by JAYSON SCHWARZ, LLM & HAMZA AHMAD, JD
The last two years of COVID-19 and low inflation rates created a frenzy in the real estate market; perhaps something few of us anticipated in the early days of the lockdown. People were rushing to buy homes and homeowners were happy to see their home prices escalate. It seems the market has cooled down just as fast as it heated up two years ago. But while the market may be more volatile and unpredictable now, there is still an appetite to own a home, and many of us are ready to buy our first or our next home.
TIPS FOR BUYERS
Appraisals and their timing can become critical. The market continues to fluctuate, and predictions of further corrections abound. Lenders will loan money only at up to the appraised value of your home. If your lender appraises your property at a value that is less than what you paid, you will need to make up the shortfall in cash. In other words, you may need to increase your closing funds to be 25 to 35 per cent of the purchase price to be in sync with the appraisal.
Buyers should be prepared for potentially higher mortgage payments in the future. The old position that a floating rate always is better may no longer apply. Remember you are better with a fixed rate that you know you can afford, and weather the next three years until things improve.
If you are purchasing a pre-construction condominium, note that the occupancy fee is based to a large degree on interest on the unpaid balance of the purchase price. As interest rates increase, the occupancy fees can increase and be unpleasantly surprising.
A pre-construction condo going into occupancy this year or next may need more cash down to avoid large occupancy fee payments that could dramatically interfere with rental returns or just plain carrying costs.
Finally, to those buyers who feel overwhelmed because homes went from being out of reach due to purchase price, to out of reach due to interest rates: Don’t give up. Now is the time to increase your cash deposit amounts and look for bargains. It will eventually sort out and if you have saved and are ready, this could be an amazing time of opportunity. The window will be brief so keep your eyes open and save every penny you can.
The most important tip we can give you is to plan your transactions and consider the different possibilities and how you will handle them. Don’t hesitate to retain your lawyer before your transaction so you can get the advice you need before you have signed your agreement. A good realtor, mortgage agent and real estate lawyer are needed now more than ever to guide you through your transaction.