For most people in New Brunswick, a home is the largest single purchase or investment they will make. So it’s important to fully understand, and think through, every stage of the purchase decision—from finding the right house at the right price, to finding the right mortgage at the right rate, to finding the best insurance for your needs.
When you buy a house, you may not think of yourself as a real estate investor, but that’s exactly what you are. This means you should think of your purchase as more than just a place for you and your family to live. You should consider questions such as whether the house is likely to rise in value while you own it, and how future interest rates might affect you and your investment.
Understand the costs involved
Buying a home comes with a dizzying number of costs—many you would never have anticipated. So when considering whether you can afford the house you want, you need to know all the costs you’ll be faced with before starting the home buying process. You don’t want any surprises where your money is concerned!
Upfront and closing costs
Keep these costs in mind when purchasing a home:
- Down payment (at least 5% of the purchase price)
- Home inspection
- Appraisal fees
- Title Insurance
- Water testing
- Legal fees and disbursem*nts
- Land transfer tax
- Property tax or utility bill adjustments (the buyer is typically responsible to repay to the seller any amounts the seller has prepaid)
- Mortgage insurance (if applicable. If your down payment is less than 20% of the purchase price, you will have to purchase mortgage insurance)
- Tax on purchase price (for new constructions)
- Property survey
- Upgrades (for new constructions)
Set up costs
Costs associated with moving and setting up your new home may include:
- Furniture
- Carpets
- Lighting
- Window coverings
- Appliances
- Landscaping and yard maintenance tools (lawnmower, snow blower, etc.)
- Movers and/or moving truck
- Boxes and moving supplies
- Utility set up charges (such as security deposits)
Regular ongoing costs
These are the normal costs of owning and maintaining your home and may include costs such as:
- Mortgage payments
- Home insurance
- Utility bills
- Property tax
- Regular repairs and maintenance
- Condo fees
- Garbage collection
Large, irregular costs
These are more expensive costs that you will likely eventually incur and may include:
- Roof repairs
- Renovations
- Landscaping
Need a hand getting your budget in order before you buy a home? Use our Budget Tool.
Getting a mortgage in New Brunswick
A mortgage is a loan that can help you finance the purchase of your home so you do not need to pay the entire price all at once. Your home is collateral for that loan. You can work with your bank or a licensed mortgage broker or mortgage associate to help you determine how much you can afford to borrow, set a budget, and secure a mortgage.
In New Brunswick, mortgage brokers and mortgage associates are licensed professionals who can help you negotiate and navigate the complicated and sometimes overwhelming process of getting a mortgage. These individuals must be licensed with FCNB and must meet certain education requirements prescribed by FCNB. Licensing protects New Brunswickers because FCNB will only issue a licence if the applicant meets all applicable education and industry experience and other requirements outlined in the Mortgage Brokers Act.
You can check if the broker or associate you are considering working with is licensed by searching our Mortgage Brokers and Associates database.
Working with a mortgage broker or mortgage associate
A mortgage broker or mortgage associate acts as an intermediary between a borrower and a lender. In New Brunswick, a mortgage broker or mortgage associate can act for either the borrower or a private lender, but not both.
A mortgage broker or mortgage associate can help you with the mortgage application process, search out a lender and negotiate mortgage terms and rates. Mortgage brokers and mortgage associates do not actually lend money. When acting on behalf of the borrower they shop around to different lenders on the borrower’s behalf.
Questions to ask a mortgage broker or mortgage associate
- Are you a licensed mortgage broker or mortgage associate? (Verify with FCNB if you’re not sure)
- Do you represent the borrower or the private lender? (Mortgage brokers are not allowed to represent both the borrower and the private lender)
- What services do you provide and how will you help me? (A mortgage broker or mortgage associate must provide you with information about the mortgage and any fees or costs that you would be responsible for paying. They must provide you with this information at least two days before you enter into a mortgage agreement.)
- Do you charge a fee? (Mortgage brokers and mortgage associates are not permitted to charge or accept a fee from the borrower until the mortgage has been funded and secured by the real property.
- How will you be compensated? (Mortgage brokers and mortgage associates can be paid by the lender or the borrower or both.)
- How many lenders do you work with? (The advantage to working with a broker is that they have many lenders at their disposal. They must provide you with a list of the lenders that they have available for your mortgage needs.)
