WORKING WITH A REALTOR
Real estate transactions are complicated and can be costly if completed incorrectly. Selling or buying a property is a process that is bound to be a little nerve-wracking and emotional. Buying or selling a property requires in-depth knowledge and experience in a wide range of disciplines. A real estate agent is a trained professional that acts on your behalf and provides you with a clear understanding of the legal issues and potential pitfalls. After all, one wrong move could result in unnecessary costs and frustration. Working with a reputable real estate agent that you trust can be the deciding factor in whether your house selling or buying experience is positive or negative. There are many reasons why it pays to use a realtor including: setting or negotiating the right price, greater market exposure and efficiency, neighbourhood knowledge, connections and objectivity and closing assistance. I make sure that all of the legalities involved are followed correctly.
My approach can be called Buying and Selling a Home one step at a time. The whole process can be intimidating. I spend time with my clients helping them break the process down into smaller, more manageable steps. The end result is that my clients are more educated and confident about the process.
SELLING YOUR HOME
Selling your home is an involved process that affects your family and your future. It is important that before you begin this process, you ensure that you have the most up-to-date information. There are a million different reasons why people sell their homes, but every seller has one thing in common: the desire to get as much money as possible from their residence as quickly and as hassle-free as possible. One of my main responsibilities is to arrive at an accurate estimate of value for your home and provide you with a detailed evaluation and analysis. I fully investigate the real estate market and compare your property with similar listings to make sure that you receive the highest amount possible. Before you begin the selling process, really evaluate why you are moving. Do you have too few rooms, or too many? Has your job moved to another town or city and you are relocating? Are the neighbours driving you away? Or are you simply looking for a change? A complete analysis of your current position will set a good foundation for your next home hunt.
BUYING A HOME
Welcome to the world of home buying. It’s an exciting world, full of anticipation and opportunity. A chance to pursue your dreams, establish roots and take your first steps towards long-term financial security.
For most of us, the purchase of a home is the most important financial commitment we’ll make in our lifetime. We look forward to the freedom and security of owning our own home, and are more than willing to make sacrifices required to achieve our goal. These include working hard and finding ways to save the funds we’ll need to make our first purchase.
The first question you need to ask yourself is, "How much can I afford?" That depends on a number of factors some of which include your selected location, the type of home you would prefer and your income. After all, it's not just the mortgage you have to take into account. There are property taxes, utilities, and in some cases condo fees. As a general rule of thumb, your monthly home-carrying cost should not exceed 30-35% of your income. Part of deciding what you can afford can be accomplished by meeting with your bank or a mortgage broker and negotiating a pre-approved mortgage. There are many types of mortgages and many different terms. Research all of your options. This ensures that there are no surprises once you are ready to make an offer. Once you have figured out your monthly expenses and what you can afford, you can start your search and soon will be enjoying the benefits of home ownership.
HOW MUCH HOME CAN YOU AFFORD?
The amount of money you will need for the initial purchase; this consists mainly of the down payment and other costs such as legal fees, inspection fee and taxes.
The ongoing costs of paying back your mortgage, along with monthly operating costs for utilities, maintenance, insurance and annual property taxes.
When lenders assess your ability to buy and determine how much money they will lend you, they look at your ability to pay both types of costs.
Most lenders say that your monthly housing expenses (mortgage payment and taxes), plus condominium maintenance fee, if applicable, should not exceed 30% of your monthly gross family income. This is called your Gross Debt Service (GDS) ratio. Some lenders will go as high as 35% GDS, depending upon a number of variables.
Louis and Catherine have a combined gross income of $60,000 per year or $5000 per month. No more than $1,500 (30%) can be applied to housing costs ($5000 x 30% = $1,500)
Lenders also use a second calculation in qualifying you for a mortgage. It’s called the Total Debt Service (TDS) ratio. Generally speaking, no more than 40% of your gross family income may be used when calculating the amount you can afford to pay for mortgage payments and taxes plus other fixed monthly expenses. These other fixed costs are your ongoing commitments and can include auto, student or personal loans, as well as revolving credit accounts such as Visa, MasterCard and departments store accounts. Again, the 40% calculation may vary slightly among lenders
Bruce and Mary have a combined family income of $72,000 per year or $6000 per month. Therefore, no more than $2,400 (40%) per month can be used for housing costs and other fixed debt ($72,000 ÷ 12 = $6,000 per month x 40% = $2,400). They have a car payment of $250.00 and a student loan of $150.00 per month. That leaves $2000 available for housing costs.
Once you’ve determined your income available for housing costs, subtract the estimated monthly property taxes for the home you may be considering. The remainder is the amount you have available for mortgage payments.
In order to determine the price range of homes you can afford, lenders look at both the size of mortgage for which you qualify and the amount you plan to contribute as down payment. Conventional mortgages require a 25% down payment.
In calculating how much home you can afford, don’t forget to include the “closing costs” for completing your purchase, including legal fees and taxes. It is also important to remember the less non-housing-related debt you have, the more income you have available for housing costs.
Once you’ve determined the size of mortgage you qualify for and the home price you can afford, try living for a couple of months as if you were paying that mortgage and meeting other anticipated home-related expenses. Think of this as “Test Driving” your ability to buy a home before you sign on the dotted line. The easiest was to do this is to take your current living expenses and tack on the additional amounts required to own a home. I have included another worksheet to help you to do this.
If the extra costs fit easily within your budget, you’re probably ready to buy a home. If the additional costs seem difficult to handle, look for ways to reduce your spending in other areas.
For more information, contact
Sarah Davis, Sales Representative, ABR, SRES
Coldwell Banker Action Plus Realty
20 Argyle Street, Simcoe, ON, N3Y 1V5
Toll Free: 1-800-426-8816