Horror stories from first-time homebuyers: 7 frightening pitfalls to watch for before you buy

Marie Commisso

Vaughan Real Estate

Your dream home could become a nightmare if you’re not prepared.

You’ve finally saved up the downpayment for your first home. But be warned: purchasing your dream home could become a nightmare if you’re not prepared

 

With rising home prices and hefty student debts, more first-timers are being locked out of the market. What they need is a strategy.  “Buying a home, some would say, is the largest purchase you’ll ever make in your life so it does justify a large amount of research and rigour before jumping in full throttle,” says Michelle Snow, associate vice-president of retail products at TD Canada Trust.

Here are some potential pitfalls to be aware of so that your purchase doesn’t come back to haunt you.

Phantom cash: You have the money to buy a home; but is it ready to go and in one place?

With e-transfers and cashless transactions being the norm, buyers could take for granted the time it might take to move money from one account to another or to turn immaterial numbers into a tangible cheque or bank draft.

 

Mike, a 37-year-old Torontonian, spent 24 hours in panic when he and his wife bought their first home together last month. They put in a bully bid on a house and were surprised when the sellers accepted. This meant that they needed to put down a $30,000 deposit within 24 hours to seal the deal.

Mike’s plan was to take half of the money out of his PC Financial savings account and borrow half from his credit card. PC Financial told him that it would take 24 hours to move his money from his savings account to his chequing account and then one to three days to produce a cashier’s cheque.

“It was this total panic because you forget how much time it takes actually to turn that money into a piece of paper,” he says. Luckily, his bank was able to produce a cashier’s cheque for 3 p.m. the next day, two hours ahead of his deadline. “If you are looking for a house you’ve got to have your deposit ready to go.”

If you deposit a personal cheque in your account, it can take anywhere from four to five business days to process and appear in your account, a TD representative says. An electronic money transfer takes one to two business days.


Closing nightmares: The same rules apply when your closing date is approaching. If you don’t have the money ready, you could be in default, forfeit your deposit and face a lawsuit.

A lot of first-time homebuyers use the Home Buyers’ Plan to take money out of their registered retirement savings plan so speak to your financial institution to ensure timely access to your money, advises Mark Weisleder, a Toronto real estate lawyer and author.

My husband and I foolishly waited too long to transfer money from different accounts into one account when we bought our first home. We brought a certified cheque from one of our banks to another financial institution and were told that there would be a hold on the funds for 15 business days because it was in U.S. currency. If our parents had not lent us the difference so we could close on time, we would have needed to ask the seller for an extension.

An extension would have cost us at least $250 to cover the seller’s lawyer fees and any mortgage interest on the property that the seller would pay during the extended period. The seller might have also asked for an additional deposit that would be forfeited if we couldn’t close on the new extended closing date.


Pre-approval perils: In bidding wars, buyers sometimes do not include a condition on financing, hoping their pre-approval will be enough. But a pre-approval is not a full approval. Even if a lender pre-approves you, if it believes upon appraisal that the house is not worth what you’ve paid, the lender could just cancel the loan.

“Let’s say you went to a bank and you got approved for $300,000 then bought a house based on that approval. The bank is not going to give you $300,000 if they think you overpaid for the house,” Mr. Weisleder says. “I’ve seen cases where on the day before closing, an appraiser goes out there for a lender and they say, ‘Sorry, we’re not satisfied. We’re not giving you the money.’”

If you’re working with a mortgage broker, make sure you have satisfied all of the lender conditions as soon as possible. Also, find out when the lender does its appraisal. Mr. Weisleder recommends having a cushion of up to 5% of your purchasing price available in case the lender decides to loan you less money.


Unexpected frights: Buyers in hot markets are also waiving home inspections in desperate bids to win homes. However, unseen problems could be lurking in the walls, the attic or basement, etc. “It’s a terrible risk to buy a house without an inspection,” Mr. Weisleder says.

There could be costly issues such as worn-out shingles, water seepage in the basement, dying furnace or water heaters, termite damage and asbestos in the insulation.

A family that moves into a new home in the summer could get a nasty surprise in the winter when the furnace doesn’t work. “A furnace replacement is anywhere from $3,500 to $5,000 and there’s a health issue there because if a furnace is not working, it produces carbon monoxide,” says Don Ruggles, owner of Sherlock Inspection Service in Victoria.

He’s seen the owner of a small house pay $15,000 to get asbestos removed. He’s seen people have to re-shingle the roof of their three-bedroom bungalow for at least $7,000.

Meanwhile, a home inspection can start at about $400. “Are you going to put your whole investment at risk for $500?” He adds.

If you think you’re going to enter into a few bidding wars, consider working out a deal with a home inspector to inspect a number of homes for a discount, Mr. Weisleder suggests. If you’re going to rely on the seller’s pre-existing home inspection report, make sure that it’s from a reputable home inspector.

At the very least, go and walk around the house with a knowledgeable or handy friend before you put in the offer. Peek under the area rug to check for cracks. Lift the microwave to look for holes. Open and close all of the windows. “When there are recent renovations, sometimes they’re just covering up problems,” Mr. Weisleder says.

Talk to the neighbours and ask them: “Did you see any repair trucks here in the last year?” Then ask about the neighbours on either side of the property because you can’t easily exorcise a horrific neighbor.

