 Mortgage
Articles & Tips
On this page you will find useful articles and tips to help make the mortgage process smoother and hassle-free. Keep watching this page as we will be adding to it on a regular basis.
Be prepared Don't miss out on the home of your dreams because you can't arrange financing quickly enough. Avoid disappointment. Apply for a pre-approved mortgage with us now! What is it? A pre-approved mortgage puts your financing in place before you make an offer on a home. Usually, the sale of a home is contingent upon the buyer securing the required financing within an agreed-upon time frame. If you are unable to do so, the sale could fall through. With a pre-approved mortgage you'll be able to make a firm offer for the home of your choice. And as most Realtors will tell you, a firm offer adds an awful lot of leverage to price negotiations! Who is eligible? Any qualified borrower. How it works Apply with us now and start enjoying the convenience and negotiating leverage that Invis provides. All information you supply is completely secure and will be held in the strictest confidence. Once you have received your pre-qualification from us, we'll help you find a lender with the most competitive rates who will issue your prequalification certificate. After a brief telephone contact from the mortgage lender discussing options, and requesting you to send proof of income and employment, you can be "pre-qualified" quickly and easily. After you purchase your home,
simply contact us to provide property and offer details, along with any
other information requested, and your actual mortgage can be approved within
hours.
Don't have the usual 25% down payment? No worries Increase your leverage with a high ratio mortgage! This consumer-oriented program makes the dream of home ownership a reality for more Canadians than ever before. Even with zero down payment. What is it? 5% Down: Two programs are available that let you buy a home for as little as a 5% down payment. One is administered by Genworth Financial Mortgage Insurance Co., a private sector insurer, and the other by CMHC, a Federal Crown Corporation. Read carefully; the small print could create unexpected hitches! Use us to guide you through the process. "0" Down: There are also two programs where you can buy with "0" down: Free-Down Payment: Some
of the lenders in the Invis network have programs which are referred to
as "Free-Down-Payment" Programs. In these scenarios, the rate is higher
than the discounted rate, and is closer to - if not the actual - posted
rate. The lender essentially provides you with a cashback of 5% which is
the downpayment. The higher rate of interest paid over the mortgage term
compensates for the downpayment covered by the lender.
"0" Down - A few of our
lenders will actually do a "0" down mortgage, however the catch is that
there is an insurance fee that has to be paid to the lender who self-insures
the mortgage. The fee is added to the mortgage amount.
Who is eligible? For 5% down, anyone who meets the following lending criteria: A first time buyer who wishes to purchase a home whose value is above the "ceiling" established in that area for the First Home Loan Insurance Program. OR A non-first time home buyer
who has 10% or more as a down payment
For 0% down, any qualified borrower who meets the underwriting guidelines of the specific lenders. How it works Both 5% programs allow you to
obtain a mortgage of up to 95% of the purchase price. Depending upon the
percentage of down payment to be used, CMHC and Genworth Financial charge
the following one-time insurance premium to you, the borrower. This premium
can be added to the mortgage without affecting the Loan To Value ratio
(LTV).
In the example given above,
the mortgage of $178,000 would be subject to a 2.0% Insurance fee because
it is 89% of the purchase price. The fee would be $3,560, and the total
mortgage amount $181,560. To qualify for a CMHC insured mortgage:
1. If the best 3-year rate you can get is 6.5%, the monthly payment on the $182,450 mortgage shown above at a standard 25 year amortization is $1,216.13 (see Mortgage Analyzer calculator). If your annual taxes are $2,000 and annual heating $1,200, then your annual shelter costs would total $17,794.Assuming no other payments, an income of $55,605 ($17,794/32%) would qualify you for this mortgage. 2. If you have monthly car and credit card payments of $475.00, this would add $5,700 to your annual debt servicing, for a total of $23,565. Dividing this figure by 40% (see above) gives a required qualifying income of $58,900. What else should you know? In general, the credit status of an applicant must meet the lending criteria of the particular mortgage lender. An Invis Mortgage Consultant can help you meet the required criteria and assist you with the entire mortgage process. Plus we deal with many lenders and therefore have a greater chance of matching you with a lender. Also, while CMHC will qualify an ex-bankrupt applicant for insurance two years after discharge with subsequent re-established credit, many lenders' own rules over-ride this feature, and they will decline the application. On the other hand there are a number of lenders who specialize in granting and administering mortgages to the full extent of the National Housing Act at competitive interest rates. In addition to the slight differences