HOW TO PURCHASE A HOME
Buying a home will probably be the largest purchase you will ever make in your life. The purchase of your new home will be a very exciting experience, as well as one full of anxiety and anticipation.
As a buyer you will want to determine how much you can afford to pay for a house and how much financing a bank or lending institution will make available to you. This process is known as a "pre-approved mortgage". Most banks and lending institutions have applications available to apply for a pre-approved mortgage; this service is free and will determine the price range of the homes you will look at when searching for the home you want.
Once you have become pre-approved for a mortgage, start searching for the home you want to buy. You will no doubt be informed of the properties that are available privately through our advertising, as well as some real estate listings. But remember to have access to all the MLS listings. Specify to agents that a commission will be paid only if that agent has shown you the property purchased. This allows you to look at properties that are listed with agents and also at private sale listings without the hassle.
When you have found the home you would like to purchase, obtain a purchase and sales agreement.
AGREEMENT OF PURCHASE AND SALE
The Agreement of Purchase and Sale is a legally binding contract, which is entered into between yourself and the people who are selling the property. The Agreement will set out all of the terms of the contract including the purchase price and deposit amount, the closing date, and should also include certain conditions, such as financing and a building inspection. Before signing any Agreement, contact your lawyer to review your agreement with him to ensure that all of your legal rights are addressed. Also, he/she will be able to advise you of the "hidden costs" involved in your transaction.
Remember to list any conditions that apply. For example, Purchase subject to financing, Purchase subject
to an appraisal, Purchase subject to Home Inspection, Purchase subject to appliances & window coverings
included in sale, Purchase subject to seller providing real property report and survey. You should contact
your lawyer to review the purchase and sale contract before presenting it to the seller. When presenting
the offer to the seller a deposit is required. This deposit is refundable if all contingencies are not met,
OR if the seller declines the offer.
WHAT ARE HIDDEN COSTS?
Although you agree to purchase your new home for a fixed amount, there are many additional costs which will be payable. The following are the usual costs involved:
- CMHC Insured Mortgages - If you are obtaining a mortgage for more than 75% of your purchase price, your mortgage will be insured through Canada Mortgage and Housing Corporation or other mortgage insurance companies such as GE Capital. If you are financing at 95% (in other words, you are putting 5% down), then the insurance premium charged to you will be 3.75% of the principal amount of your mortgage. Fortunately, this amount may either be paid up front or it may be added to the principal of the mortgage. This amount together with CMHC's administration/processing fee of $185.00 will be payable on the closing date and is usually deducted from the monies provided by the mortgage company. When applying for your mortgage, you should ensure that your mortgage representative clearly explains all of these costs in detail.
- Legal Fees - These are fees which are payable to your lawyer for acting on your behalf in purchasing your new home. Legal services will include: drafting or reviewing the Agreement of Purchase and Sale; preliminary discussions with you; reviewing the title search; writing for zoning compliance, tax and utility certificates; preparation of the purchase documents and mortgage documents; meeting with you; closing the transaction and certifying title to yourself and the mortgage company.
- Disbursements - Disbursements are "out-of-pocket expenses" which would include obtaining all of the above certificates, registration of your Deed and Mortgage, and office expenses such as couriers and photocopies.
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Survey/Title Insurance - If the vendor does not have an up-to-date survey, you may be required to
obtain a new survey or title insurance. The current cost for a new survey is approximately $700.00;
a new Surveyor's Real Property Report is approximately $350.00; and title insurance is approximately
$287.00.
Title Insurance is a special kind of insurance that protects you against loss from fraud, forgery, title defects, and survey problems. It can insure against problems that could affect future ownership. Title Insurance offers greater coverage than a traditional Solicitor's Opinion/Lawyers Certificate of Title, and is accepted by lending institutions in place of a survey. This means it can eliminate many costs and delays often associated with home closings. One place you may contact for this is First Canadian Title or visit their website at www.firstcanadiantitle.com - Adjustments - Although you have agreed to purchase your new home for a certain purchase price, there will be adjustment(s) to this amount. The most common adjustment is for property and water taxes. If the vendor has paid all of the property taxes for the year, and you are closing your transaction in July, you will be required to reimburse the vendor for your portion of the taxes. You would then only be responsible for taxes in the following year. As well, if your home is heated by oil/propane you may be required to pay the vendor for any remaining oil/propane on the property.