If something goes wrong after you’ve purchased the home, you could sue the seller if you believe he’s deliberately concealed defects; but you want to avoid that nightmare if you can.


Disappearing acts: “Some people are wonderful when they sell a house and some people are just terrible,” Mr. Weisleder says. “Some sellers take out all of the light bulbs. I’ve had someone take out the shed from the backyard. The funniest one I ever had was a lawyer was buying a house and they took the toilets out.”

The lesson? Mark everything down that you expect to receive and include it in the contract under the fixtures and chattels clause. “I’ve seen people argue about closet organizers, TV brackets, window coverings, chandeliers.”


The chill of closing costs: Don’t let yourself get shocked by closing costs that you didn’t budget such as the home inspection ($400), lawyer fees ($1,500) and land-transfer tax (for a $300,000 home in Toronto, the provincial and municipal land transfer tax could be more than $5,000 — but you could be eligible for a rebate as a first-time homebuyer). Also consider moving costs, property tax adjustments and property insurance (maybe $450 a year).

A first-time homebuyer might understandably be caught off guard by the extra costs associated with buying a home, Ms. Snow says. “Most people are trying to save as much as they possibly can and load it into their downpayment to save on default insurance.”

If you’ve under-budgeted for these costs, she suggests that you speak to your lender or financial institution about the possibility of getting an unsecured line of credit to help cover the extra fees for a short time.


Castles of doom: Just because a bank representative or online calculator has told you what you can afford to buy, it doesn’t mean that you should max out your borrowing. You don’t want to ever struggle to make your mortgage payments. As a general rule, the total monthly housing costs (mortgage payments, condo fees, utilities, etc.) should be no more than 32% of gross household monthly income.

Sit down yourself or with a planner and create a projected household budget; try creating a few budgets for different scenarios. Consider your other plans: how much do you want to contribute to retirement or have set aside for vacations?

“You have to ask yourself: how much will you have left over of your paycheque on a monthly basis to live the life you want to live,” Ms. Snow says. “It’s unique for each individual but asking yourself the questions will help you make the right decision.”

You should also consider the ramifications of rates rising in the future. Make sure you have contingency plans in place in case of emergency: loss of job, illness, etc. A friend of mine purchased a condo and when maintenance fees suddenly spiked, she could no longer afford her monthly bills and is now looking to sell.

Post CommentComments: 0Read Full Story

GTA REALTORS® Report Resale Housing Market Figures

Marie Commisso Vaughan Real Estate

TORONTO, November 5, 2014 -- Toronto Real Estate Board President Paul Etherington announced that Greater Toronto Area REALTORS® reported 8,552 sales through the TorontoMLS system in October 2014.  This result represented an increase of 7.7 per cent compared to October 2013.  New listings were also up on a year-over-year basis, but by a lesser 3.4 per cent. 

“Strong growth in sales was evident across all major home types during the first full month of fall.  This suggests that there are a lot of households across the Greater Toronto Area who remain upbeat about the benefits of home ownership over the long term, whether we’re talking about first-time buyers or existing home owners looking to change their housing situation,” said Mr. Etherington.  

The average selling price for October 2014 transactions was $587,505 – up 8.9 per cent compared to the average of $539,286 reported for October 2013.  The MLS® HPI composite benchmark price was up by 8.3 per cent over the same period.  Low-rise home types, including singles, semis and town houses, continued to be the driver of year-over-year growth in the average price and the MLS® HPI composite benchmark. 

“While sales growth has tracked strongly so far this fall, many would-be home buyers have continued to have difficulties finding a home due to the constrained supply of listings in some parts of the Greater Toronto Area, particularly where low-rise home types are concerned.  The resulting sellers’ market conditions are forecast to drive strong price growth through the remainder of 2014 and indeed into 2015 as well,” said Jason Mercer, TREB’s Director of Market Analysis.

 

Summary of TorontoMLS Sales and Average Price October 1 - 31

 

2014

2013

 

Sales

Average Price

New Listings

Sales

Average Price

New Listings

City of Toronto ("416")

3,420

$633,078

5,699

3,167

$594,066

5,326

Rest of GTA ("905")

5,132

$557,135

7,777

4,774

$502,947

7,712

GTA

8,552

$587,505

13,476

7,941

$539,286

13,038

 

TorontoMLS Sales & Average Price By Home Type October 1 - 31, 2014

 

Sales

Average Price

 

416

905

Total

416

905

Total

             

Detached

1,199

2,964

4,163

951,746

672,929

753,232

Yr./Yr. % Change

7.8%

10.8%

9.9%

8.7%

10.6%

9.6%

Semi-Detached

375

524

899

678,937

450,375

545,715

Yr./Yr. % Change

14.7%

3.1%

7.7%

5.4%

8.3%

8.0%

Townhouse

361

951

1,312

520,705

414,797

443,938

Yr./Yr. % Change

2.8%

4.7%

4.2%

9.8%

9.4%

9.5%

Condo Apartment

1,455

578

2,033

390,430

308,919

367,256

Yr./Yr. % Change

8.2%

3.6%

6.8%

1.5%

4.6%

2.5%

 

Post CommentComments: 0Read Full Story