HOMEOWNERSHIP Education for Homebuyers

What you will learn

Your housing needs About money management (budgets) How to calculate what house price you can

afford Mortgage readiness Am I eligible? How do I get one?

The buying process

Questions to ask yourself

Do I feel ready to buy a home?

Do I have a steady job

history? Is my current job secure? Do I pay my bills on time

each month?

Do I have a credit history or rent/utility payment history?

Do I have access to money for a down payment?

Will I sacrifice other desires to purchase a home?

Can I afford to pay a mortgage each month?

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Credit check?Home Insurance?

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Home Inspection?

What your budget will allow For housing costs (including mortgage payments)

For payment of debt each month (debt load)

What you need to know

before you go looking…

Salary/wage/commissions Tips Child support Interest income Other

Gross = before deductions

Net = after deductions

Your monthly income

includes:

Your Monthly Expenses

Rent UtilitiesChild care Cable, phone

Car expenses Paycheque deductions

Groceries ClothesMedical, etc. Credit cards

Home insurance Other

Where does your money go?

Complete worksheet #2: “Your Monthly Budget”

Homeowner’s Training Worksheets page 2

(See also sample budget on page 2a)

Money left over

How much money do you have left?

On what things might you have to spend this balance? Some expenses are unexpected Some expenses recur regularly

Sample Budget

Estimated amounts for a family of three with $39,000

income per year

See sample worksheet in Homeowner’s

Training Worksheets pages

2a – 4a

NET MONTHLY INCOME MONTHLY EXPENSES

Net salary (AFTER deductions and taxes): Housing expenses:Monthly gross salary $3,250 Rent $500Less income taxes, deductions - $488 Electricity $100Net Salary $2,762 Heating $100Based on $39,000/yr less 15% deductions Water and sewer fees $50

Subtotal Housing Expenses $750Other monthly income sources:Tax credit Debt payments:Student loan income Car loans $200Other income Credit cards $25Subtotal Other Monthly Income $0 Personal loans / credit line

Subtotal Debt Payments $225Total net income:Net Salary $2,762 Other expenses:Subtotal Other Monthly Income + $0 Cable, TV, Internet $60Total Net Income $2,762 Telephone / mobile telephone $60

Car license & insurance $70GROSS MONTHLY INCOME Child care $250(before deductions) Groceries $300Gross salary $3,250 Home Pak insurance $50Subtotal Other Monthly Income + $0 Liquor/cigarettes

Total Gross Income $3,250 Medical/prescriptions/eyewear

$3250/month = $39,000/year Newspaper/magazines/booksPersonal/hygiene items $50

MONEY LEFT OVER Other expensesSubtotal Other Expenses $840

Total Net Income $2,762Total Monthly Expenses -$1,815 Total Monthly Expenses:CASH REMAINING $947 Add subtotals $1,815

How much can you afford?

For monthly housing costs monthly mortgage payment total mortgage loan

For payment of debt each month (debt load)

Housing cost guide

No more than 32% of GROSS monthly income (Gross income = before payroll and income tax deductions)

Renter expenses:

• Rent

• Utilities

Homeowner expenses:

• Mortgage payment (including principal, interest, & taxes)

• Utilities

• 50% condo fees (if applicable)

Complete worksheet #2: “Housing Cost Guide”

Homeowner’s Training Worksheets page 3.

(See also sample budget on page 3a)

Your monthly debt load should be no more than 40% of your GROSS monthly income.

mortgage payment (principal, interest and taxes) car loans credit line/personal loan credit cards student loans alimony payments, etc.

Complete worksheet #2: “Debt Payments Guide”

Homeowner’s Training Worksheets page 4

(See also sample on page 4a.)

Debt load example

Total net monthly income (before deductions)

X 40 ÷100 =

(40% or .40)

$3,250 ($39,000/year)

$1,300

This is the highest amount your family can afford to pay out each month for debt, including mortgage payment, credit card payments, car payments, loans, etc.

See sample worksheet #2: “Debt Payments Guide”

Homeowner’s Training Worksheets page 4a

Understanding Credit

Credit history Where to get a copy of your credit rating Bad credit implications Tips to improve credit ratings

See Worksheet #3: “Credit Rating - what is it?”

Homeowner’s Training Worksheets – pages 5-7

Credit history

Credit rating? Lender obtains copy of credit history More desirable credit rating → better interest

rate

Take the quiz in worksheet #3 - “How Financially Fit Are You”

Homeowner’s Training Worksheet page 8

Credit, continued….

Suggestion: Obtain a copy of your credit history before meeting with a lender.

– Equifax Canada Inc. – Trans Union of Canada Inc.

Credit problems that can affect getting a mortgage loan are:

– Lack of credit history – Poor credit history

Bad credit implications

New loans or credit cards are difficult to obtain May affect future lease for items e.g., apartment, car, computer New employer may check Remains for 7 years

Credit rating tips

Put away credit cards Combine several debts into one loan See credit counsellors about alternate arrangements Determine how you got into debt – don’t repeat Check spending habits!

Mortgage readiness

What is a mortgage? How much can I get? What costs can you include in a mortgage? Is the lowest interest rate the best?

