- What price home can I afford?
- How do I find out about the condition of the home I'm considering?
- How low of a price can I consider offering?
- How and what do I negotiate?
- What about my down payment, should I put more or less down, if we can afford it?
Question 1: What price home can I afford?
ANSWER: A reputable mortgage lender will analyze your income in relation to your projected cost of the home, as well as any outstanding debts. The ratio of your income to projected cost of the home (Gross Debt Service Ratio or GDSR), considered in combination with the ratio of your income to projected cost of the home plus all outstanding debt service costs (Total Debt Service Ratio or TDSR), will determine the size of loan you can borrow.
Gross Debt Service Ratio is determined by calculating your projected monthly housing expense, which consists of the principal and interest payment on your loan, plus property taxes and hazard insurance – all in relation to your income.
Total Debt Service Ratio, on the other hand, includes all costs of the home plus all other debt obligations in relation to income.
The range of acceptable GDSR and TDSR ratios varies among financial institutions. Generally, your GDSR and TDSR should not exceed 35 per cent and 42 per cent, respectively, if you wish to be approved for a Canadian residential mortgage.
Question 2: How do I find out about the condition of the home I'm considering?
ANSWER: The smartest and most knowledgeable Ontario REALTORS would strongly recommend that you hire a qualified home inspector to perform a home inspection at the property you are considering.
It is up to the Buyer to do their own due diligence. A home inspector will inspect and report to you the specific condition of the home with special focus a number of key areas. A skilled home inspector will pay careful attention to interior and exterior walls, ceilings, roofs, insulation, windows, fences, driveways, sidewalks, floors, doors, the foundation, and of course the home’s electrical and plumbing systems.
Question 3: How low of a price can I consider offering?
ANSWER: In an economically stable market, making a very low offer on a home might result in your offer being rejected immediately. In a strong buyer's market, the below-market offer will usually either be accepted or generate a counteroffer. In a strong seller's market, offers are often higher than full price. There are other considerations involved:
- Is the offer contingent upon any conditions, such as the sale of the buyer's current house? If so, such an offer, even at full price, may not be as attractive as an offer without that condition.
- Is the offer made on the house "as is," or does the buyer want the seller to make some repairs (or perhaps a price concession) before the agreed upon sale completion date?
- Is the offer all cash or “mortgage pre-approved,” meaning the buyer has waived the financing condition?
Question 4: How and what do I negotiate?
ANSWER: Different sellers price houses very differently. Some deliberately overprice, others ask for pretty close to what they hope to get and a few intentionally underprice their homes in the hope that potential buyers will compete and overbid.
While any offer can be presented to the seller, a “low-ball” offer – in other words, an amount well under the asking price – often has the unintended effect of reducing the chances of a prospective sale, discouraging the seller from negotiating at all. Before making an offer, you should also consult a registered Greater Toronto REALTOR® who can investigate how much money comparable homes have recently sold for in the area.
Question 5: What about my down payment – should I put more or less down, if we can afford it?
ANSWER: This is entirely up to the financial circumstances of the buyers. It is generally more prudent to make a larger down payment, and thereby reduce the amount of debt that must be financed. Once a buyer puts up 20 per cent or more as a down payment on their desired home, the financial institutions will waive the requirement for mortgage loan insurance.
Deciding exactly how much to put up as a down payment is a tough decision, but it’s also an important one. A certified and experienced Greater Toronto Area REALTOR® can help you determine the down payment amount best suited to your unique financial situation and goals.
Want to know more?
These are just the “TOP FIVE” questions that home buyers frequently ask when embarking on the process of their search for a new GTA home. You likely have your own questions that may not have been addressed in this article. A knowledgeable real estate sales representative or broker can provide the answers and insight you need – CLICK HERE to get in touch with the team of qualified and experienced Toronto area real estate sales representatives and brokers at Living Realty today.