remedy. You decide to not continue with the purchase of the home. Your REALTOR® will forward a copy of the home inspection to the seller along with a non-waiver and request the deposit be refunded to you. Depending on the brokerage policies regarding refunds of deposit, it can take up to two weeks to get your deposit back.

If you have waived conditions on your purchase contract and fail to complete closing by possession day, your deposit will likely be forfeited. This does happen. An example of this can be when a buyer intends to complete the transaction, waived conditions but suffers a health problem that prevents him/her from working and therefore cannot continue with the mortgage obligation. Some sellers are reasonable and just want to continue marketing their home to a buyer that can complete the sale, but buyers need to be aware that they could lose their deposit if they fail to complete the purchase under the terms of the contract.

Title insurance is a form of insurance in favor of an owner, lessee, mortgage or other holder of an estate lien, or other interest in real property. It indemnifies against loss up to the face amount of the policy, suffered by reason of title being vested otherwise than as stated, or because of defects in the title, liens and encumbrances not set forth or otherwise specifically excluded in the policy, whether or not in the public land records, and other matters included within the policy form, such as lack of access to the property, loss due to unmarketability of title, etc. The title policy form sets forth the specific risks insured against. Additional coverage of related risks may also be added by endorsements to the policy or by the inclusion of additional affirmation insurance to modify or supersede the impact of certain exceptions, exclusions or printed policy "conditions." The policy also protects the insured for liability on various warranties of title.

In addition, the policy provides protection in an unlimited amount against costs and expenses incurred in defending the insured estate or interest.

Before it issues a title policy, the title insurance company performs, or has performed for it, an extensive search, examination and interpretation of the legal effect of all relevant public records to determine the existence of possible rights, claims, liens or encumbrance that affect the property.

However, even the most comprehensive title examination, made by the most highly skilled attorney or lay expert, can not protect against all title defects and claims. These are commonly referred to as the "hidden risks." The most common examples of these hidden risks are fraud, forgery, alteration of documents, impersonation, secret marital status, incapacity of parties (whether they be individuals, corporations, trusts or any other type), and inadequate or lack of powers of REALTORS® or fiduciaries. Some other hidden risks include various laws and regulations that create or permit interests, claims and liens without requiring that they first be filed or recorded in some form so that the potential buyers and lenders can find them before parting with their money.

Since the cost for home owner's title insurance is usually sharply reduced when taken simultaneously with the issuance of a purchase money mortgage, the risk is one that a well informed buyer should not take. In fact, several states have adopted statutory requirements which require a notice to home buyers as to the availability of title insurance similar to that being obtained by their purchase money mortgages.

It is strongly recommended that home buyers are prequalified or pre-approved for a loan as their first step in the process. By being prequalified, a buyer knows exactly how much house they can afford. They can make more informed decisions in the market place. This does not mean they will definitely get the loan because their credit reports, wages and bank statements still need to be verified before you can receive a commitment from the lender for the loan.

Almost all mortgage lenders prequalify people at no charge. Many of them will even do it on the internet. In order to be pre-approved, an application will be taken. For a fee, your credit report will be pulled, your employment and income will be verified, your checking and savings accounts will also be verified. In other words, all the necessary documentation will be completed in order for you to obtain a loan. The only things remaining will be for you to find a home, obtain an appraisal on it to prove its value to the bank and perform whatever inspections you may want on the property. This process considerably shortens the time frame to closing.

Yes. Compare the mortgage charts published in most newspapers.

Occasionally some lenders are willing to negotiate on both the loan rate and the terms or repayment. It never hurts to shop around, know the market and try to get the best deal. Always look at the combination of interest rate and points and get the best deal possible. This is reflected in what is called the APR or Actual Percentage Rate. This is where working with a mortgage broker is advantageous over working with a bank. They can offer a variety of products from a variety of lenders that are competing for your business.

Sales price increases in either type of housing are strongly tied to location, length of ownership, growth in the local housing market and the state of the overall economy. New home construction requires an additional 5% investment as GST is charged. When you sell that new property, you will get market value for the home, which won't include the GST you paid. Additionally, all GST rebates are paid to the builder, not the buyer, so you will never recoup this cost.

If you are buying for the long term, in other words five years or more, or it is your forever dream home and you don't foresee selling indefinitely, then new construction is a good option for you. However, if you are relocating to Calgary for a term of less than five years, then resale is the safer investment. On resale, there is no GST and your property will increase in value in relation to the real estate market. For short term selling, new construction often takes a hit on the price. In addition to losing your 5% GST you paid at purchase, you will also face the competition of the continued new construction around you. Most buyers looking to buy in a community are looking to buy new construction so they can pick their colours and finishings, just like you did when you bought. Often they can still buy a new home for the same price as the resale in that community which makes the price of resale drop, usually by almost 5% - the cost of the GST.

