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Residential Real Estate
Real Estate Content
INFORMATION ABOUT RESIDENTIAL REAL ESTATE
PURCHASING REAL ESTATE
Early Planning Stage:
Better Understanding the Real Estate Market
Advantages of purchasing a New Home Versus a Used Home
An important question you may want to ask before you purchase a Resale Home
Condominiums: Additional Factors to Consider
How to find the Right Real Estate Agent For You
Deposit
Deposit and Down Payment - The Basics
Mortgages:
Advantages of a Pre-approved Mortgage
Canada Mortgage and Housing Corporation (CMHC)
Open Mortgages Versus Closed Mortgages
Vendor (seller) Take Back Mortgages (VTB)
Title Insurance:
Title Insurance- Law Society Requirement
What does Title Insurance cover
Taxes:
Fees and Costs
Fees- Things You May Have to Pay For
Additional Cost to Keep in Mind
The Closing Process:
Better Understanding the Real Estate Market
GENERAL POINTS:
Naturally the housing market fluctuates experiencing both strong and weak periods.
However, most Real Estate experts will tell you that it is practically impossible to accurately predict the real estate market.
BE CAREFUL, if you decide to wait too long for the market to become “just right” for you, you may have already wasted a large sum of potential investment money on rent.
POINTERS on better understanding the housing market:
1. Check the prices of the listed homes in your local paper, and then enquire from your real estate agent how the current market compares to the past 12 months. Your real estate agent should be able to easily disclose to you the following information:
. generally how well the homes have been selling in the past year
. generally what were the prices
. how long were the homes on the market
. generally what types of homes sold best in what neighborhoods
2. Ideally as a purchaser, you aim to buy when there are more sellers on the market than buyers, this is referred to as a “Buyer’s market.” In a “Buyers’s market” the seller will have no choice but to list his/her real estate at a reasonable price in order to find a buyer.
On the Flip side, if there are relatively few homes on the market, but buyers are plentiful, the results will be fast home sales at prices close to, or even above, the listing prices (Seller’s Market). In a Seller’s Market, buyers have less negotiating power, less time to decide, and may even find themselves in a bidding war for homes.
3. Winter in Canada is notorious for being cold and unpleasant. In addition there is the consideration that many families are not willing to move during the holiday season. Thus, as a general rule, the winter months also tend to be slower for the real estate market. A lot of homes won’t be on the market simply because sellers know their homes look best in the summer with the flowers, the leaves, and the sunshine. This means, of course, that the homes on the market at this time of year probably need to be sold urgently, and so you might find a good bargain.
4. Interest rates are a huge determining factor as far as what price range of homes you can afford. Generally, when interest rates are high, fewer buyers tend to be in the market for a new home.
Renting Versus Buying
Advantages of Owning your own home:
There are a number of advantages when it comes to owning your very own home. They are as follow:
1. More Stability
. Not having to worry about moving from one rental apartment to the next.
. Not having to worry about whether your rent will go up.
. Not having to worry about the landlord suddenly deciding to sell the property.
2. Investment
. Home ownership is generally considered a good investment, therefore you acquire a major investment which will allow you to feel more secure about your future.
. Any additions you make to the property will add to YOUR investment, not someone else’s.
. Paying your mortgage on time can do wonders for your credit ratings.
. If your home is your principal place of residence, you don’t pay tax on the amount you earn. The increase in your home’s value, similar to other types of investments, is called a Capital Gain. On other investments, you would normally pay tax on these gains, but you’re exempted from paying this tax if the capital gain is on your principal residence.
3. Freedom
. The home is yours! You can set-it-up any way you desire.
. No landlord to answer to.
. No relying on the landlord to fix any damages or defects.
. Your home is an investment.
. You monthly payments are an investment.
. A new home adds stability to your life. Ex. Permanent Address.
Advantages of Renting
QUOTE: “Owning a home is a serious commitment.”
There are a number of advantages to renting over buying. They are listed below:
. Not have to worry about a mortgage payment.
