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At
Baywood Homes, we know how complicated the home buying process can seem. We
would like to help you understand it a little better. If you are familiar with
some of the terms and processes, it will help you to communicate better while
giving you added confidence during your new home shopping period.
What is a deposit?
Once you find that Baywood home that is
right for you, you will want to secure it so that no one else can buy it. You
can do this by putting down a deposit on your chosen lot. This deposit will
reserve your lot, and the amount will be applied to your down payment. Your
Baywood Sales Agent will be happy to provide more details to you.
What is a down payment?
Once you decide on which home to purchase, a down payment will be required.
This amount varies from home to home and from community to community. This
money is applied towards the purchase price of your new home.
Talk to your Baywood Sales Agent for details.
What is a
mortgage?
Unless you’ve been given a substantial amount of cash, or have been able to save
enough money for the entire amount of your home, you will need a mortgage. A
mortgage is a loan for your home. It is a contract between you and your
financial institution. Contracts vary – and your contract will outline all of
the terms and conditions involved. For example, you might have your mortgage
for 25 years, or you may choose to pay it off in 15 years. The shorter the time
period, the higher the payments will be. Also, interest rates vary, depending
on your financial institution. Mortgages can be as different as homes
themselves. Financial institutions often tailor the mortgage to each customer’s
needs and schedules. Be sure to find a mortgage that is right for you.Your
Baywood Sales Agent will be happy to advise you on various options as well as
mortgage providers.
What is a high-ratio mortgage?
If
your down payment is less than 25%, then you will require what is called a
high-ratio mortgage. Because this type of mortgage is a higher risk for a
mortgage lender, you will likely require mortgage insurance. This is not
provided by your financial institution, it is provided through a specific
mortgage insurance company such as, CMHC (Canada Mortgage and Housing
Corporation) or GE Capital. The cost for this insurance is charged once per
mortgage - when the amount for your home is transferred to the builder upon the
closing date of your home.
What is a
fixed mortgage?
As
mentioned above, there are many different kinds of mortgages. A fixed mortgage,
for example, is one where the mortgage interest rate remains the same throughout
the term of the mortgage.
Another type is called variable. This is when the interest rate changes
throughout the term of the mortgage based usually on the rate of prime. For
example, if when you negotiate your mortgage, there is a good indication that
the rates are going to drop further, a variable rate might be the way to go.
Because with a variable, usually if the prime rate drops, then so will your
mortgage rate. On the flipside however, if the prime rate goes up, then so will
your mortgage rate. There is often a good opportunity to save money with a
variable rate, but it may also be a little risky – depending on the term, rate
and the economy in general. There are many components with a variable rate but
if this is the route you choose, as with your mortgage, be sure it suits you and
your situation.
What is an
Appraisal?
Before a sale is final, some home buyers like to be sure that their home is
worth the amount (fair market price) they are about to pay so they will have an
appraisal or estimate conducted on the value of the property. A qualified,
professional “Appraiser” can help. There is a charge for this service.
What is Equity?
You might hear someone ask “What is your home’s Equity.” The Equity is the
remaining value of the property after all mortgages and loans registered against
the title are subtracted from its appraised value.
For
example:
If
your home was VALUED at $150,000 and you had a MORTGAGE of $65,000 and let’s say
a SECOND MORTGAGE of $20,000 then you would subtract the amount of the mortgage
and the amount of the second mortgage (because these loans are still
outstanding) and as a result, your EQUITY would be $65,000.
What are Assets?
Your
financial institution will probably ask you if you have any assets. Assets are
valuable items or investments that are cash-related or could be converted into
cash.
Assets include:
Canada Savings Bonds
Cash
Cash
surrender value of a life insurance policy
GIC's
(guaranteed investment certificates)
Mutual
Funds
RRSP's
(Registered Retirement Savings Plans)
Stocks
Superannuation from your employer
Vehicles
Other
real estate property already owned
What are Liabilities?
Liabilities are pretty much the opposite of assets. And both are important
information to a financial institution. So they will likely ask you about
both. Liabilities are your outstanding debts and might include:
Credit card balances
Lines of
credit
Loans
Other
mortgages
What is Net Worth?
After the above two items are established, you can find your net worth. It is
the total value of your assets, minus the total amount of your debts.
What is a Balance?
After you make one deposit or more on your new home, you will likely have an
outstanding balance owing. This is the amount of the mortgage principal owed to
a financial institution as of the current date, or a specific date.
What is Bridge Financing
or Interim Financing?
If
you find yourself in a situation where you buy your new home before your current
home is sold, or before the new owner of your home takes occupancy, then you
might require bridge financing. This is provided by your financial institution
for a short period of time to help you get through the transition of temporarily
having ownership on two different properties. This is short term financing to
help bridge the gap between, when you need to pay the balance of the new home
purchase price, and the date when you receive money from the sale of your
present home.