described above in mortgage terms and qualifying ratios (Total Debt Service ratio cannot exceed 40%) there are a few important conditions which apply to eligibility under this program: The downpayment must be 5% of the purchase price. The applicant must be able to prove that their down payment comes from their own resources savings, sale of investments, etc., the exception being a family gift that never has to be repaid, and which is in the borrower's possession before the application for Mortgage Loan Insurance is sent to CMHC. First Time Home Buyer? Don't forget about the RRSP Home Buyers' Plan. It can be all or part of your down payment. The rules have changed in recent years, so if you think you know them, double check here! What is the Home Buyers' Plan? The HBP is a federally instituted government program that allows you to withdraw up to $20,000 from your registered retirement savings plans (RRSPs) to buy or build a qualifying home. The home can be for yourself or it can be for a related disabled person if it is more accessible to that person than his or her current home, or is better suited to that person's needs. You do not have to include eligible withdrawals in your income, and your RRSP issuer will not withhold tax on these amounts. You can withdraw a single amount or make a series of withdrawals throughout the same year, provided the total of your withdrawals is not more than $20,000. If you buy the qualifying home together with your spouse or common-law partner, or other individuals, each of you can withdraw up to $20,000. You have to repay all withdrawals to your RRSPs within a period of no more than 15 years. Generally, you will have to repay an amount to your RRSPs each year until you have repaid all the amount you withdrew. If you do not repay the amount due for a year, it will be included in your income for that year. Keep reading to learn more! And remember, whether you have RRSP savings or no RRSP savings, the HBP can be applied to you! Benefits from using the Home Buyers' Plan. The utilization of your RRSP's within the guidelines of the HBP results in benefits that are quantifiable immediately and extend over the long-term:
You can participate in the HBP more than once in your lifetime if:
Under the "HBP", Revenue Canada permits you to use your RRSP funds towards the purchase of a new home. The default insurance companies support this program (when your down payment is less than 25%) in allotting the RRSP funds as a source of down payment. a. No penalty for withdrawal
A number of conditions have to be met to participate in the HBP. While some conditions have to be met before you can withdraw funds from your RRSPs, others apply when or after you receive the funds. The following chart lists all the HBP conditions and who has to meet them in different situations. Situation 1 -
** NB.
Establishing an RRSP with borrowed funds for a tax refund. The "HBP" permits an individual to establish an RRSP with borrowed funds, and then use the resultant tax refund for a down payment. In this scenario:
The tax refund is in the individual's hands at the time of closing. The lender can verify that the borrower has proven liquidable assets equal to a minimum equity of 5% of the purchase price. We will:
Managing Tax Refunds The government does not monitor the funds that are withdrawn from RRSP's for the purposes of the HBP. Therefore, providing that an individual has qualified as a buyer and has purchased a qualifying home, they may do whatever they desire with the money. Furthermore, the income tax refund received may be used in whatever manner decided, such as:
What else should you know? The Home Buyers' Plan enables you to borrow money to top up your RRSP plan using accumulated RRSP eligibility limits. If your tax assessment notice indicates you are eligible for $18,000 in contributions in the current year, and you already have $4,000 in a self-directed plan, you are allowed to borrow subject to credit approval the $16,000 to buy the RRSP required to bring you up to the $20,000 Home Buyers' Plan limit. Then you can claim the eligible deduction against your current year's income in order to get a large tax rebate. You can use the rebate to pay down the loan or apply it to the cost of buying the home. Here, of course, the amount of tax you're paying each year is an important factor. If the $16,000 deduction in this example results in a $5,000 tax rebate, it can be used as you see fit. If, on the other hand two partners each earning $80,000 per year take their maximum RRSP of $20,000 each in the current year, they could net a total of $15,000 or more in a tax rebate. You are then allowed to withdraw up to the $20,000 maximum from the RRSP 90 days after topping up or creating the plan, subject to the re-deposit requirements described above. Be Careful If you're planning
to borrow the money for the maximum RRSP, you could end up disqualifying
yourself for a mortgage because your monthly payments will be too high.
Your "total debt servicing ratio" the proportion of your gross income
required to service both the home related costs and other monthly obligations
may exceed the usually acceptable monthly maximum of 42%. Another $600
per month could well make the difference in whether or not you'll qualify
for a mortgage. Your Invis Mortgage Consultant is the best person to advise
you on this process.