. Provides Flexibility to you lifestyle. Owning a home is a serious commitment.
. If you are currently experiencing financial woes, you may want to hold-off on purchasing a new home. Once again, owning a home is a serious commitment.
. If you are currently lacking job security, you may want to hold-off on purchasing a new home.
. Most real estate experts will tell you that you should focus on your own situation rather than the real estate market, but there may be times to stand pat and rent until the market cools down.
EXAMPLE: Interest rates skyrocket and homes are selling twice as much as their listing prices.
. As a Tenant, you do not have to worry about additional maintenance fee as it is the landlord’s responsibility to attend to these matters.
. As a Tenant, in most situations, you do not have to worry about obtaining fire and extended coverage insurance.
. As a Tenant, chances are that the Landlord will cover a portion of your utility cost. Ex. Heating, Cooling, Water, and Electricity bills for the property.
Advantages of purchasing a New Home Versus a Used Home
Advantages of Purchasing a New Home:
1. Safety Standards
. Your house will meet the most recent standards in safety and energy-efficiency thus saving you money in the long run.
2. Choice of materials
. You get to see the builder’s specifications, so you know exactly what you’re getting with regard to construction materials, operating systems, and so on.
3. New Home Warranty Program
. You may be eligible for a new homeowner’s comprehensive warranty that covers defects in materials and construction, and may also cover building code violations and major structural defects.
4. Newness
. There is no previous wear and tear on the structural components, operational systems, or appliances, assuming, of course, you don’t buy used appliances for your new home.
5. Just the way you want it
. Tailor the house just the way you like by decorating the house exactly the way you desire.
EXAMPLE: Pick and choose the carpet, tiles and cabinets.
Disadvantages of Purchasing a New Home:
1. Purchaser must be prepared for the on-going construction around you. Chances are that the area around you will remain a construction zone for a while.
EXAMPLE: Driveway will be gravel, your street will turn into a sea of mud whenever it rains or snows.
2. Additional Expenses relating to furnishing your home.
EXAMPLE: Spending money for appliances, curtains, drapes, landscaping, air conditioning.
3. Closing costs are typically higher for new homes as the purchaser will be responsible for additional costs such as the New Home Warranty Program, tree planting, and paving of the driveway.
4. Usually, when one buys a new home, there is no opportunity to see the actual layout. All that is provided is a blueprint and in many cases the end product may be a disappointment to the purchaser.
5. There is the uncertainty as to who will be your neighbor.
Advantages of Purchasing a Resale Home:
1. You are moving into an established neighborhood. Your lawn is green, your shrubs are growing, your driveway is paved, and your trees are well enough established to give your street a feeling of permanence.
2. Generally, many Real Estate experts believe that, in terms of investment, a resale home will often give you more for your value than a brand new home.
TIP: Many owners spend thousands of dollars into home improvements ranging from small items, such as landscaping, to major projects, such as a finished basement. Although these improvements will make the home more attractive to potential buyers, they may not increase the market value of the home.
TIP: DO YOUR HOMEWORK BEFORE YOU DECIDE TO MAKE MAJOR CHANGES.
3. With a resale, the vendor's asking price is almost always negotiable downwards unlike the builders list price which is usually firm. Any extras or changes are added to the list price of a new home.
Disadvantages of Purchasing a Resale Home:
1. The home may require a lot of work. If the buyer is not handy or does not have the additional up front capital, then the purchaser may be better off buying a home which is in a move-in state or a brand new home.
2. As a home gets on in age, certain systems such as heating, cooling, roofing, and/or windows need to be upgraded. This being said, a home that needs some fixing up can in fact present some advantages to a buyer. Namely, it can be purchased below the going market price, while at the same time providing an opportunity to have it decorated to satisfy ones specific taste.
CONCLUSION:
At the end of the day, whether to buy a new home or resale comes down to the individual. In today's market place both new and resale homes are selling briskly. Once you've evaluated the pros and cons of each alternative, you can make an intelligent, educated decision as to which option is best suited for your particular needs.