Getting pre-approved for a mortgage in New Brunswick
A pre-approval is written confirmation by a lender that outlines how much you can afford to borrow, what your interest rate would be, and your estimated mortgage payments.
A pre-approval can help narrow down your house hunting to a certain price range or type of home. But, a pre-approved mortgage does not guarantee that you will get a mortgage contract with the lender. The property you choose will be evaluated by the lender before you are given final approval.
Just because you are pre-approved for a certain amount doesn’t mean you should borrow the full amount. Borrow only what fits your budget and what you can afford to pay when all your other expenses, debt payments and budget items are considered. Also consider if you would still be able to afford the mortgage if interest rates should go up. It might be sensible to look at homes that meet your needs in a lower price range so you aren’t stretching your budget too thin.
What to bring when you meet with your mortgage broker
When you meet with your mortgage broker or mortgage associate for the first time, having these documents with you will help you be prepared to answer some of the questions they will ask to determine if you qualify for a mortgage:
Employer contact information and employment history
- Proof of address and address history
- Government-issued photo ID
- Proof of income
- Proof of down payment (amount and source)
- Proof of savings and investments
- Details of current debts and other financial obligations
Mortgages types and contract terms
Your mortgage broker or mortgage associate will help you determine which type of mortgage and which options are best for you. If you are unclear about anything in the contract, talk to your lender or mortgage broker, or your real estate laywer, ask questions, and make sure you understand fully before you agree to the contract. Here are some important aspects of a mortgage and mortgage contract that you should consider.
Mortgage insurance
The amount you have available for a down payment will determine if you need to apply for a conventional (or low-ratio) mortgage, or a high-ratio mortgage.
If you have less than 20% of the purchase price as your down payment, you will need to apply for a high-ratio mortgage. A high-ratio mortgage needs to have mortgage protection insurance provided by Canada Mortgage and Housing Corporation (CMHC), Sagen Mortgage Insurance Company Canada,or Canada Guarantee. You pay the mortgage insurance premiums once (per mortgage) when the mortgage funds are advanced. You can choose either to pay the premium yourself, or add the funds on top of the mortgage.
If you have 20% or more of the purchase price or the appraised value of the property to use as a down payment, you can apply for a conventional mortgage. A conventional mortgage usually does not require mortgage protection insurance.
Term and amortization period
The term of your mortgage and the amortization period are two very different things.
The amortization period is how long you agree to take to pay off your entire mortgage, making regular payments at the current interest rate. A longer amortization period means you will pay lower mortgage payments, but will pay more interest over the life of the mortgage. Typically, amortization periods are 15, 20 or 25 years. The shorter the amortization period the less interest you will pay. Making more frequent bi-weekly payments can reduce the amortization period of your mortgage and therefore reduce the interest you will pay.
The term is the amount of time that your mortgage agreement and interest rate are in effect. The term may range from six months to ten years. At the end of your term, the remaining balance will need to be renewed, renegotiated or paid in full. If you have met your payment obligation, often your lender will offer to renew your mortgage when the term is up at whatever the current market interest rate is. However, there are some instances when a lender may choose not to renew a mortgage. Changes in a borrower’s financial situation might cause concern for a lender (such as increased debt levels, or loss of employment) or if payments have not been made on time, the lender may choose not to renew a mortgage.
Fixed and variable interest rates
When you negotiate your interest rate, you will need to decide if you want a fixed rate or a variable rate.
In a fixed rate mortgage, the interest rate doesn’t change for the term of the mortgage. A fixed rate may offer more security and predictability because your payment amounts and interest rate will not change during the term of the mortgage.
In a variable rate mortgage, the interest rate fluctuates during the term. A variable rate may offer lower payments and the ability to save money in interest in the long run, but your payments may fluctuate during the mortgage term. Variable interest rate mortgages may also be convertible. This means that you can convert a variable rate mortgage to a fixed rate mortgage during the term. Usually there is no cost, but you may be subject to certain conditions outlined in your mortgage contract.
Penalties and fees
Prepayment penalties can be expensive, so make sure you understand if your contract allows prepayments. Most mortgages have rules and restrictions on paying more than the scheduled payment amount, or paying the whole mortgage early. An open mortgage allows you to pay off your mortgage at any time without penalties. An open mortgage generally has a short term (6 months to a year), and carries higher interest rates than closed mortgages with similar terms. A closed mortgage may have limitations on making extra payments, and you may have to pay a penalty if you want to pay off the mortgage ahead of schedule. Closed mortgages may offer a lower rate of interest, but they are less flexible than open mortgages.