What happens legally when you switch? Most people are unaware of the legal effect of switching lenders. When you renew a mortgage you are essentially starting the process again discharging the existing mortgage, taking out a new one, and beginning the whole payment process, albeit at a lower principal amount. As such, you should treat this as just as important a process as the first time you arranged the mortgage. Remember your situation will most likely have changed since then, and you will require a different product with different terms attached to suit your situation. In most Provinces a switch of the current or lower balance requires only a simple assignment of interest in the mortgage to be executed by all parties and registered on title. This assignment also attaches the specific terms that will have legal effect, and replaces those of the transferring institution. So even though the old mortgage is still registered on title, all those old terms and conditions registered by your previous lender will be completely replaced by those of your new lender under the assignment of interest. Moreover, the form that you are holding in your hand from the lender who did your previous mortgage financing, has a rate that probably is not as competitive as it could be. Don't let the hassle from the first time you negotiated dictate you just signing the form and sending it back to the lender it will most probably cost you in the form of higher rates. The lenders count on 70% of renewers just signing the form and mailing it in they are not forcing you but they are preying on human nature to embrace convenience. However, let us the work for you the same convenience, at a much lower cost to you and a product and terms that will suit your current situation. The fact is that it is likely another lender will give you what you want at a rate you want there are no legal implications to you switching. Financing strategy for renewing/switching As an experienced homeowner and borrower, you are probably already very familiar with the mortgage products and services of your current lender. It could be to your advantage to use another lender. Contact us today to help you make the switch. As well, here's some important information to keep in mind: What type of mortgage should you choose? Today, more than ever, there are numerous mortgage options available. Don't be confused We can help you find the best product for your needs and negotiate you the best rate. They do the research for you, enabling you to avoid the frustration and confusion of having to do it yourself, and explain the available options. Mortgage categories Fixed-rate:
Variable-rate:
Split-term:
Self-directed RRSP:
What terms & payment options should you choose? It all depends on what you want. We will assess your personal situation and needs to find the best mortgage for you at the best rate. Short-term risk & variable If rates are low and stable, and/or you are prepared to take a risk, you can generally pay a lower rate with a short-term mortgage. You simply roll over your term every 6 months, or float your rate against prime, with the option of locking in to a longer term at a later date. This is not for everyone, however, as sudden upward rate movements can have a significant impact on your payments. You may want to discuss this with us. Long-term Any term 3 years or longer is considered "long term" in today's economy. Because long-term rates are usually higher than short-term rates, you may not want to choose this option. On the other hand, by locking in you will avoid exposure to rate increases. You'll have the comfort of knowing exactly what you payments will be and you'll be able to manage your budget accordingly. Split-term A mortgage which allows you to minimize or hedge your interest rate risk by splitting your mortgage into 5 parts. For example: A $150,000 mortgage could be split into five $30,000 segments with terms of 6 months, 1, 2, 3 and 5 year terms negotiated at today's best rates. The average rate would rise or fall much more slowly than changes in the market, however, as only the shorter terms are affected by even the most volatile rate movements over the first few years. Confused? Talk with us. Prepayment options Many lenders allow you to make a lump sum payment usually 10% to 20% of the original principal balance. In addition, many mortgage products now include a "double-up and skip-a-payment" feature. This lets you "bank" extra mortgage payments for a rainy day, at which time you can "skip" them if you need to. Ask us to advise you on your options today! Payment changes Most mortgages now allow the amortization to be adjusted by increasing the payment on closed terms by 10% 20% per year, once annually. Payment frequency Most mortgages now come with the option to pay your mortgage at a frequency that matches your cash flow weekly, bi-weekly or semi-monthly. The added benefit of the "accelerated" weekly and bi-weekly payments is that by dividing a regular monthly payment into two or four respectively, and deducting it at the new interval, an extra payment a year is made directly against principal. The surprising effect of this one extra payment a year is to reduce the amortization of the average mortgage by approximately 5 years, with cash savings at the end of the mortgage term. One of the highest financial priorities of Canadian homeowners is to pay off their mortgage as quickly as possible. Most are aware that paying down extra principal in the early years by whatever means possible can shorten the life of your mortgage and dramatically lower the interest you'll pay over the long haul. The "Pay-Off Tips" below describe some of the most effective methods of achieving this. TIP #1: Mortgage payments made with after tax cash More Canadians are becoming aware that, since mortgage interest is not tax-deductible in Canada you are making mortgage payments of both principal and interest with money that you've already paid tax on "after tax dollars". This makes it even more important to eliminate the drainage of disposable income as soon as possible! TIP #2: Prepayments give great return on investment If you pay an average of 6.5% in mortgage interest, for each $1,000 by which you reduce your mortgage principal, you will save $65 in after tax cash every year. If you are paying taxes at a marginal rate of 40%, you have to earn $108.33 each year to pay the interest on every $1,000 of principal outstanding...a heavy burden, but also a tremendous implied benefit to reducing this balance. In fact, the example shows that the "return on investment" for making prepayments on your mortgage is 10.833% before tax and 6.5% after tax far better than most fixed return investments (bonds, GIC's etc.). TIP #3: Increase your payment annually to the most you can afford The upside is that most lenders will allow you to reduce it again to the previous level if it turns out to be too great a burden or your circumstances change. TIP #4: Utilize your RRSP-driven tax rebate as a mortgage prepayment method Even if you can only prepay annually, make sure these funds are set aside for that purpose. Many Canadians will borrow (at prime) to buy an RRSP to ensure the maximum rebate. When applied to the mortgage principal, this refund is a "gift that keeps on giving". Combining the refund with the tax-free interest earned on the RRSP over the subsequent years will quickly outpace the short-term interest costs of the RRSP loan. TIP #5: Increase the frequency of your payments Make accelerated bi-weekly payments to get a "free" principal reduction equivalent to one full mortgage payment every year painlessly. Unless you