An important question you may want to ask before you purchase a Resale Home
This point in my opinion is so critical that it was allocated its own category.
KEY:
. When you buy a resale home, you assume all the heating, cooling, water, and electricity bills for the property. Ask the owner for copies of their utility bills so you could figure out the average heating costs.
If any of the above bills are unusually high (especially heating costs), you may want to find out why before you decide to purchase the property.
EXAMPLE: If the heating costs are unusually, high it may be because the windows require to be changed. This could be an unexpected and expensive surprise for you.
Condominiums: Additional Factors to Consider
Condo Fees
. A benefit of living in a Condo is that someone else will look after the maintenance and landscaping work. The flip side is that you have to pay for it in your condo fees.
. In addition to your mortgage payments, some Condo fees in a relatively decent apartment can be high.
Cond Rules
. When you live in a Condo, there are some rules that you must abide by. If you are concerned about what specific rules are imposed by the Condominium Corporation in which your purchased unit is located, you should immediately contact the property management office and ask specifically for the property manager of the condominium project.
Some of the rules that may be of concern are as follow:
. no internal changes to unit or changes to common areas without consent of management.
. carpeting on various types of floors to reduce sound transmission, or restrictions against hardwood floors
. no barbequing on balconies and no enclosing of balconies
. no satellite dishes or antennae
. no parking of commercial or recreational vehicles
. use of elevators for moving sometimes have restrictive hours, require reservations and/or security deposits. IF YOU ARE PURCHASING A CONDOMINIUM WHERE AN ELEVATOR or a LOADING AREA must be used your move, contact the management office as soon as possible to book your moving date
. no office business or commercial uses within condominium units
. pet restrictions
. types and color of windows coverings, (usually white or off-white) as can be seen from exterior of building
. planting and other use of exterior patios
. unit owner’s liability for damaged exterior doors , including garage doors and/or added items such as central air, fireplaces, etc. (particularly in townhouses)
. noise generated by musical instruments
. short term rental restrictions and other tenancy requirements
If you do not comply with a specific rule affecting your condominium, the Corporation has the right to get a court order directing compliance and ordering payment of legal costs by the unit owner.
How to find the Right Real Estate Agent For You
Finding a competent, honest realtor is critical in insuring that your real estate experience is a positive one.
Where should you start?
. The best place to start is by approaching friends and family and asking them whether there is someone that they recommend.
. The next step should be to arrange to setup a meeting with the agent to determine whether YOU feel comfortable with the realtor that was recommended to you.
. If you do not have any reliable realtor recommendations, you may want to search the local real estate magazines, yellow pages or the internet.
TIP: You may want to interview two or three agents to determine which one is the right one for you.
Questions to ask from your realtor?
. How long have you been in the business?
. What area does the realtor specialize in? You want to ensure that the prospective agent is knowledgeable with respect to issues such as good schools and preferred locations.
. Does the realtor have good contacts/relations with banks, lawyers, and home inspectors as this will allow the realtor to act as your “one stop shop”.
. What percentage of commission your realtor will charge you.
What should your realtor do for you?
. The realtor in question should walk you through the entire buying process. Do not be afraid to ask your realtor questions if something is of concern to you.
. The realtor should review with you all of your closing costs.
Deposit and Down Payment - The Basics
. As a purchaser, you will generally be required to pay a deposit of at least 5 percent of the purchase price of the house, and you usually pay it in stages.
. Your first offer on a house will include an initial deposit which can vary depending on real estate practices in your area.
. Generally, you pay the deposit with a regular or certified check payable to your real estate agent’s brokerage.
. This amount is only deposited once your offer has been accepted.
. The deposit, which is a negotiated amount, is held in your real estate agent’s trust account. If you are not using an agent, your lawyer will usually hold your deposit in trust.
. When all conditions in your agreement of purchase and sale have been settled, you increase the deposit, often to at least 5 percent of the purchase price, although this amount is negotiable.
