Adam Zimmerman and Sharon Vokey's rented Ottawa condominium was small and prone to flooding. But when their landlord put it up for sale, the couple saw an opportunity to make the transition from renters to buyers. They were disappointed, however, when the quick, private deal they had hoped for evaporated and they came out on the losing end of a bidding war. The new owner offered to keep them on as tenants, but after that taste of near-home ownership, there was no going back.
"We weren't about to pay his mortgage," Mr. Zimmerman said.
In little more than a week, Mr. Zimmerman and Ms. Vokey struck a deal on a $155,000, two-bedroom condo in Ottawa's South Keys.
Mr. Zimmerman and Ms. Vokey are among a growing number of young Canadians turning to condominiums for their first foray into residential real estate.
Experts say there are right ways and wrong ways to go about making such a big investment -- and Mr. Zimmerman and Ms. Vokey took a smarter approach than many new buyers.
For one thing, the couple didn't leap at a newly constructed building, instead going for a used condo. And far from getting caught up in another bidding war, they were able to negotiate a nice chunk off the asking price because the unit was unoccupied and did not show well, Mr. Zimmerman said. The money they saved will nearly pay for the renovations already under way -- including tearing out a solarium to make the living room bigger and installing maple floors.
"Over all, I would definitely say we traded up," he said.
While the couple had dropped in on one of the big banks to make sure they were credit-worthy even before they put in an offer, they were able to shop around for the best mortgage rates and terms once the deal was struck.
Jonathan Ferrier, a condo and loft specialist with Royal LePage Real Estate Services Ltd. in Toronto, advises clients to pre-arrange financing before they look at a single property.
Otherwise, he said, you may set your expectations too high.
"You see something you like and you've mentally moved in. Then you find out you can't afford it and you've just broken your own heart."
He recommends that people visit the branch where they do most of their banking for a quick, accurate approval. There's no obligation to accept the pre-approved financing.
"Then later, you shop your mortgage business around and get [lenders] competing against each other."
One advantage of pre-approved financing is that you can lock in an interest rate -- typically for 90 days -- while you're looking.
Maria Racanelli, vice-president of personal markets at Bank of Montreal, notes that if a first-time buyer can't come into the branch, BMO can send a mortgage specialist to your home or office. She added that BMO frequently offers home-buying seminars, with bankers, real estate agents and lawyers ready to answer questions, Ms. Racanelli said.
People ready to take the plunge should provide their bank with confirmation of employment and gross monthly income in the form of a letter from their employer -- or even a pay stub in some cases. The bank will also want a list of your assets, including bank accounts, retirement savings plans, marketable securities and your vehicle. Also come clean on your liabilities, including student loans, lines of credit and credit card debt.
"We need to have both sides of the balance sheet," Ms. Racanelli said.
BMO suggests that your living costs -- mortgage principal and interest, taxes and condo maintenance fees -- should not exceed 32 per cent of your gross monthly income.
The bank is willing to give people some leeway here and only counts half of the monthly condo maintenance fees in the calculation.
People who risk getting turned down for a mortgage are those who don't have a sound credit history or don't make enough to meet the monthly payments.
But in many cases, Ms. Racanelli said, people are shocked at how much of a home the lender is willing to let them buy.
"A lot of people are pleasantly surprised that they can afford more than they thought."
As for that other big hurdle -- the down payment -- the bank is willing to dispense with that in some cases. New zero-down mortgages let people skip the down payment but their terms and insurance requirements may be more onerous.
Once financing is in place, Mr. Ferrier suggests that first-time buyers focus in on some neighbourhoods and the type of property they want, then find a realtor who knows that niche. Talk to a few agents before you decide because you'll be spending a lot of time with that person.
In Toronto, where $200,000 gets you a nice one-bedroom with parking, Mr. Ferrier advocates buying an existing property. At one time, new developments were much cheaper, he said, but no longer.
Buyers of new properties typically face long delays, he said, and they may be hit with extra fees for things like electricity and gas connection. With an existing condo, he said, you can walk through the property, you know the price, and you know when you can move in.
With an undeveloped project, there's little room for negotiation, Mr. Ferrier said, though the developer may raise prices if the demand is high. "With resale, there's heated negotiation."
Once a price and closing date have been agreed on, more legwork begins. Mr. Ferrier recommends making the offer conditional on financing and a lawyer's perusal of the condo documents. Those documents depict the building's financial status, rules, bylaws and any big upcoming expenses, such as putting on a new roof.
The bank will send an appraiser to have a look at it, at a cost of about $100 to $150 for the client. If the unit is not yet built, the bank will ask for site and floor plans.
In some cases, buyers will want to spend a few hundred dollars on a home inspection, but Mr. Ferrier said that is less typical for lofts and condos than for houses.
Mr. Zimmerman has studied law, but he said he was happy to pay the $600 to $900 a lawyer typically charges to check the deal and handle the closing and adjustment costs.
Ms. Racanelli agrees that it's a good idea to seek advice from the professionals.
"It's the most important purchase you're ever going to make and you don't know what you don't know."
1. Talk to your bank. Find out how much money they are willing to lend you. Let them know your assets and liabilities. They'll check your credit history, run some numbers and tell you how much you can safely afford to pay each month.
2. Decide on your wish list. Think about the neighbourhood, access to transit, and whether you want an existing property or one that's under construction. If the unit is built for you, you can pick colours and finishes. With an existing property, you have a better handle on how much it will cost and when you can move in. Open-concept loft or traditional? Balcony or terrace? Pet-friendly building?
3. Interview a few real estate agents. Find someone who specializes in the location and type of property you're looking for. The more information you can provide about what you want, the less time you'll waste trudging through unsuitable properties.
4. Find something you like and submit an offer. Typically you might offer 3 to 6 per cent below the asking price. Your agent can do some research to find out what other units in the same building have sold for. Be prepared to go a bit higher if the seller rejects your first offer.
5. Settle on a closing date. Sixty days is typical.
6. Visit a lawyer. Your lawyer will check out the condo's financial status, rules, bylaws and insurance. If the development is new, the lawyer will be able to spot hidden costs.
7. Go back to the bank to finalize the mortgage.
8. Decide if you need mortgage insurance. If you don't have a large down payment, the bank may require it. Also get fire and contents insurance, and consider disability insurance if you don't have it.
© The Globe and Mail
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