# What Every First Time Homebuyers Need to Know?



## jmbagsy (Mar 14, 2017)

I am thinking of buying our first house (looking for a HOME) here in Alberta in a year or so and wanting to ask your expert opinions or advice to help me out getting it done right and avoid common pitfalls most first time home buyers commit.

To start out, I started reading CMHC homebuying step by step guide which I find too broad for me so here I am seeking more specific answers from those who have gone through it already and those who are far more knowledgeable about homebuying process.

I'm planning to see a mortgage broker referred to by a friend to start to get pre-approved first. Im planning to see what my bank (RBC) can offer too as well as other major Banks to shop around. My first question is, will my credit score be down significantly by seeing different brokers/banks for pre approval? Last time i checked on my credit score on a soft check via Borrowell is around 800 +


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## Jimmy (May 19, 2017)

Aside from shopping for the best rate, I think your next best strategy is to try and put as much down payment as possible to reduce your cost of CMHC insurance.

For ex the charge for 75- 80+% loan to value is 2.4%. The next bracket is 2.8% for 80-85% financed. That is .4% difference which on an ~ $ 850,000 home in the GTA in ON for ex is $3,400. If you need to borrow say 5% to get into a lower bracket ( ~ $47500) it would still be worth it (at a low int rate) . Return is $3,400/$47500 = 7.1%.


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## jmbagsy (Mar 14, 2017)

Jimmy said:


> Aside from shopping for the best rate, I think your next best strategy is to try and put as much down payment as possible to reduce your cost of CMHC insurance.


My wife and I have a term life insurance 450k each. Is it possible to use that one in stead of getting a CMHC insurance?


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## Mukhang pera (Feb 26, 2016)

I don't see how life insurance will step in and pay if you default. Unless you are beyond the period during which suicide is not covered and you kill yourself, with the policy naming the lender as beneficiary.


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## jmbagsy (Mar 14, 2017)

On a side note, I heard about this new incentive from CHMC where they will give those first time home buyers 10% of price of a newly constructed house given they met certain requirements which I believe we do. I still don't know when or this is gonna be implemented soon. Anybody got the latest update about this?


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## jmbagsy (Mar 14, 2017)

Mukhang pera said:


> I don't see how life insurance will step in and pay if you default. Unless you are beyond the period during which suicide is not covered and you kill yourself, with the policy naming the lender as beneficiary.


I see,,, thanks for the enlightenment. I just heard someone saying that. I must have missed some details or she was completely lying about it.


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## twa2w (Mar 5, 2016)

jmbagsy said:


> My wife and I have a term life insurance 450k each. Is it possible to use that one in stead of getting a CMHC insurance?


CMHC insurance is really default insurance. If you don't pay the bank, they will foreclose on your house and sell it and if they don't get enough to payoff the mortgage, CMHC will pay them the shortfall.
Not to be confused with mortgage life insurance which covers(pays) the outstanding balance on the mortgage if you or your spouse die. Your existing life insurance will payout to your survivor and it could be used to pay off or reduce the mortgage balance if your survivor chooses to use it for that.

Canadian law only allows banks to lend up to 80% of the purchase price or value of a house(whichever is less) unless they have default insurance to protect them if you default. CMHC is one of a handful of places that offer default insurance. 
Say you are buying a nice home in Hawkwood for 500,000 and have 10% (50,000) to put down. The lender will calculate the insurance fee and add it onto your mortgage. At this level of down payment, your fee is 2.4% of the mortgage applied for. So your mortgage will be for 450,000 plus (450,000X2.4%) 10,800 = 460,800.


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## Jimmy (May 19, 2017)

jmbagsy said:


> On a side note, I heard about this new incentive from CHMC where they will give those first time home buyers 10% of price of a newly constructed house given they met certain requirements which I believe we do. I still don't know when or this is gonna be implemented soon. Anybody got the latest update about this?


That looks like they will pay for 5- 10% of the house but then they keep that % as ownership. Not sure it is such a good deal as you lose the price appreciation of that part of your house IMO. https://globalnews.ca/news/5131318/liberal-mortgage-plan-cmhc/


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## twa2w (Mar 5, 2016)

In regards to the mortgage, make sure you get the lender to explain all the fees, prepayment penalties and prepayment options in detail. Make sure she shows you on the disclosure document. These can make a big difference over the life of the mortgage or if you have to sell for some reason.

In terms of the house itself, you may also want to get title insurance on the purchase.

When looking at a house, look beyond the cosmetic stuff like paint, wallpaper, existing homeowners furniture and housekeeping mess. You can repaint easily enough and you will have your own furniture.

I am assuming you are looking at a resale. Look for things that can cost a lot of money. 

When were the windows replaced - are they in good shape. Wooden windows will need repainting almost annually and replacing sooner than you think. Is the furnace and hot Water tank original or the newer high efficiency models.