. Again, the deposit increase is payable to your real estate agent’s brokerage by certified check or bank draft and is held with the earlier deposit in your real estate agent’s trust account.
. The deposit forms part of the down payment- you pay off the balance of the down payment on the closing date. Your lawyer will advise you of the exact amount you have to bring in and the preferred method of payment.
Mortgage Basics
There are five chief elements to every mortgage:
1) Mortgage Principal: the amount of the loan
2) Interest: the amount you pay for borrowing the money
3) Blended Payments: regular payments made toward the principal and the interest
4) Amortization Period: the period of time over which the calculation of the size of the required payments is based.
5) Mortgage Term: the time period over which you agree to make payments to your lender under certain conditions- for example, at a specific interest rate.
1) Mortgage Principal
. The total amount of the loan you get is called the principal. So if you need to borrow $150,000 to buy a house, then your principal is $150,000. The principal will become smaller and smaller as you pay off the loan.
2) Interest
. Interest is the money you pay a lender in addition to repaying the principal of your loan (a compensation of sort so your lender profits from giving you a loan).
. The interest rate, calculated as a percentage of the principal, determines how much interest you pay to the lender in each scheduled payment (the cost of borrowing the money).
. Generally, people like to buy their home when the interest rates are low.
KEY:
The way your lender adds up the interest you owe has a big impact on the amount of interest you pay over the life of the mortgage. If interest is compounded or added to your balance owing every day, you will pay more over the lifetime of the mortgage than if interest is compounded semi-annually.
Most mortgages are compounded semi-annually, but your lender may offer you other options.
3) Blended Payment
. In effect, each mortgage payment you make is split: One portion goes toward paying off the principal and the other portion goes toward paying off the interest. Hence, blended payments.
. Every time your lender compounds the interest that you owe on your loan, your monthly blended payment changes. As you pay down your principal, the actual amount of your payment does not change but the portion of the payment that goes toward the principal increases and the amount that goes toward interest slowly decreases.
KEY:
The more frequently you make mortgage payments, the faster you pay down your principal, which means that the more quickly you eliminate your mortgage, and the less interest you pay. Payment schedules can be arranged monthly, semi-monthly, biweekly (every two weeks), or weekly. If you can make weekly payments rather than monthly ones, you’ll save thousands of dollars over the lifetime of the loan.
4) Amortization Period
. The amortization period of your mortgage is the length of time on which the calculation of your monthly payments is based.
. The advantage of a longer amortization is that the monthly payments are smaller and therefore more manageable.
. The disadvantage is that the longer the amortization, the longer you carry a principal and therefore the more you pay in interest.
. Amortization period of 10 to 25 years is typical.
5) Mortgage Term
. A mortgage term is the specific length of time you and your lender agree the mortgage will be subject to certain negotiated conditions, such as a certain interest rate.
. Terms range from 6 months to 10 years, but occasionally lender will offer a 15 or 25 year term.
. At the end of the term, you generally have the option to pay off your mortgage in full, or to renegotiate terms and conditions.
KEY:
If interest rates are ridiculously high, you will probably want to negotiate a shorter term, then arrange a longer term once rates are more favorable.
If interest rates are relatively low, lock in for the longest term you can negotiate. At the end of your mortgage term, you can also transfer your mortgage to another lender who may offer you a better rate, at no cost to you.
Advantages of a Pre-approved Mortgage
QUOTE: “A pre-approved mortgage is highly recommended”
. Most financial institutions offer to pre-approve your mortgage loan before you even start looking at homes. As a general rule, getting a pre-approved mortgage is highly recommended because it clarifies your financial position before you make an offer on a home.
. Because the process of getting pre-approved is the same as getting an actual mortgage, it makes sense to do it in advance, and because institutions want your business, it is free.
TIP: An online estimate of the mortgage you qualify for is different than being approved. An estimate is just that, an estimate. It is not a pre-approval until you provide your bank with the necessary documents and go through the actual pre-approval process.
