Defining Needs & Affordability

Daniel and Liv have just had their first baby. They currently live in the basement of Liv's parents house and pay no rent. Liv is a school teacher and works in Richmond and Daniel is in IT and works in North Burnaby.

They want a three-bedroom house with a basement suite for John's parents when they visit, as they live out of town. They are interested in the cities of Burnaby, New Westminster, Coquitlam, and Richmond.

Before they start to house hunt, they go to see their banker to get a pre-approved mortgage. In Canada, if you plan to purchase real estate you ask your bank or mortgage broker to pre-approve you. During the process they carry out a credit check, ask for your most recent tax return, verification of employment from your employer and require you to fill out an application form, which states your assets and liabilities. It should take no longer than a week for the financial institution to give you a letter stating the amount of mortgage you qualify for.  

Liv's salary is $34,000 per year and Daniel's is $37,000. After taxes they net $58,000, which is $4,833 per month. Their mortgage payment, taxes and heating should be less than $1,700 per month to allow them to live comfortably.They have total saving of $148,0000 to use a downpayment on their new home.

Canadian banks have formulas when determining the size of the mortgage you qualify for. It is approximately one third of your gross income. There is a little flexibility if you have no other debt , which includes car leases. The total amount Liz and John qualify for is a monthly payment of $1,775.00

Choosing a Real Estate Agent

Liv met with her realtor to discuss the house buying process and their ideal property which would be a detached three-bedroom house up to the value of $400,000. The realtor subscribed Liv to a house listings in various municipalities and Liv also did her own searches on www.mls.ca.

Finding the right property

Liv was on maternity leave and had the time to do most of the footwork. She, her mum and the baby set out in the morning to the areas she was interested in, armed with a list of properties for sale and drove by dozens of properties, with an eye on the neighbourhood schools, public transportation and local amenities.

After extensive research in the cities of Burnaby, New Westminster and Coquitlam, they decided Richmond was the answer. However, in Richmond they could only afford a  townhouse which would be too small for a growing family.

So Liv and John decided to look at Delta. Because it is further away from Vancouver, Delta is less expensive than Richmond. The current benchmark price for a house in Richmond is $884,696 while in Delta it is $659,915.

Delta is a quick commute to Sue's workplace in Richmond, John's workplace in Burnaby and Sue's parents home. So it was a perfect fit if they could find a house on a large lot with a basement suite.

Their realtor went to work researching the sold prices, selling times and the sale price to list price ratio to determine how much room there was to negotiate.

There weren't a lot of homes in the $400,000 bracket and many of them were in really rough condition. Liz and John viewed a couple that were nicely renovated and  in move in condition but one had an accepted offer on it already and the other had a huge lot but BC Hydro had a right of way on the lot, meaning there could be hydro lines installed in the future.  

Making an Offer

They were left with two homes to choose from. Both houses were viewed a second time and they decided on the one they liked the best and made an offer. It was an estate sale and the house was vacant, which suited Liv and Daniel who wanted to move in before September. There were three sellers that were part of the Estate, so it took nearly four days to track them all down to negotiate and sign the offer.

Final Investment Details

Sale Price	$391,500
Downpayment	$148,000
Mortgage Repayment	$1,252
Amortization	25 years
Interest Rate	3.8%
Total Cost of Mortgage	$132,288
Heating & Electricity	$100
Property Taxes	$166
Total Monthly Expenses	$1,518

Closing Process

Liv and Daniel had five days to carry out their due diligence. Their realtor sent a copy of the contract to their lawyer whom they asked to review the contract and carry out a title search. The realtor also sent a copy of the contract to their bank contact, who had given them a pre-approved mortgage. He required a survey, which the sellers didn't have as the owner had lived in the house for over 40 years. The cost would be about $750, the matter had been discussed prior to making an offer. The bank took the full five days to give final approval of their mortgage.

The building inspector pointed out that the roof was beyond repair and needed to be replaced before  winter at an estimated cost of $6,000. The electrical panel which was put in at the time of the original build was a fire hazard and had to be replaced at a cost of $1,200.

The windows needed to be replaced because they were single pane and not heat efficient. The  interior needed painting, and the kitchen and bathroom needed upgrades and new appliances. The new roof  was scheduled to be installed the day after the Closing. Daniel and his dad decided to do most of the renovations which would cut labour costs by about 50% of the total.  Sue also found windows on sale, which she purchased with plans to install at a later date.

They asked for a price reduction of $3,000 as the roof and electrical panel were unexpected repairs. The sellers agreed. Now that they know the roof needs immediate attention, they will have to declare it to other perspective buyers. An addendum to the contract was signed by the buyers and sent to the sellers for signatures. Once this was received, the final addendum, stating the buyers had received their mortgage , were satisfied with the house inspection, was signed and a deposit of 5% of purchase price given to the realtor, to be held in trust til the closing date. Real Estate Board of Greater Vancouver advises member realtors to take a minimum of 5% as a downpayment

Liv and Daniel selected a public notary and their realtor endorsed the Notary. They visited her the day prior to closing, with a certified cheque for the balance due and met with the realtor for keys on Possession Date.


Closing Costs

	Debit	Credit
Cost	$391,000
Deposit Paid to Realtor		$19,000
Cost to Obtain Property Tax Info (paid to city of Vancouver)	$67
Credit Vendor 5 months Property Taxes	$990
Telecommunication & Delivery	$84
Land Titles Registry	$42
Total	$392,183	$19,000
Funds required from buyer to complete, payable to buyer’s lawyer in trust by bank draft	$373,183

Tips:

› As a first time buyer, the first step in the buying process is to get a pre-approved mortgage.

› Step two is to decide what type of property you want and, how much you want to spend and exactly where you prefer to live.

› Step three is to make a priority list.

› If you're unsure which neighbourhood will be the right one for you, search for the types of property you are interested in on www.realtor.ca or find realtor websites that offer Virtual Office Website (VOW) searches which are much more specific and allows you to subscribe to listing searches and save them.

› Find  open houses, and take a drive out to those neighbourhoods on the weekend. Hang around a coffee shop and observe who lives in the neighbourhood.

› When you're investigating different  neighbourhoods, research the transportation and decide how you'll get to and from work and how long the commute will take..

› Don’t just rely on the details supplied by the seller, they may not always be accurate. Order a building inspection so you don’t have any surprises once you move in.  



Written by Maggie Chandler, marketing Vancouver homes since 1981.