Did the homeowner do his own renovations - look for evidence of permits for electricity and plumbing for basement renos and decks. Is the deck older - will it need replacing soon?

Check the roof and gutters. Is there lots of granular material in the gutters from the roof, are the shingles newer or curled.

Look at the driveway carefully. Many driveways in Calgary have hollows form under them and need to be filled or lifted before they collapse or crack.. The driveway may sound hollow in spots. If it has been fixed you will see 2-3" round spots of slightly different coloured concrete in various places. obviously not all home have this issue.

Does the garage door sag, open and close quietly and smoothly.

Do the toilets flush easily or does the bath tub gurgle when you flush. Can you run all the taps and flush the toilet at the same time without a serious drop in pressure.

Is the lawn and yard nice and even or is there evidence of sinking. (newer homes sometimes have a lot of fill that can settle over the first 5-8 years. Is there any evidence of drainage problems. Evidence of water in basement?

Do the house floors or stairs squeak or move when you walk on them? Check under rugs for floor damage if they are moveable. Any unusually located furniture pieces that might be hiding damage.

Check the other houses in the neighbourhood - are they well kept and showing pride of ownership.

Is the neighbour hood safe. How close is shopping, schools, major streets, transit. How noisy is it - on a busy street or quiet cuddly sac. How is the commute - once you narrow it down to one or two houses you can test the commute yourself. if the RE agent or owner says 20 minutes, that means from the time you actually got out of your subdivision to the time you hit the edge of down town. Or the time it takes at 3:00 in the morning with no traffic.

You can and likely should hire a home inspector but you should google for a list of items to check, to at least prescreen houses and eliminate obvious problems unless you can use them to negotiate a lower price.

You also should make a checklist of the features and amenities of the various houses you look at. After looking at 5 or 6 or more, you will be, was that clawfoot bathtub in the green house or the yellow house - was that the one with the pantry. Put down what you like and disliked about each house.

You can always go back for a second look. Don't fall in love with a current owners decorating and furniture. They are staged to make you fall for them. Make sure it is not lipstick on a pig.


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## jmbagsy (Mar 14, 2017)

twa2w said:


> Say you are buying a nice home in Hawkwood for 500,000 and have 10% (50,000) to put down. The lender will calculate the insurance fee and add it onto your mortgage. At this level of down payment, your fee is 2.4% of the mortgage applied for. So your mortgage will be for 450,000 plus (450,000X2.4%) 10,800 = 460,800.


This explained it well for me. I confused CMHC insurance to be the same as mortgage life insurance, that must be the one she was telling me not to get since I have personal life insurance. Thanks man!


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## jmbagsy (Mar 14, 2017)

twa2w said:


> In regards to the mortgage, make sure you get the lender to explain all the fees, prepayment penalties and prepayment options in detail. Make sure she shows you on the disclosure document. These can make a big difference over the life of the mortgage or if you have to sell for some reason.
> 
> In terms of the house itself, you may also want to get title insurance on the purchase.
> 
> ...


These are good points you mentioned here if we decided to buy a resale house. We are actually thinking of buying directly from a builder but who knows, we may find a resale house we would love and make sure to take note of what you mentioned here. Good stuff.


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## Mortgage u/w (Feb 6, 2014)

I personnally would steer clear from the new government incentive (if and when it actually goes through). Its a poorly thought out plan. I think if it actually comes to life, those who use it will indirectly create a market inflation in order to cover the funds that are owed back to the government.

Best advice I can offer is to save up as much money as possible in order to put down 20%. You avoid a mortgage insurance premium, have lower mortgage payments and hopefully accelerate paying off the mortgage. Buy well within your means and ensure you look for a place you see yourself staying for 10 years +.


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## jmbagsy (Mar 14, 2017)

Mortgage u/w said:


> I personally would steer clear from the new government incentive (if and when it actually goes through).





Mortgage u/w said:


> Best advice I can offer is to save up as much money as possible in order to put down 20%. You avoid a mortgage insurance premium, have lower mortgage payments and hopefully accelerate paying off the mortgage. Buy well within your means and ensure you look for a place you see yourself staying for 10 years +.


The reason we are considering it is because we don't have enough yet to make the 20% down. Although, they don't have specifics yet on how we are going to repay them, we know the downside would be them owning a percentage of the value of the house but we're okay with that because we are looking to get a house we would call a home for a very very long time. 
Also, we would like to take advantage of the current market and don't know when it is gonna kick back in again. We are thinking this new incentive will help us get that 20% down fast with no worries of repaying the incentive they gave us right away.



Mortgage u/w said:


> Its a poorly thought out plan.I think if it actually comes to life, those who use it will indirectly create a market inflation in order to cover the funds that are owed back to the government.