. Similar to applying for an actual mortgage, when you apply for pre-approval you answer questions and provide documents based on your financial position, debt load, and credit history.
. There is usually a fixed time period (either 60 or 120 days) for which lenders will offer a certain size mortgage at a specific interest rate, and they will confirm this in writing.
The advantages to being pre-approved are as follow:
1. You know your purchase price limit
2. Your offers are taken more seriously by sellers
. Sellers prefer to accept an offer from someone who has initiated the financing process.
3. Convenience
. As a buyer, you do not have to rush to arrange a loan when you find that perfect home- having pre-approval means you’ve done almost everything in advance.
4. You are protected from any rise in interest rates
. KEY:
As long as you close your sale within the time period of the pre-arranged mortgage (typically 60 or 120 days), you can rest assured that your mortgage will be at the rate stated in your pre-approval even if bank interest rates have risen since you initially obtained the pre-approval.
ADDITIONAL NOTES:
. Even with pre-approval, you still have to secure the mortgage once you’ve negotiated the purchase of a home. Your final mortgage approval is subject to a full check of your finances and an appraisal of the market value of the property you want to buy, but pre-approval means most of the paperwork has been done beforehand, which speeds up the process significantly.
. As a note, if you’re applying for a high-ratio mortgage (your down payment amounts to less than 25 percent of the purchase price of the home you’re buying), you’re also subject to the approval of the Canada Mortgage and Housing Corporation (CMHC). Your application for CMHC approval cannot be processed until you have an accepted “offer to purchase” contract from your seller.
KEY:
Just because you are pre-approved for a mortgage should not mean that you should go ahead and make an unconditional offer to buy a home. Write into your offer to purchase contract a “subject to financing” clause (a very common procedure) so that you have at least a couple of days to complete your mortgage approval. A mortgage is a contract. It is a legally binding document and you must uphold it.
Canada Mortgage and Housing Corporation (CMHC)
. CMHC is a federal Crown corporation that administers national housing programs and insures mortgages under the provisions of the National Housing Act.
. For more information visit www.cmhc-schl.gc.ca
Conventional Mortgages
. A conventional mortgage covers not more than 75 percent of the purchase price of the house or the appraised value, whichever is lower.
EXAMPLE: If you want to buy a $200,000 house, you need a $50,000 down payment (25 percent of purchase price) if you’re applying for a conventional mortgage.
High-Ratio Mortgages
. High-ratio mortgages account for between 75 to 95 percent of the purchase price of a house or condominium, or the property’s appraised value, whichever is lower.
EXAMPLE: You can buy your $200,000 home, even if you have only a $10,000 down payment (just 5 percent of the purchase price). However, if you are taking out a variable rate mortgage, you may be restricted to at least a 10 percent down payment.
. Either the Canada Mortgage and Housing Corporation (CMHC) or GE Capital Mortgage Insurance must insure high-ratio mortgages. This insurance protects the lender if you default on your mortgage payments.
. An insurance premium ranging from 0.5 percent to 3.75 percent of the mortgage amount, pre-determined by a sliding scale, will be added to your mortgage.
NOTE: Be prepared to pay an extra .25 percent insurance premium if you are taking out a variable rate mortgage.
Fixed Rate Mortgage
. Because interest rates rise and fall, naturally there are better times to take out a mortgage than others.
. To give yourself some stability, you can choose a fixed rate mortgage that allows you to lock in at a specific interest rate for a certain period of time (mortgage term).
. If interest rates are rising, you may want to lock in at a fixed rate so you know what your monthly costs will be over the term of your mortgage.
. Once a mortgage term expires, you can renegotiate your interest rate and the length of time (term) that you will make payments at the new rate.
. Fixed rate mortgages are offered with a variety of options, so make sure you speak to several lenders in order to determine who offers you the most competitive interest rates and terms.
Variable Rate Mortgage
. A variable rate mortgage is a closed mortgage (usually set up with a one-to-six year fixed term) where the interest rate fluctuates with the market.