are paid weekly it makes little sense to make weekly payments. All you'd be doing is making a smaller payment, and deferring the difference for a week. TIP #6: Make use of double-up privileges wherever possible Tell yourself that you will "skip-a-payment" whenever necessary... then skip only when you absolutely must. TIP #7: Round your payments up By adding even a nominal amount of say, $10 per payment, the amount of interest you are saving will be unbelievable, and the extra money relatively painless to part with. TIP #8: Pay a lump sum whenever possible By decreasing the principal of the mortgage, your payments will not be allocated as much to interest in the future, thereby accelerating your freedom to mortgage-free life. TIP #9: Keep payments the same when mortgage rates have fallen If the payment amount has not been a problem so far, then keep it the same thus paying down the principal faster. TIP #10: Raise payments in line with increased income on an after-tax basis If your income increases, don't keep your mortgage payments the same. Although the disposable income may be fun to spend on unnecessary luxuries in the short-term, the long-term benefits of being mortgage free faster and saving those interest payments will far outweigh the short-term curtailing just pretend that your income did not increase and maintain our usual lifestyle. DON'T WASTE YOUR HARD-EARNED MONEY ON INTEREST! These methods have allowed many people to shorten their mortgage life by years within a very short period and enjoy a greater lifestyle for a longer period.
Refinancing, whether it be a relatively straight forward refinance of your existing mortgage balance, or utilizing your Home Equity for any other purpose desired, is a strategic financial decision that requires the assistance of a mortgage expert to get you the best deal from the hundreds of options available. Whether you want to:
Tip: Did you know that when refinancing, your prepayment options may figure in to your advantage whether you have exercised them or not? It pays to inquire from the experts at Invis. Most unsecured debt is priced by your bank at a higher rate than your mortgage in order to compensate them for the higher risk of loss if you default. For many people it only makes sense to use available home equity to pay out this debt, as it typically reduces interest costs significantly. If the total of the existing mortgage and the debt to be refinanced is less than 75% of the value of your home, and you qualify in terms of income and credit standing, refinancing your first mortgage should be a breeze. In fact, using uss the perfect way to achieve this consolidation. Get us working for you now. If you want to spend a significant amount of money on improving your home, you may be able to take out a lot more equity than you realize! We can advise you through this process. Both insurers Genworth Financial and CMHC - will insure new mortgages which are "topped up" for this purpose, if the total of your current mortgage and the new funds exceeds 75% of the current home value. Not all improvements are eligible, however. Pools and spas are typical "over-improvements" which may not qualify for a high-ratio equity take-out. Of course, if the total requirement is less than 75% of your home's current value, you should have little trouble getting the "top up" you need regardless of the degree of luxury you plan to add. Where the combined mortgages result in one "high ratio" mortgage: If neither (or none) of the mortgages you're combining was ever insured, but combining them results in a high-ratio situation, you'll be required to pay an insurance premium. You need to look closely at the total savings the combination will give you, in order to determine whether this is worthwhile financially. Where the combined mortgages result in a new "conventional" mortgage: High ratio insurance is not required. As long as you qualify with your income and credit standing, we will help you achieve this quickly and conveniently. In both cases there is one critical consideration which causes the failure of many such fefinances. The new mortgage often requires a fraction of the cash flow previously needed to service the now consolidated debt. Many who go through this process not only absorb the cash flow savings into an improved lifestyle they either re-incur debt that they paid out, or incur debt for which they now qualify or both. It is important to approach such a consolidation/re-combination of obligations with the clear and focused goal of applying all savings toward paying down the mortgage. Otherwise, the new mortgage will be a burden, rather than a solution. Breaking a Mortgage and Transferring Many closed mortgages have the feature that allows the balance to be paid out with a penalty after a certain time has elapsed on the mortgage. Check the "prepayment" clause in your mortgage to determine your own situation, or better still, call your institution and ask them the cost of paying out in full. Refinancing and Home Equity Considerations Aside from considering the different options when refinancing your mortgage or looking to utilize the equity in your home, you as a homeowner need to understand how lenders look at your financial situation when deciding whether to grant mortgage financing. By understanding what lenders look for, you will be better prepared to work with your mortgage consultant and make the whole process as smooth and efficient as possible. There are two main areas to examine: 1. Understanding credit. What factors about applicants do financial institutions consider? Lenders look at the 5 Cs of Credit: Capacity, Capital, Collateral, Character and Credit. 2. What type of borrower are you? Common borrower profiles are risk averse, risk tolerant, and those with flexible borrowing requirements. In this section, we offer some guidance to help you determine what type of borrower you are. We look at some key questions for prospective borrowers to ask themselves. 1. Understanding Credit Remember, lenders run a business to make money, not lose it. Those with good/better credit receive lower rates, and those with spotty credit receive slightly higher rates the higher the risk, the higher the return for the financial institution. As part of the application process, lenders examine prospective borrowers according to varying requirements, however central to all decisions are the 5 Cs of credit: Capacity, Capital, Collateral, Character and Credit. Capacity
Capital
Collateral
Character
Credit
2. What Type of Borrower Are You? We will guide you through the myriad of options that are available and get you the mortgage product that best suits your individual needs. In order to get the ball rolling, it is helpful to begin thinking about what mortgage product options you would feel comfortable with. By having an understanding of who you are, the mortgage process becomes more efficient and your satisfaction over the term of your mortgage increases. Here are some questions that you should mull over and speak about with any of your fellow purchasers. Although this is not an exhaustive list, it provides a good start. Consideration #1:
Consideration #2:
Consideration #3:
Consideration #4:
Consideration #5:
Consideration #6:
There are numerous other considerations that your mortgage consultant will cover with you, however this will be on a case by case basis and will depend on your own personal situation. Other issues that may also have to be addressed and require special consideration are: 5. Nature of income self-employed, commission based, or salary, for example. 6. Status of applicant new immigrant, foreign investor, etc.
