Joe Squire B.A. & Deb Wilson RI (BC)

Take Control When Buying a Home

If you approach the home buying process intelligently and with confidence, you are much more likely to buy a house you'll be proud to call home.

Approaching the task of buying a home can be overwhelming; there's so much to consider:

• How much house can I afford?
• How can I find the best loan?
• Where will I come up with a down payment, and how much will I need?
• Should I buy a new or resale home, and which will go up in value?
• Should I work with an agent or look at homes on my own?

And these questions are just the beginning. Buying a home is one of the largest financial transactions in your lifetime - do your research so you know what you’re doing.

Here are the two most important things to remember no matter where you are on the road to home ownership:

1. You can and should understand everything that is happening in the home buying process.

There is nothing that is so complex that it can't be easily explained to anyone with average intelligence. Just because you don't apply for a thirty year mortgage once a week doesn't mean you have to take the first one that comes along. You'll need to learn some new terms, apply some new concepts and take the time to understand what you're getting into.

If, at any point, something happens that doesn't make sense to you, simply demand a full and complete explanation. If it still doesn't make sense, seek help from someone you trust like your CPA, your banker or maybe an online real estate columnist.

2. In the world of real estate sales, YOU are the most important person in the entire process.

It's easy to think that everyone else carries more weight than you. The agent talks fast and has an answer for everything. The lender may decline your loan application, and on and on.

But the truth is that you, the buyer, are the one person in the transaction that makes it all happen. If you decide to not buy, the entire process comes to a grinding halt.

So flex your consumer muscle and take command of this process. Surround yourself with a team of professionals that you have confidence in and make them work for you.

Approach home buying with intelligence and confidence, and by doing your homework, this way you are more likely to buy a house you’re happy with and to know that you made the right decision.

The essence of the agency relationship is that the Sales Associate has the authority to represent the principal in dealing with others. Agencies and their Sales Associates are legally obligated to protect and promote the interests of their principals as they would their own.

The Sales Associate has the following duties:

• Undivided loyalty. The Sales Associate must protect the principal’s negotiating position at all times, and disclose all known facts which may affect or influence the principal’s decision.
• To obey all lawful instructions of the principal.
• An obligation to keep the confidences of the principals.
• The exercise of reasonable care and skill in performing all assigned duties.
• The duty to account for all money and property placed in a Sales Associate’s hands while acting for the principal.
• You can expect competent service from your Sales Associate, knowing that the company is bound by ethics and the law to be honest and thorough in representing a property listed by their own Sales Associates in a single transaction.
• Assist you in screening and viewing properties
• Inform you of lenders and their policies
• Identify and estimate costs involved in a transaction
• Assist you in establishing your range of affordability
• Prepare offers or counter-offers at your discretion
• Present all offers promptly

• Recommend or suggest a price
• Negotiate on your behalf
• Inform you of his/her principal’s top/bottom line
• Disclose any confidential information about his/her principal unless otherwise authorized.

Please note: It is in your best interest not to provide a real estate Sales Associate who is not your Sales Associate with any information that you would not provide directly to his or her principal.

WHAT ARE THE ASSOCIATED COSTS FOR BUYERS?

These are the costs that a Buyer of real estate is responsible for:

1. Cost of Mortgage including:
   • Mortgage company’s lawyer/notary
   • Appraisal (if applicable)
   • Land Title Registration fees
2. Lawyer or Notary Fees & Expenses
   • Searching Title
   • Investigating title
   • Drafting documents
   • Land Title Registration fees
3. Taxes
   • Goods & Services Tax (on new construction)
   • Property Tax Adjustment
   • Property Purchase Tax
   • Sales Tax (if applicable)
4. Strata maintenance fees (if property is part of a strata corporation)
5. Survey certificate (if required)

WHAT ARE THE ASSOCIATED FEES FOR BUYERS

There are fees associated with buying any home anywhere in the world – here is a brief summary of the fees associated with buying a home both for residents and non-residents in Canada.

Residents

Property Transfer Tax

This is a Provincial Government Tax that applies to all transfers of real estate and is payable on the completion date. The rate of the tax is 1% on the first $200,000 of the purchase price and 2% on the balance.