There may also be late payment fees and penalties. If you are late making payments, your lender may not renew your mortgage when the term ends. If you default on your mortgage, choose to renew with a different lender, or pay off your mortgage early, you may have to pay fees. These fees are set out in the terms and conditions of your mortgage.
If your mortgage includes a condition that limits how the property can be used, you may be charged a change in use fee if you decide to change how your property is used (for example, changing from a residence to a rental property).
Portable and assumable options
Portable and assumable options can make your mortgage more flexible if you move and sell your home. A portable mortgage allows you to transfer your mortgage to a new property when you sell your home, and keep the terms of your original mortgage with little or no penalty. You “port” the mortgage over to your new home, meaning you transfer the terms and conditions of your existing mortgage to your new property. This could be very beneficial to you if you have a low interest rate that you want to keep. But if your mortgage contract does not have a portability feature, you could be charged a fee to transfer your mortgage to a new property.
An assumable mortgage holds the mortgage balance and rate that you currently have, but the mortgage transfers to the buyer of your home. The buyer “assumes” the mortgage, provided the lender approves both the transfer and the buyer. This option may serve as a selling feature if your mortgage rate is lower than current rates at the time you’re selling your home.
Reverse mortgages
This is a type of loan that is designed for homeowners 55 years of age and older. A reverse mortgage requires no monthly mortgage payments. The loan is secured by the equity in your home (the difference between the value of your home and the unpaid balance of your mortgage.) Instead of making mortgage payments, the payments and interest on the mortgage accumulateand payment is deferred until you sell your home, or you no longer live in your home as your principal residence. Reverse mortgages are not right for everyone and should be carefully considered. Speak to a trusted advisor to fully understand all your options before deciding.
Mortgage Protection Insurance / Creditor Insurance
You may also be required, as a condition to your loan, to have life insurance to cover your outstanding loan balance in case of your death. Mortgage life insurance is one product that covers your outstanding mortgage balance at the time of your death. Your bank may offer you this product, but before you purchase, check to see if you already have coverage through your life insurance policy. You are not required to purchase this insurance from your lender. You have the right to shop around and consult with your licenced insurance professional to determine what is the best product for your needs.
Title insurance
Title insurance covers losses related to title fraud and legal expenses to restore a title. There are two types of title insurance. Lender title insurance protects the lender until the mortgage has been paid off, and individual title insurance protects the homeowner from losses even if there is no mortgage. Be sure to review your policy so you are clear on what it covers.
Protect yourself from mortgage fraud
A mortgage is a big financial commitment and is not without risks. Protect yourself by taking the following precautions:
- Be honest on the mortgage application. Fill out all documents completely, accurately and truthfully. Errors or missing information could lead to a mortgage that does not fit your needs and providing false information on a mortgage application is considered mortgage fraud.
- Do not apply for a mortgage for someone else. Applying for a mortgage on someone else’s behalf is called being a “straw buyer”. The straw buyer is liable for the mortgage and could be held criminally responsible for their misrepresentation to the lender.
- Be cautious of “leveraging”. Leveraging, or borrowing to invest carries high risks. Be sure to carefully consider the investment and fully understand the risks before deciding to take out a mortgage to invest. All investments carry risk, and if the investment does not perform as expected, you will still be responsible for paying back the original amount of the mortgage and interest. Being fully informed about borrowing to invest (leveraging) is always in your best interest.
- Read the agreement. Never sign documents without reading them thoroughly and understanding them. If you are unsure, ask questions until you understand, or get a second opinion.
Working with a real estate agent
When you buy a home, you will have to decide if you want to buy on your own or work with a professional, like a real estate agent. A real estate agent and their salespeople can help you navigate the process of buying a home. Because this is one of the largest transactions you may make, it’s important you take the time to choose the right agent for you.
How the real estate industry is regulated
The real estate industry in New Brunswick is co-regulated by FCNB and The New Brunswick Real Estate Association (NBREA). Each organization has unique responsibilities:
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What a real estate agent and salesperson will do
For buyers:
Your real estate agent or salesperson will meet with you to understand your needs, what you are looking for in a home and what your budget is. They will research listings for potential properties that match your needs and coordinate appointments to show you properties. They will also prepare the offer to purchase and communicate with the seller or the seller’s agent.