Distressed properties, "handyman specials" or fixer-uppers can be found everywhere. These properties are poorly maintained and have a lower market value than other houses in the neighbourhood. It is often recommended that buyers find the least desirable house in the best neighbourhood. You must consider if the expenses needed to bring the value of that property to its full potential market value are within your budget. Most buyers should avoid run-down houses that need major structural repairs. In Calgary, buyers must also consider the economic life of a home with is 70 years. If the home is older than 70 years and needs a complete remodel, it is usually a better investment to bulldoze the old home and build a new one.

Renovations or building new are big commitments. There are financial considerations you will need to discuss with your lender and time considerations to weigh against family and professional life. It isn't for everyone, but the investment in your future can be very rewarding. Discuss it with your REALTOR® to see if this option is good for you.

There are many CMHC and government energy saving plans that change and evolve from time to time. Visit their web sites and see what financing options are available both at the time of purchase and once the sale is complete.

Remodelling a home improves its liveability and enhances curb appeal, making it more saleable to potential buyers. Some of the popular improvement projects are updated kitchens and baths, enlarged master bedroom suits, home-office additions and increased amenities in older homes. If you intend to remain in the home, then customizing to suit your needs with a eye on resale potential is a great idea!

Real Estate is a long term investment meaning the greatest rate of return is expected over a period of 5-10 years or longer. Caution and careful research needs to be done if renovation and remodelling is part of your short term investment goals. Your REALTOR® can provide you with the information you need on key communities, ideal renovations, timeline and resale window. Buyers should investigate city permits and bylaws, tax implications with CCRA, insurance and mortgage costs to determine if the investment will pay off.

Buying a foreclosure does present increased risk. There is no seller disclosure for the property and often the homeowner was aware they were losing the property and their funds were greatly restricted while owning their property; therefore, maintenance and repairs were overlooked. Often I see new homes were the homeowner still had not laid sod or planted a tree and now the home is in foreclosure. Despite this, the bank still wants to recuperate their money from the sale of the home and often the price is set according to what the bank wants (mortgage proceeds, admin fees, lawyer fees plus real estate commissions) and not according to what the market value is or what the buyer is willing to pay. The bank or the courts often ask that offers have no conditions for financing or home inspection, and cross off clauses of the purchase contract which pertain to the Real Property Report, representation of the home or the guarantee it will be in the same condition at possession day. Talk about sleepless nights waiting to see if what you bought is what you get come possession day!

But a buyer comes along and decides to purchase the home for what they perceive it is worth based on market value and what needs to be done to the property. This price is usually far less than the list price and thus it seems like a great deal. Factor in the cost for the risk (and potentially no appliances being there when move-in day arrives) and yes, you may be ahead on paper in the long run than buying the turnkey home direct from the seller down the street. Buyers must decide if the individual benefits outweigh the risk and ultimately, is this the home for their family.

If you do decide to offer on a foreclosure, your REALTOR® will walk you through the steps needed. In Alberta, there is a turnaround time of 2-3 business days to find out if your offer was accepted. If the foreclosure is a judicial sale and goes to court, it could take up to 2-3 weeks for the court date when your offer is presented to the Queen's bench. Additionally, if there are competing offers, the lawyer for the court may decide to disclose to all parties the amounts everyone else is offering in an attempt to increase the bids. If your offer is selected, the court may determine a quick closing date and leave you scrambling to get all conveyancing done in a short period of time.

In my experience, buying a foreclosure to get a bargain basement price is not a realistic expectation. If you happen to fall in love with a property that is in foreclosure because of the lot, the layout or the location, then perhaps you have the stomach to take on the risk for a fair price based on all the other variables. Just be sure you have an experienced REALTOR® and mortgage broker on your team to ensure a smooth transition to home ownership.

Most REALTORS® operate under common law agency. The degree of trust you have in an REALTOR® may depend upon their legal obligation of representation under common law agency. Under Agency law, working with a buyer has three possible choices of representation. The REALTOR® can represent the buyer exclusively, called buyer agency, or represent the seller exclusively, called seller agency, or represent both the buyer and seller in a dual agency situation which is now called Transaction Brokerage. REALTORS® are required to disclose all possible agency relationships before they enter into a residential real estate transaction.

Royal Lepage Foothills operates under Designated Agency and is unique to Royal Lepage Foothills here in Calgary. This allows each realtor to act independently of all other agents and work without limitations for the clients they represent.

I have been a full-time realtor since 2006. As a Certified Relocation Specialist, I have assisted clients from all over the world for a successful relocation to Calgary.

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