Self-Employed/Special Circumstances Considerations Self-Employed? Credit Issues? Unique Income Situation? Financing Considerations for Non-Traditional Borrowers/Situations Invis can get you a mortgage in most situations regardless of your circumstances. Where traditional financial institutions have given the answer No, Invis routinely says Yes and gets you a product that suits your needs at an extremely competitive rate. Below we have provided a list
of the most common non-traditional situations, however, please note, that
not all situations are listed and each is looked at on a case-by-case basis
to fit with the appropriate lender each situation is unique and looked
at accordingly. This is where the expertise and knowledge of an Invis Mortgage
Consultant is essential in taking care of you and your family.
If you fall into one of the categories above, or if you have a different situation, Invis expert mortgage consultants know where to go and how to structure the deal. Contact Invis immediately and have peace-of-mind that your mortgage needs are being well taken care of.
Programs Available To First Time Buyers There are a number of programs available to first time buyers, that aid their ability to become homeowners. One such program is the ability to buy a home with as little as 5% down. In some instances you may qualify to purchase a home with No Money Down. For more information about this program, contact Tim. These programs give people an incentive to purchase by creating an opportunity to own their own home without having to accumulate a large down payment. There are special terms and conditions attached to many of these programs. For instance, insurance fees apply if the down payment is below 25%, and at the highest end equals approximately 3.75% of the mortgage amount. Please click here for more information. There is also the federally instituted Home Buyers' Plan which allow individuals to take advantage of their RRSP without being penalized. Of course there are conditions that have to be met by the individual or individuals over time, and the property has to be a qualifying property, but nonetheless, this program is a great incentive for individuals to own their own home. There
are also numerous mortgage products available from lenders that an Invis
Mortgage Consultant can explain to you. You should take into account that
the first year of owning a home is when individuals have the most difficulty
in making payments since they have apportioned large amounts of funds to
the down payment. A lot of lenders also have cash back mortgages which
give the consumer a percentage of the mortgage back in cash for their own
use closing costs, mortgage payments, furniture, incidentals arising
from moving and so forth.
Buyers
Tip: Winning the Bidding Wars
Hot real estate markets bring out the worst in everyone. Sellers become greedy and demanding. Buyers become desperate, frustrated and disillusioned. And real estate agents get caught in the middle as they try to negotiate purchase contracts that are acceptable to both sides of the transaction. Along with frayed nerves, hot markets mean multiple offers will be received for just about every for-sale home. These bidding wars are great for sellers, but they add to the "freaked out" factor for buyers. How can you buy the home of your dreams when several other people are also bidding on it? Here are five tips:
A lot of prospective homebuyers do not know where to start or what to look for when buying a new home. Here is a basic step by step guide that will help you on your way:
In a perfect world, real estate closings would occur over night, sellers would keep every promise made, and both buyers and sellers would negotiate openly and fairly. Unfortunately, welcome to the real world where buyers whittle at the purchase price, closings are postponed, and both sets of players use negotiating gambits to win advantage. No matter which side of the transaction you're on, it's vital to learn to identify various negotiating techniques and their respective antidotes to achieve a win/win real estate transaction. Negotiating Tactic #1: Nickel-and-diming Antidotes:
Negotiating
Tactic #2: Good guy/bad buy
Antidotes:
Negotiating
Strategy #1: Higher authority
Antidote:
Negotiating
Strategy #2: The stall
Antidote:
Negotiating
Strategy #3: Reduce-it-to-the-ridiculous
Antidote:
The bottom line is that neither
buyer nor seller gets to win all of the marbles; contrarily, no one should
lose them all. Identifying negotiating gambits and more importantly, their
antidotes, can help you structure a win/win transaction where all parties
feel as though they've compromised, but won. Good luck with productive
and fair negotiating!
