Buying a Home
12 July 2006, lunch time
So, unless I manage to mess things up somehow, I should be moving to Bloor and Lansdowne in August or September. Why? Because I bought a condo there. Buying a condo is a lot of extra stress in my not so stressful life. I’ll be glad when everything is sorted.
For those of you looking to buy a place, here are my tips for you:
- I am buying a place someone is flipping. As a first-time buyer, had I been able to buy directly from a builder, I would be able to get a rebate on the land transfer tax. If you are looking to buy, and can buy a brand new house/condo, then this will save you a lot of money. Even if a resale unit has never been lived in you can’t claim this rebate.
- Lawyer fees are way more then you think they will be.
- Mortgages come in all sorts of flavours. First, a mortgage can be fixed or variable: this means that the mortgage rate is either fixed for some period of time, or varies as the prime interest rate changes. Second, a mortgage can be open or closed: an open mortgage is one that you can pay back as much as you like whenever you like; with a closed mortgage you can pay back no more then 15% of the principal of your mortgage early each year. Third, mortgages have terms ranging from 6 months to 5 years (and sometimes longer). After the term is up you need to renegotiate your mortgage. If you don’t have a lot of extra money laying around, there isn’t much point getting an open mortgage—i.e. if you don’t have more than 15% of your principal laying around. Rates are probably going to come down, so getting a variable mortgage at this point in time is probably a good idea. (Even if rates go up a little bit in the short term, your variable rate will probably still be lower than what you would get if you got a fixed rate.) Last year or the year before would have been a good time to get a fixed mortgage, as rates were really low.
- It isn’t too hard to find a place on your own, provided you have access to the real MLS system. (The public system is alright, but lacks many listings.)
- First time buyers can use RRSP money to pay their down payment, and you should do so.
- If you are broke-ass, like myself, and can only put 5% down, you’ll need to get CMHC insurance. The CMHC will need to approve the mortgage you want to get, and this process can take up to 2 weeks.
- You can’t buy a condo from someone until after the building has registered—they aren’t allowed to sell their unit, because they don’t own it.
- Interest payments are like rent, in that it is money that you’ll never see again. If the interest on your loan is less then what you would pay in rent for a similar place, you are coming out ahead. (Well assuming the value of your home doesn’t tank TOO much.)
To tell you the truth, i’m no where near as stressed as I feel I should be. A part of me feels like this is no different than buying an iMac. (It is.)
I was planning on writing about the whole experience as I go. My offer for the place was accepted on Saturday night, and things have sort have happened fairly quickly since then.
I haven’t looked into what rates would be had I 25% to put down, but I can try and find out. It’s a bit of a non-issue since I won’t have 40-50K to drop any time soon. My dad recently re-did his mortgage, and he was quoted the same rates as me. (That might not mean anything at all.) I suspect the higher rates come when you use a “no down payment” loan, or if you have poor credit.
by ramanan on July 12 2006, 3:07 pm #
Very cool. How many places did you end up looking at? What is it like?
by Ryan on July 12 2006, 11:33 pm #
Wow. Ram, congrats! You’re a soon-to-be homeowner!
Quite exciting stuff. Hope to see some photos!
by matt on July 13 2006, 3:25 am #
Can’t say I agree with this:
“Interest payments are like rent, in that it is money that you’ll never see again. If the interest on your loan is less then what you would pay in rent for a similar place, you are coming out ahead.”
There’s very little difference between renting and owning from a financial perspective. Renters don’t have to put up with taxes, interest, maintenance, and, in some cases, heat, electricity, and water bills. These are the “hidden costs” of owning a home and will drive up the monthly cost of owning quite a bit. Dollar for dollar, renting is cheaper.
But, everyone says, you’re building equity in the home. You own something for your dollars. With renting you’re just throwing your money away.
If you are disciplined enough to take the money you save by renting and invest it wisely, you’ll be even with owners (at the very least) with a lot less aggravation. Even including appreciation of the home, a decent investor can probably make a better return over the long run.
Of course, 99% of the population is lousy at saving and investing so the forced “savings” program of owning a home is usually a good thing. But don’t ever fall for that old chestnut that renting is throwing money away.
And yes, I own a home. A country property which eats up more time and money than a suburban home and definitely way more than my old condo. But I definitely don’t regret renting. Not for a second.
How’d that soapbox get under me?
by Steve on July 13 2006, 10:43 am #
Weiguo:
The amount you put down or your credit rating has no impact on the interest rate. As you say, if you put less down, you pay the mortgage over a longer period, paying more in interest for the same place.
If your credit rating is bad, they won’t approve the mortgage or will approve a smaller mortgage.
by Steve on July 13 2006, 10:50 am #
What Steve mentions comes up fairly often. Rent on units in Toronto (and in lots of other cities) is quite cheap nowadays, so if you are disciplined then you can probably rent and invest and come out ahead. Being disciplined is the key. If you are like myself, you’ll probably spend the money you save on cheap rent on things like trips to Tokyo or Sydney, an iMac, a fancy camera, a gameboy, another gameboy, etc, etc, etc. (Also, please don’t think i’m an expert on any of this, because I’m winging it way more than I should be.)
by ramanan on July 13 2006, 1:00 pm #
If you put down too little down payment, you are required to have insurance on your mortgage from the semi-gov’t mortgage insurance agency. So unless you are desperate, you should at least have a down payment above that requirement. Your banker will certainly have all the details you need.
by Victor on July 13 2006, 4:36 pm #
A mortgage is high-ratio if you are putting down less than 25%. Some people will have 50 grand laying around to spend, but I suspect a lot of people our age won’t.
by ramanan on July 13 2006, 4:54 pm #
Although, you know we’re not fresh faced out of university anymore.
I’ve lived at home at saved 80% of my salary for almost 2 years now. So your savings could probably start to vary quite a bit by our current age; with some with quite excellent savings.
by Victor on July 13 2006, 5:15 pm #