Goods and Services Tax

The GST a 5% tax that applies to the purchase of new construction and on the resale of accommodations that have been rented out for short term or nightly rental. The payment of the GST can be deferred if the new purchaser intends to use the accommodation for short term or nightly rental at least 90% of the time and he/she becomes a GST registrant.

Insurance

Buyers are required to arrange insurance on single family residential accommodations, and liability and contents insurance on strata-titled properties.

Condominiums

Of special concern to condominium purchasers, there will be monthly maintenance charges, and the Strata Corporation is also entitled to levy special assessments for extraordinary expenses if necessary.

Non-Resident Fees

The above fees also apply to non Canadian residents; however below are a few details that should also be understood

With holding Tax on Rental Income

You may obtain an exemption from the 25% non-residents are required to pay to Revenue Canada by filling out a simple form called an NR6, explaining that the projected rental income is less than the anticipated expenses associated with the property. After filling out this form, you must also file a tax return with Revenue Canada.

Execution of Mortgage Documents

Once the borrower has signed a commitment letter with the lender, the lender will instruct a lawyer or notary to draw the mortgage security. These documents must be couriered to the borrower for their execution in the presence of a notary public. What this means to the buyer is simply that sufficient time be allowed to courier the documents as faxes or other methods of transmission are not possible in this case.

Methods of Payment

It is recommended that the purchaser open a bank account in Canada for the transfer of funds. The balance of the purchase price must be paid by certified cheque or bank draft in Canadian funds. Since exchange rates fluctuate from institution to institution, from day to day, and depending on the amount to be exchanged, it is important to research this before the completion date.

Completing the Transaction

It is critical to complete transactions on the designated completion date in British Columbia. The vendor has the option of cancelling the contract of purchase and Sale should the funds not be paid on the stipulated completion date, and is entitled to retain the deposit. It is not uncommon for vendors who whish to continue with the transaction to demand interest or additional charges for extensions for late completion.

It is important to note that some rules are different in Canada and you should be aware of them.

WHAT ARE THE FINANCING CRITERIA?

The Basics

There are two criteria for financing a home in BC:

1. First, housing costs including the mortgage payment, taxes, utilities and strata fees cannot exceed 32% of your gross income. If you have no other debt, an exception can be made up to 35%. Total debt servicing, including all other loans and credit payments cannot exceed 40% of your gross income.
2. Secondly, in a conventional mortgage, a down payment of 25% is required. The exceptions to this are high ratio, insured mortgages that are available for your primary residence with a minimum of 5% down payment. The insurance cost increases as the percentage of financing requested increases.

Higher Valued Properties

With higher valued properties, lending values decrease as the value of the property increases.

1. For a property valued at or below $500,000, the conventional down payment of 25% is required.
2. For the next $250,000, the down payment amount shoots up to 40%.
3. For the next $250,000, 45%, and then 50% of the remainder
4. For example, with a purchase price of $800,000, the maximum mortgage allowed is $552,500. This applies to Canadian residents only, either owner occupied or investment properties.

Non-Residents

For non-residents, the required down payments are slightly different.

1. For the first $400,000, a down payment of 35% is required.
2. For the next $300,000, a down payment of 45% is required.
3. Then 50% for the remainder.

WHAT IS GST AND HOW DOES IT AFFECT THE PURCHASE OF YOUR HOME?

How does GST work?

The Goods and Services Tax is a 5% federal tax which in many countries is a “hidden” tax paid by the manufacturer of goods and the provider of services and then added on to the cost of the goods or services by the seller, so that the end price would be the same: in one case, as a “hidden” tax, the tax is added before the final sale, and in the case of a value added tax such as the GST, the tax is added at the point of sale. In Canada it is no longer “hidden” but is a value added tax and in the case of real estate, it applies to the purchase of new construction and on the resale of accommodations that have been rented out for short term/nightly rentals.

Please note: The payment of GST can be deferred if the new purchaser is going to continue to offer the property for short term or nightly rental for 90% of the time and becomes a GST registrant.