For sellers:
Your real estate agent or salesperson will meet with you to understand your needs and will help you establish an asking price. They will take photos of the property to prepare a listing and will list the property for you either on a Multiple Listing Services (MLS® Systems) or as an exclusive listing. When your property is listed on MLS® Systems, the listing is accessible to anyone looking to buy a home. When your property is listed as an exclusive listing, any prospective buyers will be referred directly through your salesperson or agent. But it also means your listing will be visible to fewer buyers. Before agreeing to an exclusive listing, ask your salesperson their experience and success rates with this type of listing, and how they plan to market your home for you. Your agent will also help stage your home properly so it shows well, and will coordinate and conduct open houses.
Choosing a real estate agent and salesperson
There are many ways to find a real estate agent and salesperson:
- Ask friends and family for recommendations
- Contact local agents that are advertising in your area
Before you make your decision, meet with the agent or salesperson. You will be working closely with them on a very large transaction. You should feel comfortable with their experience and feel that they will work in your best interest. Here are some questions that may help you decide:
- How many years have you been in the industry?
- What is your commission fee? Do you charge a flat fee or percentage of the sale?
- What types of services will you provide?
- How will you market my home?
- Will my property be listed on MLS® Systems?
- Do you have a website?
- How will you help me find my dream home?
- Do you have any buyers / sellers in mind?
- Can you provide me with references?
In New Brunswick, both the real estate agents and any salespeople must be licensed with FCNB. Many real estate salespersons will also use the term Realtor®, which means that the individual is a member in good standing of the Canadian Real Estate Association.
You can contact FCNB to be sure that they are licensed before engaging them to work with you.
Understanding the agency relationship
When you retain the services of these professionals through an agency agreement, you are legally giving the real estate agent and any salespeople the authority to act on your behalf in certain regards. This is called an agency relationship. In an agency relationship real estate agents and salespeople have a responsibility to act in your best interest.
Before signing any agreement or contract, it is important to read the document and ask questions to clarify anything you do not understand. Make sure you know your rights, responsibilities and obligations.
Dual Agency Agreement
If the buyer and seller are represented by the same salesperson or by salespeople who work for the same agent, this is called dual agency. In this case, the agent’s salespeople may not be able to act in both side’s best interest. After all, it may not be possible to both help the seller get the best price for their home while helping the buyer get the best deal.
Agents and their salespeople cannot act as dual agents without providing their clients with a Dual Agency Agreement. This document discloses the agent’s conflict of interest and must be signed by both the buyer and seller.
Before signing a Dual Agency Agreement, you need to understand what limitations there may be on the services your agent provides. For example, there may be limitations on the information the salespeople are able to share with you, such as buyer and seller motivations, price, and other personal information. If you are not comfortable with the terms of the Dual Agency Agreement, you have the right to choose another agent to represent you.
Buyer Agency Agreement
Once you have chosen a real estate agent and salesperson to work with, you may sign a Buyer Agency Agreement. The Buyer Agency Agreement outlines the relationship between you and your agent and salesperson, including compensation and the amount of time the agreement will be in effect. Before signing any agreement or contract, it is important to read the document and ask questions to clarify anything you do not understand. Make sure you know your rights, responsibilities and obligations.
Listing Agreement
Before listing your home, you and your agent and salesperson will sign a Listing Agreement. This is a contract between you and your agent and salesperson. It gives the agent and salesperson permission to list your home, outlines your obligations as a seller, and outlines the agent and salesperson’s duties, commission fees and deadline for selling your home. The agreement will also tell you whether the listing is a Multiple Listing or an Exclusive Listing. Your agent is required to provide you with a copy of this Listing Agreement. Always keep a copy of the agreement in case of a dispute.
Finding your home
What are your home needs and wants?
When you think about the home you want, you probably think about the number of bedrooms and bathrooms, the home style, and neighbourhood. But there’s more to consider. For example, think about what your property taxes will be for the area, the school system, community services (such as fire and police), and how close you’ll be to things like grocery stores and community centres.