For example:
You have purchased a new house for $150,000 with a closing date of August 31st.
You sell your house for $150,000 with a closing date of September 30th. You need
to pay for your new house one month earlier than you will receive the money from
your old house. This is where interim financing will come in very handy.
What are Bi-Weekly
payments?
One of the many options you will have with your mortgage is establishing what
sort of payment schedule works for you. Bi-weekly payments are one option.
The amount would be exactly half of a monthly payment amount, but collected
every two weeks. For example if the monthly payment is $1,000 then the
bi-weekly payment will be $500.
This saves you money in the long run, because you pay an extra $1,000 in one
year. These payments are made on the same day every 2nd week. For example in
August of 2004, if your payments are on Fridays, your payments will fall on
August 13th and 27th. In September, they will fall on the 10th and
24th. Twice a year however, you will have three payments in one
month and will need to budget accordingly.
What is Amortization?
Amortization is the life of your mortgage. This is the length of time it would
take to pay off your mortgage, assuming that the interest rate never changes,
all payments are made on time, and no additional payments are made. These days
however, renegotiating mortgages is very common as many buyers will take only a
3-year or 5-year mortgage. And if rates are low, you will see a lot of buyers
taking 6-month or 1-year mortgages.
What is a Completion or
Closing Date?
This is a very special day for new home buyers as it is the day your new Baywood
home is ready for occupancy.
What
is a Possession Date?
The possession date is that magical date you’ve been longing for... It’s when
you move in, start unpacking, order in dinner, and start living…
More Terms...
Elevation
The elevation is an image of your house from
the outside. You have probably heard of a Front Elevation. This is
the front view of your home. Baywood provides an artist's rendering of the
Front Elevations for all of our models. This way, you can see the artist's
concept of how your home will look once it is complete.
Floor Plan
The floor plan is a layout, or bird's eye view, of the space inside your home.
A floor plan includes the positioning of the walls, windows, doors, closets,
stairs, appliances and bathroom fixtures. Each room is measured out in
feet and inches which makes planning your furniture placement a breeze.
Model Home A
model home is an actual home that is constructed by a developer to help
illustrate to purchasers, firsthand, what that particular model will look like.
They are completely finished, inside and out, often furnished and used as sales
offices. Model homes are usually sold once the majority of homes in that
community have been sold. Model homes come with the same warranties as
other new homes.
Amortization
The period of time, most
often 15, 20 or 25 years, required to reduce a debt to zero when payments are
made regularly.
Approved Lender
A lending institution
authorized by the Government of Canada through CMHC to make loans under the
terms of the National Housing Act. Only Approved Lenders can negotiate mortgages
which require mortgage loan insurance.
Blended Payment
A mortgage payment that
includes principal and interest. It is paid regularly during the term of the
mortgage. The payment total remains the same, although the principal portion
increases over time and the interest portion decreases.
Building Permit
A certificate that must
be obtained from the municipality by the property owner or contractor before a
building can be erected or repaired. It must be posted in a conspicuous place
until the job is completed and passed as satisfactory by a municipal building
inspector.
Closing Costs
Costs, in addition to the
purchase price of the home, such as legal fees, transfer fees and disbursements,
that are payable on the closing date. Closing costs typically range from 1.5%-4%
of a home`s selling price.
CMHC
Canada Mortgage and
Housing Corporation. A Crown corporation that administers the National Housing
Act for the federal government and encourages the improvement of housing and
living conditions for all Canadians. CMHC also creates and sells mortgage loan
insurance products.
Conditional Offer/ Conditions of Sale
An Offer to Purchase that is subject to specified conditions, for example, the
arranging of a mortgage. There is usually a stipulated time limit within which
the specified conditions must be met.
Collateral Mortgage
A mortgage which secures a loan by way of a promissory note. The money which is
borrowed can be used to buy a property or for another purpose such as home
renovation or for a vacation.
Commitment Letter / Mortgage Approval
Written notification from the mortgage lender to the borrower that approves the
advancement of a specified amount of mortgage funds under specified conditions.
Conventional Mortgage Loan
A mortgage loan up to a
maximum of 75% of the lending value of the property. Mortgage loan insurance is
not required for this type of mortgage. Covenant A clause in a legal document
which, in the case of a mortgage, gives the parties to the mortgage a right or
an obligation. For example, a covenant can impose the obligation on a borrower
to make mortgage payments in certain amounts on certain dates. A mortgage
document consists of covenants agreed to by the borrower and the lender.
Deed
A legal document which is signed by both the vendor and purchaser, transferring
ownership. This document is registered as evidence of ownership.