Multiple
Offers: How Can You Compete?
In a hot market, there are more buyers than homes for sale. Prices may rise, and the days a home is on the market may shorten to a week or even less than a day. Some homes will sell before they are even registered in the local MLS. That means that sellers are often presented with multiple offers. How can you position your offer to be the one the seller accepts? The best way is to gain an understanding of how multiple offers work and how they benefit the seller. Multiple offers mean that the seller has his/her pick of offers, but that doesn't necessarily mean a disadvantage for you as a buyer. You just have to determine how badly do you want this particular home. If you want to compete in a multiple offer situation here is what you will need to know: Price & Terms
Just to give you an idea of how important terms are to the seller, let's look at a hypothetical situation. You offer a seller the highest price for his/her home, but you put in the contract a contingency that you must sell your home first before you close on the seller's home. It may seem reasonable to you, but these are terms that the seller has no reason to accept. Why would s/he wait for you to sell your home first? The seller will only accept terms which meet his/her own needs, so keep contingencies to a minimum. Ask your agent to find out from the seller's agent what terms will be most favorably viewed by the seller. If you can't get there first,
get there the best way you know how
As you already have learned, the seller will accept the offer that best reflects his/her needs. They not only consider price, they also look at such things as financing and possession dates. That means room to negotiate for you. Believe it or not, the highest price doesn't always buy the home. Sellers have a number of needs aside from price; they want a quick closing, or a delayed possession, or they may wish to exclude items in the home, and so on. Any offer which puts any of these goals at risk will not be accepted. A buyer may make the highest offer, but perhaps has not been qualified by a lender. A seller who accepts an offer from an unqualified buyer is taking a substantial risk. Should the offer fall through because the buyer fails to qualify, the home will lose valuable marketing exposure and advantage. In a hot market, many sellers won't even entertain offers presented by unqualified buyers. (Hint: Get pre-approved for a loan. Not only will you know exactly what you can spend, you will demonstrate your seriousness to the seller.) Your seller may have a special need that is more important to them than price. For example, your seller may have a need to sell quickly, but remain in the home for a period of time until school is out or until a transfer takes place. Your ability to negotiate on this point may be more important than coming up with the highest dollar amount. You can offer a short-term lease post-closing or offer to delay possession to accommodate your seller. You can do a number of things to get the seller's attention offer to pay full price, or a little above the asking price. Work with your agent to determine the seller's "hot" buttons, and act accordingly within your budget and your own needs. Deadlines can be deadly
By the same token, if the seller counters your offer and gives you a deadline for accepting, and another offer comes in that is more attractive than yours, the seller can withdraw his/her counter offer to you in writing and accept the other offer. Don't falter in the negotiations
In fact the seller's agent is under no obligation to let your agent or you know if there are other contracts on the table or not. The seller may be waiting to see your best offer before accepting another offer that may already be on the table. Multiple offers are often used by sellers to improve upon the asking price or terms. The sellers agent may be instructed by the seller to ask the buyers to "submit improved offers." This is the time another offer can slip in and take your momentum away. Answer promptly and with as much generosity as you can muster. Don't nickel-and-dime the seller with requests for small repairs, or complicate the contract with contingencies. Just ask for a repair allowance and take care of the problems yourself. Hot markets don't stay hot
forever
Also look at the affordability of the home. Are the extra considerations you are offering to stay in the contract really worth it? Do they price the home out of your range? Will you be able to afford the other costs associated with move-in such as furniture and updates? Know when to throw in the
towel
The best way to position yourself
as the buyer whose offer is accepted is to work closely with an agent who
can help you step by step from getting pre-qualified for a loan, to helping
you find homes in your pre-approved price range, to helping you negotiate
the home of your dreams.