Pre-arrange a Mortgage

Meet lender Take financial information Determine eligibility and mortgage amount

Home used as security Key words in mortgages:

− Interest - the cost of borrowing money − Amortization - length of time to pay off the loan − Term - length of time for the loan agreement − Maturity date - last day of the term − Options - tailoring your mortgage to your needs

− “Open” and “closed” mortgages − Payment schedules

Mortgage loan

See Worksheet #4 - “Which is the right mortgage for me?” quiz Homeowner’s Training Worksheets page 10

Mortgage payback

Shorter time to pay back = less interest you pay More payments made in same amount of time =

less interest you pay Longer time to pay back = more interest you pay,

but monthly payments are lower

See Worksheet #5, “Websites that can calculate mortgage payments”

Homeowner’s Training Worksheets - Page 12

House purchase price + Upfront Costs

Be Aware of the Total Costs…

• Appraisal Fee – determines the value of your property. Your lender may require an appraisal at your expense. It usually costs between $250 to $450.

• Inspection Fee – allows you to determine the potential problem areas in your new home before you move in. This can cost anywhere between $300 and $500. An inspection is not mandatory, but may be a worthwhile investment.

Upfront costs

• Land Titles Fee – Varies as a percentage of the property’s purchase price. Usually, it’s one to four per cent.

• Legal Fees – The cost of paying your lawyer to protect your legal interests.

Upfront costs

Mortgage Loan Insurance

If you have a down payment of less than 20% of the purchase price, you will have to purchase mortgage insurance through your lender.

Mortgage insurance protects your lender against your failure to make payments.

This charge can either be paid upfront, or added to the amount that you borrow.

Upfront costs

Property Taxes and Utility Bills

These are adjustments that are made at closing. You pay back the seller for pre-paid costs such as property taxes, fuel costs, etc., which could be a few hundred dollars.

Your lawyer can tell you before closing if there are any adjustments.

Upfront costs

Property Insurance

You must have property insurance in place when you close the deal for a house.

Your mortgage lender requires this, because it protects their security for your mortgage.

Upfront costs

Survey Certificate (Real Property Report)

a map that shows where buildings and fences are located, as well as any public access on the property.

Your mortgage lender will ask for an up-to-date survey, or certificate of location. If the seller does not have one or does not agree to get one, you may have to pay for it.

Alternatively, your lender may ask for title insurance.

Upfront costs

Other costs…

A professional mover Appliances Gardening equipment Snow-clearing

equipment Window coverings

Hand tools Renovations or

repairs Service hook-up fees Condominium fees Decorating material

Understanding the Buying Process

How to find a house

Home Inspection

Deposit

Down payment

Ready to buy?

The Lender - where you go to borrow money to buy the house

The Lawyer - makes sure your legal interests are protected

The Realtor - negotiates on your behalf to help you get the best possible deal

The Home Inspector - a professional home inspector will aid in understanding the home’s condition and safety

The Appraiser - a professional who can tell you what the property your home resides on is worth

The home buying team

How to find a home

Where to look

Newspapers

Real estate websites

Realtors

People you trust

Multiple Listing Service (MLS)

Home inspection Respected designations

CAHI

CAHPI

ASHI

What can be inspected

Advantages to having an inspection

See worksheet #6 “Before You Buy – Home Inspection Checklist”

Homeowner’s Training Worksheets page 13 & 13a

What you need in a house

Before you go looking…

Needs What you must have for

basic shelter e.g. two bedrooms

Wants What you would like to

have e.g. separate bedrooms for each child

Complete Worksheet #1 “My Must-Haves and Like-to-Haves”

Homeowner‘s Training Worksheets page 1

When you find a house

What is the process Who can help Closing the deal Getting ready to move

This is your opportunity to ask for what you want – it’s going to be your house!

The offer

Pre-offer checklist

Know the maximum amount you can afford to pay

Know the amount of down payment you have Be prepared to write a cheque as deposit Consider what you want included in the selling

price Possession date Consider any “subject to” conditions

Include in the selling price?

Appliances (fridge, stove, washer, dryer)

Window coverings (curtains, blinds, etc.)

Rugs (wall-to-wall, scatter, etc.)

Satellite dish

Make sure you ask and are clear about what is included in the selling price of the home. If you ask for extras after the Offer of Purchase is signed, you may have to pay extra.

“Subject to” conditions

Conditions are items that must be completed or fulfilled prior to an offer being concluded.

For example: Carpets cleaned (seller expense) Repair hole in the wall (seller expense) Buyer getting mortgage financing

Proposed purchase price List of items included in purchase price Closing date and possession date Financing information Conditions of sale Obligations to be fulfilled by the seller Time period for which offer is valid Seller’s obligation to provide surveyor’s certificate

What goes into an offer ...

Deposit

This is part of the down payment and is usually required as part of the offer to purchase.

Your cheque for the deposit amount goes through if your offer is accepted by the seller. If the seller does not accept your offer, the cheque is cancelled.

Saving up for your down payment … doesn't have to be a hassle!

The down payment must come from your own resources; you may be given part of it as a gift from your parents, grandparents, etc.

Some municipalities have funding programs that can help you.

Down payment

This money must be in your lawyer’s hands before closing day.

It can be as little as 5% of the purchase price.

After Offer Accepted

and Mortgage Approved…

Pay closing costs and sign papers at your lawyer’s office Give notice to your landlord, if you are

renting Call your mover to finalize the details Notify utilities and post office of change of

address Arrange for property insurance

See worksheet #7: “Homeowner’s Moving Calendar”

Homeowner’s Training Worksheets pages 14 & 15

Closing day

You will need to pay the closing costs and sign papers at your lawyer’s office.

On this day, you get your keys to your new home!

Once you are a homeowner

Protecting your investment

Make mortgage and insurance payments on time

Keep home and yard safe

Monitor budget to keep up with day-to-day expenses

Set aside money to fund future home repairs and maintenance

Meeting your responsibilities

Condominium ownership

Form of ownership, not physical design Condo Board Own home + pay monthly fee Reserve fund

Home maintenance

See www.cmhc-schl.gc.ca for tips