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In case you haven’t heard, as of Oct.17/2016 a new, stricter, mortgage lending rule came into effect.  It is in response to years of lower mortgage rates and serves to limit potential buyers total debt load.

In short, a buyer in the past would typically only need to be approved for a mortgage amount based on what their interest rate will be (for example, a typical rate at this time would be around 2.49%) .  However, even though your interest rate would be that low, you will have to be approved as if it were the current Bank of Canada fixed rate of 4.64%.  This will ultimately effect the total amount of money you are able to borrow.

Here is an example listed by the Alberta Real Estate Association:

Family A is qualifying for a mortgage using the following information:

Result:

• Qualifying for a mortgage and applying for mortgage insurance under previous rules, Family A qualifies for a purchase price of $450,000.
• Qualifying for a mortgage and applying for mortgage insurance after October 17, 2016, given the need to qualify at the Bank of Canada rate of 4.64%, Family A qualifies for a purchase price of $360,000.

For more information, I recommend you speak with your mortgage lender to see how this may effect your borrowing ability.

When looking at purchasing a condo, it is important to include a review of condo documents condition.  This allows perspective buyers the opportunity to do their due diligence and look into the condo corporations financial position.

Attention to detail is necessary for this, and I often advise clients to seek the help of professional companies trained to review these sort of financials.  Either way, here are some of the documents you can expect to come across while reviewing:

1.  Information statement – particular information about the unit itself (ie. exact condo fees, any law suits against it, etc…)
2.  AGM – minutes from the latest Annual General meetings which all owners are invited to attend.
3.  Monthly meeting minutes – Most complexes will hold monthly meetings to tackle ongoing concerns.  Smaller units may only meet every 3 or 6 months, but all minutes must be held on record.
4.  Monthly and annual financial expenses and budget for the next year.
5.  Reserve fund Study – Basically a professional inspection of the exterior of the building.  All condos must have this completed every 5 years.
6.  Certificate of Insurance – all condos need to have insurance and provide evidence of it.

Although this list is not inclusive, these are the major items you can expect to have provided to you to review before proceeding with your purchase.

In the final blog regarding the purchase contract Ill touch on possession date.  Again, this is a point of negotiation between seller and buyer.  Quite often when a seller lists their home, the listing will include the sellers preferred date of possession (ie. 30 days, June.1, negotiable, etc….).  When a buyer writes their offer, they may take this into consideration, but ultimately will want to put a date that is ideal for them.  Once a date has been agreed upon by both parties, this will be the actual date that you take possession of the property.  As per the terms of the contract, vacant possession will be made available at 12 noon on that day; meaning that both parties will have met and signed papers with the lawyer before this date, financing will have been arranged, and the property has been emptied, cleaned and vacated.

Now there are circumstances where possession is delayed.  The most common I see is a a delay in the bank sending over the money to the lawyers.  In this case, most often your lawyer will have the seller sign a form ahead of time, stating that you are still able to take possession of the property at that time, but only as a tenant.  You will not in fact own the property and will be paying interest on it until the funds are actually received by the lawyer, at which point only then you become the new owner of the property.  It is important to discuss with your lawyer the options ahead of time, should there be an unforseen delay in the possession of the property.  I always recommend avoiding Friday possession dates (although these tend to be most common), as a delay on Friday would mean nothing will be resolved until Monday at the earliest – meaning you could be on the hook for interest for 2 extra days, or even worse be without a home for the weekend.

Every time an offer on a home occurs in the province of Alberta, it only becomes legally binding once some sort of financial consideration has been made- ie. a deposit.

As discussed in the previous post, part of making an offer is giving a deposit.  This deposit can be anywhere from 1 dollar to the full purchase price.  However, a common deposit may be somewhere around $2500-$10000 on a house under 500,000 to $20,000-$50,000 for a home over $500,000.  These amounts will vary and are all part of the negotiating process when presenting an offer.

The way the deposit works is this – once an offer is accepted, the deposit is given by the buyer and held in trust by the sellers real estate company.  Now most likely your offer would have conditions on it.  If everything is fine and you are able to remove conditions, your deposit is forwarded directly to the sellers lawyer who will then hold in trust until possession.  This deposit counts toward whatever downpayment you will putting on the house.

If for some reason, you can not remove conditions, the deposit will be returned to the seller in full.  NOTE:  As long as you are abiding by the terms of the legally binding contract, the deposit will be returned.  If, for example, you have only a financing condition on the property, but as you were waiting to go through with the deal, another WAY better house that you prefer comes on the market so you decide not to remove your finance condition and buy the other one instead, the seller has a strong case to hold your deposit.  In this case you are able to meet the conditions (able to receive financing on the property) but choose not to proceed for other reasons, so you are in fact breaking the terms of the contract.