Buyer
Tips for Negotiating Price
You want to make every dollar count in the purchase of your home. And one way to make it happen is to employ sound negotiating tactics that make a difference between small cents and dynamic dollars. So let's cover steps you can take to negotiate a fair price with sellers and not leave money on the table. It's perceived that price is often a major concern with sellers. In fact, a common seller's lament is "We have to get our price because..." (I'm sure you can fill in the blank with statements you've heard). But it's really not the highest price sellers are after it's the greatest net proceeds from the sale. "Net" is determined by subtracting the seller's closing costs and any outstanding loans, liens and other financial encumbrances from the sales price. A second way home buyers lose out when negotiating the purchase price is to make a low, often ridiculous first offer. Yes, I know, sellers sometimes do take less (even though it's done far less often in the today's strong seller's market.) Put yourself in the seller's position. How happy would you be in continuing negotiations with a buyer who had just insulted you and your property? First offers set the stage for all other negotiations that follow. In fact, the seller may become enraged and refuse to make any counter offer back to you. Or if there is a counter offer, the seller might turn the tables and insult you by asking for a price higher than what the property's listed for. (Yes, this does happen in a hot sellers' market!) If you do make a lesser offer, be prepared to defend why such as repairs to be made, etc. Sellers will be more willing to listen to a price cut if it's rationale and fair. One last tip earnest money does talk. When evaluating two offers side-by-side, the one bearing the heftiest amount of deposit gives the perception that the buyer is more serious about the property and is perhaps a better financial risk (even if it isn't true!) This is an important tactic in a seller's market where many buyers are vying for relatively few properties with multiple offers to the seller simultaneously. When it comes to negotiating the purchase price of your home, neither buyer nor seller get to win all of the marbles! Decide how important purchase price is to you and negotiate with that priority in mind. Can I
Relax Now That My Loan is Approved?
When the question, "Is it safe?" is posed, somehow Dustin Hoffman in the movie Marathon Man comes to mind. If you recall, Olivier's ill gotten fortune was indeed not safe after all. When new homebuyers begin feeling rather smug and complacent after their loan is pre-approved, they somehow think they can go on "autopilot" while their house is being built. The truth is, a solid loan pre-approval with no conditions is a fairly safe bet that everything will sail smoothly, but it certainly is no guarantee. During the months a new home is being built, varying factors can enter into the "picture" the loan officer painted of the homebuyer and his ability to re-pay a mortgage loan to the lender in question. Most of these factors and responsibilities sit squarely on the shoulders of the homebuyer himself. Safeguards for buyers (borrowers) to observe after the loan pre-approval and before the home's completion may include the following: Changing jobs:
For that reason, many lenders would advise buyers to fight the urge to make a change in employment until after close, just to be completely safe. Credit worthiness:
Communication:
The scary thing for homebuilders is the risk they take in banking on the loan pre-approvals, using them as a green light to build and personalize homes based on the premise that nothing basically will change. The hard truth is, some pre-approvals can fall apart due to buyer neglect and mismanagement of their assets and credit-worthiness. In these cases, builders must try to re-market the homes that lose their original buyers to others who may not be willing to pay for items already ordered and installed, and the builder loses money. Homebuyers may want to think
of themselves as posing for a portrait at the time of pre-approval. Nothing
should basically change within that portrait until after they close on
their new home. No flinching, changing outfits, or background landscape
alterations should take place, with the pre-approval photo "frozen in time."
With that posture in mind, they may at last be able to breathe easier and
look forward with confidence to moving day.
No News
from the Seller? Not Necessarily Good News
What's the standard time frame for a seller to accept an offer? There's no such thing as a standard time frame, it depends on how active the market is, how many other offers (if any) the seller is considering as well as the seller's individual situation and availability (i.e. one of the spouses being out of town, etc.) It can vary based on the buyer's needs, the seller's needs even customs in a local real estate market. Timeframes are initially specified by what the buyer or his/her agent specifies on the purchase agreement. Once the seller sees the offer, he has the opportunity to amend the timeframe specified by the buyer; but to do so constitutes a counter-offer, a brand-new offer that the buyer doesn't have to accept. Most buyers want the seller to respond in the quickest timeframe possible. This is especially true in strong seller's markets prevailing in a majority of the country today. Characterized by few available properties, buyers are eager to hear a positive response back on their offer in order to lock up the property. Conversely in a buyer's market where many properties are available, a buyer could feel less urgency to hear back promptly from the seller. But by giving the seller a leisurely timeframe in which to respond, all buyers run the risk of the seller "shopping" that offer to other potential buyers. It's possible that during a long timeframe for acceptance, the buyer making the initial "catalyst" offer could lose out on the property entirely, without the ability to make a counter offer to match a competing buyer's price or terms for the property. What can you do if you fail to note a reasonable time frame for acceptance on your purchase agreement to the seller? Right the wrong immediately, notifying the agent (ideally in fax or email, rather than by phone) the time frame under which the offer will remain open. If it's been several days since presenting the offer to the seller (as with the questioning buyer I encountered!) asking for an answer in twenty-four hours could be acceptable. No matter how you initially
contact the seller with this information, back up your request with a written
addendum (faxed, mailed or emailed to the agent). This will not only reinforce
your interest in the property but could be an opportunity to move the seller
to a decision hopefully in your favour.