Could you elaborate more on this please?


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## Mortgage u/w (Feb 6, 2014)

jmbagsy said:


> The reason we are considering it is because we don't have enough yet to make the 20% down. Although, they don't have specifics yet on how we are going to repay them, we know the downside would be them owning a percentage of the value of the house but we're okay with that because we are looking to get a house we would call a home for a very very long time.
> Also, we would like to take advantage of the current market and don't know when it is gonna kick back in again. We are thinking this new incentive will help us get that 20% down fast with no worries of repaying the incentive they gave us right away.
> 
> 
> ...


You will not be able to take advantage of the incentive in order to avoid the mortgage insurance - this is an insured incentive and intended for people putting less than 20% down.
The way it works is you need to put at least 5% down and government will match 5% for existing homes or 10% for new construction. Even if you get to 20% down, the loan will still be insured which the premium will be added to your loan. Other criteria is if your combined gross household income is $120,000 or more, you will not be eligible for the incentive. Lastly, the pay back is not only the intital grant money, but you will need to add a percentage of the gain you make on the property once sold (this part is not detailed yet).

The fact you intend to keep your home long term is that more of a reason not to use the incentive. For illustration purposes, you keep the house well into your senior years. You either pass on or need to sell to go to a retirement home etc. Your property doubles or triples in value. Your estate will have one huge sum of money to owe the government.

And to elaborate on my last comment, the market can get artificially inflated because the person selling and wanting to pay back their loan will want to include the capital gain they owe the government. So they will indirecly want to boost the selling price to cover an artifical value.


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## jmbagsy (Mar 14, 2017)

Mortgage u/w said:


> You will not be able to take advantage of the incentive in order to avoid the mortgage insurance - this is an insured incentive and intended for people putting less than 20% down.
> The way it works is you need to put at least 5% down and government will match 5% for existing homes or 10% for new construction. Even if you get to 20% down, the loan will still be insured which the premium will be added to your loan. Other criteria is if your combined gross household income is $120,000 or more, you will not be eligible for the incentive. Lastly, the pay back is not only the intital grant money, but you will need to add a percentage of the gain you make on the property once sold (this part is not detailed yet).


That shed more clarity, especially the part where the loan would still need to be insured even i manage to get the 20% down with the grant. 



Mortgage u/w said:


> The fact you intend to keep your home long term is that more of a reason not to use the incentive. For illustration purposes, you keep the house well into your senior years. You either pass on or need to sell to go to a retirement home etc. Your property doubles or triples in value. Your estate will have one huge sum of money to owe the government.


Once they clarified specifically how repayment will be done, only then I would decide if I'm gonna use it.



Mortgage u/w said:


> And to elaborate on my last comment, the market can get artificially inflated because the person selling and wanting to pay back their loan will want to include the capital gain they owe the government. So they will indirecly want to boost the selling price to cover an artifical value.


I got it now, you mean the sellers here are those who make use of the incentive.

Thank you for all your insights. Appreciate it big time.


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## kcowan (Jul 1, 2010)

Thanks for the thorough explanation. I was in the camp that the government will ensure you will lose. I am still suspicious that they will be happy with just their share of the appreciation and, if the property does not appreciate, there might be added penalties.


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## jmbagsy (Mar 14, 2017)

kcowan said:


> Thanks for the thorough explanation. I was in the camp that the government will ensure you will lose. I am still suspicious that they will be happy with just their share of the appreciation and, if the property does not appreciate, there might be added penalties.


It was very clever of them to quickly introduce it by saying "here we will give you money..." to lure people to use it but left the part where how they gonna bite back hard.


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## Mortgage u/w (Feb 6, 2014)

kcowan said:


> Thanks for the thorough explanation. I was in the camp that the government will ensure you will lose. I am still suspicious that they will be happy with just their share of the appreciation and, if the property does not appreciate, there might be added penalties.





jmbagsy said:


> It was very clever of them to quickly introduce it by saying "here we will give you money..." to lure people to use it but left the part where how they gonna bite back hard.


Such programs already exist and its pretty typical that the payoff is a chunck of the capital appreciation. The one I know of (and currently in place) is a Municipal incentive to buy a new condo. The project need to be accredited by the city in order to offer it. This one provides the down payment for you. You pay $1000 up front and they provide 10% down payment. When you sell, you need to pay back the 10% PLUS 10% on the gained value. Not bad of a return for the city. 

So, I can't see the new incentive program be much different than this one. We already know you need to contribute 5%.....what we don't know yet is the reimbursement cost. 

If there is a downturn in the market, the government doesn't loose since the incentive will be registered on title and have priority on any other loan. If property is sold at a loss, government takes back their incentive and the balance goes to the mortgage holder. The consumer will be on the hook with his bank for the shortfall. Hence where an artificial market boost could come in to compensate.


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