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Everyone loves to talk Real Estate! Whether it’s with your trusty For Sale On Georgian Bay Agent or your neighbour, co-worker or even a friend there’s a lot of terminology used. Many of these terms and phrases are often not common knowledge and might leave you wondering. We’ve collected some of the most used terms so that you will be well on your way to understanding what is going on when you purchase a new home. 

These are the best terms to know. 

Adjustable-rate mortgage – There are two main types of mortgages. An adjustable-rate mortgage has an interest rate and mortgage payment that vary according to market conditions. It is less predictable than a fixed-rate mortgage but can potentially have very low interest rates at times.

Fixed-rate mortgage – Fixed-rate mortgages are more predictable. They have an interest rate and mortgage payment that remain the same throughout the term, and does not fluctuate according to market conditions.

Mortgage pre-approval – A mortgage pre-approval is a process that involves you as the homebuyer and the bank as the lender. Homebuyers will fill out an application detailing various aspects of their finances, including income, assets, and credit history. The lender will then review it to determine the debt-to-income ratio and the amount they are willing to lend to the homebuyer. This is not the same as a mortgage approval.

Appraisal – An appraisal is a process of determining the value of a particular property, so that a lending institution can determine how much they are willing to loan. In Canada, an appraisal can only be done by a member of the Appraisal Institute of Canada or the Canadian National Association of Real Estate Appraisers. An appraisal is different than a market evaluation, which is what a real estate agent will give you as an idea of the property’s worth.

Offer/Counteroffer/Backup offer – Here’s where we get to the nitty-gritty. An offer to purchase sets out the terms with which you agree to buy the home and is a legally binding contract between the seller and the buyer. However, there are different kinds of offers.

A counteroffer occurs when the seller of the property does not accept the offer you extend and makes changes to it, such as the price or the date, making the original offer invalid. A counteroffer will have a time limit within which a buyer may accept or reject it.

A backup offer happens when a buyer is interested in purchasing a property that already has another offer in process with someone else. If the original offer falls through for any reason, the backup offer will be next in line to purchase the property. There can only be one backup offer on a property at any time.

Principal – The principal is the amount you borrow from a lending institution. It does not include the down payment that you would have contributed, and it does not include interest. Your mortgage payments will always be applied toward the interest first, so you need to consider that when budgeting for a mortgage payment. The interest is typically calculated on a daily basis, but you will pay it with your monthly mortgage payment.

Debt-to-income ratio – Also known as DTI, the debt-to-income ratio is a number that is determined by the buyer’s total debt, plus the monthly house payment, divided by the gross monthly income and multiplied by 100. The resulting number helps lenders determine the amount of risk they are taking with a particular buyer. Lenders typically look for less than 28 per cent of the total monthly income spent on housing, and less than 36 per cent contributed to debt payments.

Mortgage loan insurance – If your equity or down payment on the property is below 20 per cent, you will be required to purchase mortgage loan insurance. Offered by CMHC, Genworth and Canada Guaranty, mortgage insurance protects the lender against losses if you fail to pay your mortgage.

Equity – Equity is the difference between the market value of your property and what you still owe on it. If you sell a property at a profit, then equity is the amount you will receive after paying off the mortgage.

Closing Costs – Closing costs are those associated with the actual purchase of the home and not with the value of the house itself. They can include legal fees, realtor commissions, lawyer fees and land transfer fees. These are all due on the closing date once the purchase of the property is finalised.

Real estate lingo can be confusing sometimes, but if you look up some of the terms ahead of time, you will be well on your way to understanding what is going on when you purchase your home. Still have questions?… Let us know!

If you’re on the market to purchase your first home, making the transition from renter to homeowner can be overwhelming and scary. Over the last couple of years it has been a challenging market for Buyers to enter into, pair that with media hype over rising interest rates and there might seem like there’s a lot to be fearful over. However, those who live the most fulfilling life base their decisions on facts, not fears. 

We’ve outlined four powerful facts to help aspiring homeowners move towards fulfilling their real estate dreams.

1.

Fear: “I can’t afford to buy a home right now”
Fact: Until you do the math, you don’t know you can or can’t afford. 

If you are currently paying rent, generally you can afford to buy. Additionally, depending on your credit score, you can end up affording more than you realize.

Note: The credit scores used for mortgage lending tend to take on a much larger picture of your overall credit score. Finally, although there may be a higher initial cost to buying a house, if you’re planning on staying in one place for a few years, the equity you build can end up being a financial boon.

2.

Fear: “I should wait until the real estate market gets better”
Fact: There is never a wrong time to buy the right home. 

Whether “right” means the right price or the right property for you, waiting for the perfect market timing seldom works to your advantage. The fact of the matter is, even the biggest economic downturns are, well, normal. Even when there were some events that threatened to dampen the economy, like the COVID-19 pandemic, the housing market still continued to thrive.

In the end, there are two ways to make money in real estate: timing and time. That is you happen upon the right moment to purchase your home before the price appreciates, or you hold it for a long enough time so that appreciation makes your purchase investment right. If you miss the first, you can most certainly count on the second.

3. 

Fear: “I don’t have the money for a down payment”
Fact: There are a variety of down-payment options available to you. 

While many people believe that making a home purchase requires a substantial down payment, as much as 20%, this is seldom true. Options are always available to you that require much less than this number, as low as 5%; some even less.

House-hacking can also be a great way to make homeownership a more affordable option. House-hacking is when you purchase a piece of real estate and lease out one of the bedrooms or units. This rental income can then be applied toward your mortgage.

Or, you can participate in home rental programs like Vrbo or Airbnb. While it may not be ideal all of the time, you could always make your month’s mortgage payment by renting your place while you’re on vacation.

4.

Fear: “I can’t buy a home because my credit score isn’t good”
Fact: A less than perfect credit score won’t necessarily prevent you from buying a home. 

Although it’s valuable to have a good credit score, a poor one shouldn’t necessarily prevent you from talking to lenders to explore your options. You can expect that a

good mortgage specialist will be able to help you resolve your credit challenges, often simply by showing you how to move or consolidate your debts, or by referring you to a credit counselor who will put you on a plan.

If you’re facing the challenge of having no credit history because you are new to the workforce or have not made regular purchases on credit, there are still possible

solutions that you may want to explore. One is to secure financing with the help of a cosigner, such as a parent or close relative, who is willing to stand by your ability to make the payments. Another can be finding a lender who is willing to use alternative forms of history such as student loans, rent, and utilities.

What are some fears that you have about entering the market? Remember above all, the most important thing you can do is talking to a professional and receiving relevant, up to date information. Talk to your For Sale On Georgian Bay agent to start your path to home ownership!