Why
You Need a REALTOR on Your Side
The deal sounded too good to be true: a two-story town home, completely gutted and refurbished according to my specifications and design preferences. Coordination of contractors' services and all aspects of the closing and financing were to be handled by an in-house development group and at a price I could afford. The representative, draped in gold chains and reeking of dime store cologne, grinned at me. "This is the easiest real estate transaction you'll ever have," he assured me, after informing me there was no need to use the Realtor I had selected to represent me just two weeks earlier. Being a first-time buyer, I nearly let the promise of a brand-spanking new town home blind me. That's a scary thought. Because once my Realtor caught wind of the development company's tactics, he did a little research ... and found out that these "developers had a record of shady tactics. What was sold as the "easiest real estate transaction" I'd ever have could have been a nightmare. It was a hard lesson to learn right out of the starting gate. And yet, I'm glad it happened. The experience taught me the value of having a bona fide Realtor on my side somebody who has appointed to look after my best interests, and sometimes even fight for them. Sure, some people can and do go it alone when buying or selling homes. If you're savvy enough to navigate the occasionally murky waters of the real estate transaction, then more power to you. But particularly for first-time buyers, the value of an experienced Realtor is immeasurable a lesson I learned from the school of hard knocks. A Realtor's role extends far beyond just finding a buyer, or a nice house in a good neighborhood. In many cases, your Realtor is there to provide a reality check as mine did and to handle the tough negotiations involved before closing. My Realtor has assured me that regardless of what those developers tried to spoon-feed me, the real estate transaction is never, ever easy. He doesn't need to convince me. Among a Realtor's areas of expertise are:
While the town home I lost seemed great, my Realtor reminded me that the process shouldn't be as shady as the one we'd just experienced. He successfully convinced me that this town home wasn't worth the risks. So the search continues ... for me, a little more cautiously than before. Whether or not I'll find the town home of my dreams, I'm not sure, but I do know that I'm sold on the merits of having a Realtor on my side. 11-Step Program to
Buying a Home
Buying a home can be one of the most exciting and rewarding things you ever do, or it can be one of the biggest nightmares you will ever go through. How you experience the home buying process depends entirely on how well prepared you are and how knowledgeable the people helping you are. The following report should clear up a lot of confusion you might have. Selecting a Realtor
Meeting with your agent for
a home buyer's consultation
Look at homes
Select a home
Making an offer & negotiation
When negotiating with any seller, it's best to remember not to take anything personally. Also, try to put yourself in the seller's shoes. Figure out what's not negotiable to you, and be willing to give a little on the things that are negotiable. A good agent should be able to give you tons of advice about how to structure your offer. Once your offer has been presented, the seller will either accept your offer outright, reject your offer outright, or counter your offer. The counter process can go back and forth many times. It's important for all parties to keep their cool and focus on the goal. Get inspections & remove
contingencies
Select an attorney
Walk-through
You are also checking for any other items the seller previously agreed to fix or replace. If anything is found to be defective or missing, you have several options: The seller can remedy the problem prior to settlement; the seller can credit you the amount of money it would take to hire someone to remedy the problem; or the seller can promise to correct the problem and place into escrow with the attorney the amount of money you will need to pay someone else if the seller does not perform as promised. On new-home purchases, the process is a little different. The builder will generally do a walk-through with you approximately one to two weeks prior to settlement, resulting in a "punch-out list." Hopefully, they will get everything on the punch-out list completed prior to settlement. If not, most new-home contracts allow the builder to complete whatever minor items have been noted in a "reasonable" period of time. Closing on your home
Moving day
Pre-Qualification & Pre-Quantification 101 The majority of Lenders will guarantee clients an interest rate for a set period while the client shops for a home ("rate commitment"). This protects the consumer from interest rate hikes for the established time period set by the lending institution. This feature is extremely important. It saves the borrower money and also saves them from losing their chosen home if interest rates increase. Interest rate increases reduce the amount of mortgage financing a borrower qualifies for, and could result in a larger down payment required. If the rates one day before closing are lower than the committed rate, the lender will finance the mortgage transaction at the lower rate. However, some lenders will commit to the lowest market rate during the commitment period. When a lender commits to a rate, they usually require an applicant to be fully pre qualified. An Invis mortgage consultant can pre qualify your with the right mortgage lender and insure your rate commitment meets your needs. Pre qualification The nuts
& bolts
The benefits of being pre qualified are numerous, the more important of which include:
The lender then takes the amount calculated and comes up with the maximum amount of financing you would qualify for based on your income. This procedure is simply the reverse of calculating a mortgage payment given the payment amount, amortization and interest rate. You can use our calculators
to do these for you quickly.
Don't Confuse an Appraisal & an Inspection The bottom line of home buying is twofold: are you paying the right price, and are you getting what you are promised or told? In both cases, you need to determine the value of the home, and as such an appraisal is required. A lender will usual require that a professional third party appraise the property to determine the value. Appraisal
Inspection
We can help you find professionally qualified appraisers and inspectors. Sellers: If You Want
It, Ask For It!
There's nothing more frustrating to a ready, willing, and seemingly able buyer than to lose an offer to another buyer especially since the seller was not specific (down to the |