I'VE SIGNED THE AGREEMENT, NOW WHAT SHOULD I BE DOING?
In most cases, your Agreement of Purchase and Sale is conditional upon financing and/or a building inspection. You will only have a certain number of days in order to satisfy yourself and "waive" your conditions. Once you have an "accepted offer", you should immediately take a copy of the Agreement to your financial institution in order to arrange a mortgage with terms that are satisfactory to you. You should also contact a certified building inspector in order to set up an appointment for an inspection of the premises. Once you have waived all of your conditions, your lawyer will proceed to search the legal title to the property to ensure that there are no liens or title problems. Once your lawyer has obtained the search, he will contact you to discuss how title will be held on the Deed. You will be required to obtain fire insurance coverage on your property effective the date of closing and your policy must name your mortgage company. You will be required to make arrangements to transfer the water, hydro and gas accounts to your name on closing. You should contact your cable, phone, and post office in order to transfer these accounts to your new home. Once all the costs are calculated and the amounts required from you are determined, you will be contacted in order to review these figures and to set up an appointment (a day or two before the closing date) to execute the closing documents. On closing, your lawyer will arrange with the vendor's solicitor to exchange documents and register your Deed and Mortgage. Once registered, you are the owner.
I AM BUYING A CONDOMINIUM - HOW IS THIS DIFFERENT FROM A SINGLE HOME?
When you purchase a condominium unit (either an apartment or a townhouse), you are technically the owner of your unit and a joint owner with all of the unit owners of the "common areas". These areas may include hallways and lobbies, or parking lots and walkways. In some cases you have an "exclusive use" of the common areas. This may include your balcony/backyard or a parking space. As a unit owner, you will be required to pay monthly condominium fees to the corporation, to cover costs for building the reserve fund, maintenance of the common areas, and in some cases, utilities.
When entering into an Agreement of Purchase of Sale you should insert a condition allowing you to review the condominium corporation's documents. These documents include an "Estoppel Certificate", financial statement, budget, rules and regulations, bylaws, management and insurance agreements. The Estoppel Certificate will provide you with specific information relating to your unit and other financial information relating to the condominium. Your lawyer will review the Estoppel Certificate and provide you with his/her opinion.
The following is a list of tips for buying a home
- Before looking for a home, pre-approve your mortgage. This will save time and disappointment.
- With your spouse or partner, compile a list of "Must Haves", "Would Like" and "Live Without". When the list is compiled, arrange appointments to view properties. After you have viewed several houses your list will change.
- Do not enter into a verbal or written contract with any agent; instead, specify that a commission will be paid only if their property shown is purchased. This allows you to view properties listed privately.
- Do not bring an agent with you when viewing or purchasing a house that is listed privately unless you are willing to pay their commission. (Your lawyer or Banker can help you with any questions or concerns you may have).
- If you find the house you want to buy before you have sold your home, the purchase and sales agreement should state that the purchase of this home is subject to sale of your own home first. You may also state that the seller may continue to seek out other buyers during this time.
- If your house is sold before you find a home be sure the sales contract is contingent upon you, the seller, finding another property. Remember, the seller is legally bound to sell once the sales contract is signed.
- Be courteous and respectful when presenting an offer.
- If you feel the property you want is over priced and the seller refuses a lower offer, make the offer contingent upon the property appraising for the selling price or higher.
- Any offer you present should include a walk through inspection 48 hours before closing. This allows you to view the house, before closing, to ensure everything is as it should be. It will be easier to deal with faults now than after the deal is closed.
- If you don't know much about building construction, make your offer contingent upon the property passing a professional home inspection. This will also educate you on the maintenance needs of your home.
- If the appliances or drapery are to be included in the sale price, put it on the sale contract.
Remember, once signed, a sales contract is legal and binding. Involve your lawyer to ensure you are protected. If you feel more comfortable with a Real Estate Agent representing you then call a Real Estate Representative of your choice.