Default
Failure to abide by the
terms of a mortgage loan agreement. A failure to make mortgage payments
(defaulting on the loan) may give cause to the mortgage holder to take legal
action to possess (foreclose) the mortgaged property.
Discharge
of Mortgage
A document signed by the
lender and given to the borrower when a mortgage loan has been repaid in full.
Easement
A right acquired for
access to or over, or for use of, another person’s land for a specific purpose,
such as a driveway or public utilities.
Encumbrance
A registered claim for
debt against a property, such as a mortgage.
Equity
The difference between
the price for which a home could be sold and the total debts registered against
it. Equity usually increases as the outstanding principal of the mortgage is
reduced through regular payments. Market values and improvements to the property
also affect equity.
Foreclosure
A legal procedure in which the lender gets ownership of the property if the
borrower defaults on the mortgage loan.
Gross Debt
Service Ratio (GDS)
The percentage of the
borrower’s gross monthly income that will be used for monthly payments of
principal, interest, taxes and heating costs.
High-ratio
Mortgage
A mortgage loan in excess
of 75% of the lending value of the property. This type of mortgage must be
insured — by CMHC or G.E. Capital — against payment default.
Interest
The cost of borrowing
money. Interest is usually paid to the lender in installments along with
repayment of the principal loan amount.
Interest
Adjustment Date (IAD)
A date from which
interest on the mortgage advanced is calculated for your regular payments. This
date is usually one payment period before regular mortgage payments begin.
Interest due from the date your mortgage is advanced to the IAD is due on
closing.
Lending Value
The purchase price or
market value of a property, whichever is less.
Loan-to-value Ratio
The ratio of the loan to
the lending value of a property expressed as a percentage. For example, the
loan-to- value ratio of a loan for $90,000 on a home which costs $100,000 is
90%.
Maturity Date
The last day of the term of the mortgage agreement. On this day the mortgage
loan must be either paid in full or the agreement renewed.
Mortgage
A mortgage is security
for a loan on the property that you own. It is your personal guarantee to repay
the loan as well as a pledge of the property as security for the loan.
Mortgage Loan Insurance
If you have a high-ratio
mortgage (more than 75% of the purchase price), your lender will require
mortgage loan insurance — available from CMHC or G.E. Capital. The insurance
premium will cost between 0.5% and 3.75% of the amount of the mortgage
(additional charges may apply).
Mortgage Life Insurance
This insurance guarantees
that if you die your mortgage will be paid in full. This insurance can be
conveniently purchased through your lender and the premium added to your
mortgage payments. However, you may want to compare rates for equivalent
products from an insurance broker.
Mortgage Payment
A regularly scheduled
payment that is blended to include both principal and interest.
Mortgagee
The lender who provides
the mortgage loan.
Mortgagor
The borrower who pledges
the property as security for the loan.
Net
Worth
Your total financial
worth, calculated by subtracting your total liabilities from your total assets.
Offer To Purchase
A written contract
setting out the terms under which the buyer agrees to buy. If accepted by the
seller, it forms a legally binding contract subject to the terms and conditions
stated in the document.
Counter Offer
If an Offer to Purchase is NOT accepted by
the seller, the seller may alter some of the terms and then present a Counter
Offer to the buyer. The buyer must then look at the alterations made and
decide whether or not to accept them. The buyer also has the option to
further Counter Offer the seller.
Option Agreement
A document stipulating that, in exchange for a deposit, a specified individual
is to be given the first chance of buying a property at or within a specified
period of time. An option holder who does not buy at or within the specified
period loses the deposit and the agreement is cancelled.
P.I.T.
Principal, interest and
taxes - payments due on a regular basis under the terms of the mortgage
agreement. Generally, payments are made monthly and include one-twelfth of the
estimated annual municipal and school taxes. Since these taxes change from year
to year, this section of the mortgage will change accordingly.
P.I.T.H.
Principal, interest, taxes and heating - costs used to calculate the Gross Debt
Service ratio (GDS).
Principal
The amount of money actually borrowed.
Refinance
To pay off a mortgage or
other registered encumbrance and arrange for a new mortgage, sometimes with a
different lender.
Second Mortgage
An additional mortgage on
a property that already has a mortgage.
Term
The length of time during
which a mortgagor pays a specific interest rate on the mortgage loan. The entire
mortgage principal is usually not paid off at the end of the term because the
amortization period is normally longer than the term.
Title
A freehold title gives the holder full and exclusive ownership of land and
buildings for an indefinite period of time. In condominium ownership, land and
common elements of buildings are owned collectively by all unit owners, while
the residential units belong exclusively to the individual owners. A leasehold
title gives the holder a right to use and occupy land and buildings for a
defined period of time.
Total Debt Service Ratio (TDS)
The percentage of gross
monthly income required to cover all monthly payments for housing and all other
debts, such as car payments.
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