The deposit is designed to protect the rights of the seller, as well as demonstrate the willingness of a buyer to proceed with a purchase.  99 out of 100 times things go as planned, but as both a buyer and a seller, it is in your best interest to know all scenarios that may affect you should something go awry.

Effective February 2016, the federal government has made some slight changes to downpayment requirements when purchasing a new home.  The new requirements are:

1) 0-$500,000: buyers will still only require a 5% down payment.

2)$500,000 – $1,000,000 : buyers will now require 10% down payment (previously it was only 5%)

3) $1,000,000 + : buyers still require 20% down.

With ever increasing prices of homes, it is important that the government continue to put these rules in place to ensure first time home buyers dont get themselves in too deep should interest rates go up or house prices decrease substantially.

However, keep in mind if you are purchasing in the 500,000-1,000,000 range, you only need 10% down on the amount over $500,000.  For example: a $600,000 home requires ($500,000*.05=$25,000) + ($100,000*.1= $10,000) = $35,000 down payment.  As opposed to the only ($600,000*.05) = $30,000 that was required before.

CMHC or Canadian Mortgage and Housing Corp is Canadas major housing agency.  If you intend on purchasing a house and are planning on putting less than 20% down you will be subject to CMHC fees (or other providers).  These fees go towards insuring the mortgage as to protect the lenders against default and foreclosure.

Although it may seem initially that these fees are not necessary and only result in greater expenses for first time homebuyers, the reality is that these fees also help to keep interest rates lower as the risk of the bank losing money on mortgages is greatly reduced.

What can you expect to pay?  Well it is actually a sliding scale depending on the amount of down payment you have (more for only 5%, less for 19,99% down).  The cost of providing this insurance just rose in June 2015 to between 0.6%-3.6% of the total mortgage.

For an example – the average purchase price for a home in Edmonton is currently 347,000.  At 5% down and amortized over 25 years, your mortgage would be $329,650 – this amount of mortgage would come with an insurance premium of $11,867.40.

Here is a handy calculator on the CMHC website to figure out what you may owe on your mortgage: http://www.cmhc-schl.gc.ca/en/co/buho/buho_023.cfm

NOTE – you will not have to pay these fees right up front.  They are usually tacked right on to your mortgage payments and amortized throughout the term of the mortgage

Many listings come on the market today with the caveat “GST may be applicable”.  Basically this a lazy way to say you may have to pay GST, but I don’t know for sure.

First of all, it is entirely the sellers responsibility to determine whether or not GST is to be paid.  However, even as a buyer, it is in your best interest to do some research and make sure what the seller has determined is correct, otherwise future issues may arise during conveyencing.

On the surface you can expect to pay GST on the sale of any brand new home or commercial property and buildings, commercial land, and farm land.

On the other hand, any USED residential complexes (including anything lived in, mobile properties and multi family dwellings) are exempt from GST.

Personal use property is also usually exempt from GST – this includes vacant residential lot for personal use, recreational property with a cabin, or a rural property that has never been used commercially.

The biggest grey area for GST is usually around farm land.  If there is any revenue generated from the farm land (pasture or crops) than GST applies – however only to the revenue generating portion (not the house and the land that it resides on).

So – as long as you are purchasing or selling a USED home, GST is not applicable.  However in any other scenario it would be prudent to have you and your Realtor do some further research into the topic, regardless of whether you are on the buying or selling end.

There are many different costs that buyers may incur when purchasing a home – property inspections, appraisals, legal fees and Real Estate transfer fees among others.  Well, as of July 1st, expect to see buyers costs rise as transfer fees are set to quadruple.

Currently, Alberta’s land transfer fees are among the lowest in Canada.  Presently sitting at about 0.02% of the cost of the purchase, fees are now set to rise to 0.12%.  So how much extra can you expect to pay?

Assuming a $500,000 home with a $400,000 mortgage:

Land title registration:

Prior to July 1st 2015 – $150                    After July 1st 2015 – $675

Mortgage Registration;

Prior to July 1st 2015 – $130                    After July 1st 2015 – $555

So, an average home purchase in the city of Edmonton after July 1st 2015 will cost about $1230 in registration fees – almost $1000 more than it was previously.  Not that it makes it an easier pill to swallow, but even with this substantial hike, Albertas fees still remain significantly lower than other big markets such as Vancouver and Toronto.

So if you were thinking of buying a home in the near future it might be a good idea to start looking.  A closing date of June.30 or earlier will save you $1000.