Understand market conditions
In a buyers’ market, there are many homes for sale and fewer buyers, so homes may sell for less than market value. In a sellers’ market there are fewer homes for sale and many people looking to buy, so homes may sell for more than market value. Things like market conditions, how quickly you need to buy and your financial situation should all factor into your buying decision.
What can you afford?
When shopping for your home, consider not only what you can afford today, but also what your future financial position will look like. Most banks and financial experts recommend that your monthly housing costs, including mortgage payment, property taxes and insurance, be no more than 25% of your take-home income. So add up your income, add up your housing costs, and make sure your housing costs are less than a quarter of your income.
Making an offer and closing
Making an offer
You’ve found it—the place to call home! Now it’s time to make an offer. The offer to purchase (also called an agreement of purchase and sale) is a legal document that is prepared by your real estate agent or lawyer.
An offer to purchase is a legally binding contract. Signing it means you commit to buy the home. If the seller accepts your offer, once the conditions included in the purchase and sale agreement are met, you are obligated to buy the home. It’s a big decision, so be sure to think it through. There’s no cooling off period when buying real estate, and you will forfeit any deposit if you change your mind.
Decide how much money you want to offer and what conditions you want met before closing the sale. Here are some common conditions to consider:
- Home inspection: Have your offer dependent on a home inspection. To avoid costly repairs, you may have a professional inspect the home before buying and ask the seller to have the repair work completed before the closing date.
- Financing: Have your offer conditional on receiving financing at a set rate. A pre-approval for a mortgage is not a guarantee. If your financial situation changes or the lender has made a mistake you may not be able to secure a mortgage to purchase the home or may not qualify for the same interest rate.
- Fixtures and appliances: Have your offer conditional on any fixtures, curtains or appliances you want included (such as tool sheds, light fixtures, etc.) in the purchase price.
- Sale of existing home: Have your offer conditional on selling your home first to avoid having to pay two mortgages.
The seller may accept, decline, or counter your offer by asking for more money or adjusting the conditions of the offer. Once your offer is accepted, if a deposit was required, it will need to be paid. At this point, you will need to hire a lawyer who will handle the transfer of the property.
Getting a mortgage
Once your offer is accepted you will go back to your lender or mortgage broker or associate to finalize the details of your mortgage. Your mortgage broker or associate will tell you what documents you need to bring with you so they can verify the information.
Closing day
Finally—you get to take possession of your new home! On or around your closing day you’ll visit your lawyer and sign the required paperwork. Your lender or mortgage broker or mortgage associate will arrange for the mortgage money to be transferred to your lawyer. You will pay your lawyer the closing costs and the down payment. Your lawyer will pay the seller, register the home in your name, and give you the keys.
Insuring your home
Home insurance can help protect your home and contents in event of an insured loss.
The amount of money you receive from your insurer for a covered loss will depend on whether your coverage is for actual cash value or replacement value and is usually subject to a deductible. When shopping around for insurance, ask if the quotes you receive are based on actual cash value or replacement value.
Home insurance can cover:
- Damage or theft of your contents, or fire
- contents stolen from your vehicle
- damage or injury to others who visit your home or property
- accidental damage you cause to others’ property.
Home or property insurance policies can vary. Be sure that you understand what your policy covers and that you purchase adequate insurance for your needs.
Home or property insurance is usually required as a condition of getting a mortgage. Most financial institutions will not give you a mortgage without proof of insurance.
Condominium insurance
Condominium insurance is different from home insurance because it covers only the inside structure of your unit and your personal liability. Condominium insurance can pay for:
- damage to or loss of the interior structure of your unit
- damage to or loss of your contents
- improvements or betterments you or the previous owners made to your unit
- personal liability in case someone is injured in your home
- accidental damage you cause to other units or the condominium common areas
Condominium insurance policies can vary. Be sure that you understand what your policy covers and that you purchase adequate insurance for your needs.
If you own a condominium, the condominium corporation will have a master insurance policy that covers the outside structure of the condominium and the condominium’s common areas. This policy does not include coverage of your unit or other units.
It’s always a good idea to ensure that your insurance agent or broker is licensed to sell insurance in New Brunswick.
Hiring a Moving Company
You may wish to hire to a moving company to transport your goods to your new home. If so, it’s important to hire a reputable company or broker to assist in this process. For advice on choosing a reputable mover and steps for a smooth moving day, visit the Government of Canada’s Moving Advice web page.