KEY:
If you as the borrower believe that the interest rates are beginning to rise you can usually lock into a fixed rate for the balance of the mortgage term.
However, not all variable mortgages are created equal. If you wish to lock into a fixed rate for the balance of the mortgage term, some banks may charge a penalty to lock in to the mortgage, or dictate that you must lock in for at least three years, no matter how much time is left on the original mortgage term.
Other banks may be totally flexible and allow you to lock into a fixed rate any time during the original mortgage term with no penalty and no requirements to extend the mortgage. IT PAYS TO SHOP AROUND.
.The interest rates of variable rate mortgages will vary from lender to lender, but most will be offered in some relation to the prime rate, which is the interest rate that banks charge their most creditworthy borrowers.
. WATCH OUT FOR “TEASER RATE”:
A teaser rate is an initial low rate for the first few months (sometimes up to the first year!) that entices borrowers with a snappy slogan such as “1 percent mortgage now available!” However, after the initial teaser period expires, the mortgage will revert to a rate that fluctuates in relation to the prime rate that the bank is offering.
You have to make sure that the mortgage still makes sense once the teaser rate is calculated into the rate of the mortgage
EXAMPLE: If the teaser is only for three months of a five-year term and the balance of 57 months is at a relatively high rate, the “1 percent mortgage” is actually not a great deal.
. Variable rates are not for everyone since you need to monitor the interest rates to insure that you lock in your mortgage rate before interest rates rise. There is a bit of gamble involved, but the payoff can be a lower interest rate if you’re prepared to watch interest rates and monitor when to lock them in.
KEY:
Find out about escape options. What happens if you pay out this mortgage early (before the third anniversary)? What penalty will be charged?
Convertible Mortgage
. Convertible mortgages are typically six-months or one-year fixed terms where the interest rate is fixed but you may lock into a longer term (typically a three-year term or longer) at anytime without penalty.
Mortgage Tips
. Your mission is to obtain the best mortgage that fits your personal situation, while paying the least amount in interest. Use the following strategies to keep your payments low:
. Make as large a down payment as you comfortably can.
. The larger your down payment, the smaller your loan (principal), and the less interest you’ll have to pay over time.
. Arrange to pay back the loan as quickly as possible
. The longer the amortization period, the life of the loan, the more interest you will pay.
. Commit to making weekly or biweekly payments
. This will allow you to pay off the principal more quickly and therefore pay less interest on it.
. Make extra payments whenever you can
Open Mortgages Versus Closed Mortgages
Open Mortgages
. If you have an open mortgage, you can pay it off in full or in part at any time with no penalty. By chipping away at your principal early, you can save large amounts in interest payments.
. As a general rule, the average fixed interest rate quoted for an open mortgage is 0.4 to 0.6 percent higher than a closed mortgage for the same term (a specified period of time).
. The majority of open mortgages with a fixed interest rate are available only for a short term
. An open mortgage could be an asset in the following circumstances:
1) If you are planning to move again soon.
2) If the interest rates are expected to plummet.
3) If you are expecting a huge cash windfall.
. This type of mortgage is a great short term solution when interest rates are high, and it can usually be converted to a closed mortgage any time.
Closed Mortgages
. The advantage of signing on to a closed mortgage for a term, or specified period of time, is that it will typically allow you to obtain a lower interest rate and allow you to budget for fixed regular payments.
. The downside is that if you decide to move before your term is up, or if you suddenly have expendable cash, such as an income tax refund, which you’d like to put toward paying off a large portion of your principal, you may have to pay a penalty for this privilege.
. Most closed mortgages will provide the borrower the ability to prepay 10 to 20 percent of the outstanding balance without penalty, often on the anniversary date of the mortgage.
. In some cases, there may be restrictive conditions that prevent you from getting out of the mortgage altogether- even if you sell your home.
Portable Mortgages
. If your mortgage is portable you can transfer it with you to your new home.
. When you prepare to move, you’ll be glad you asked about this option, especially if you negotiated great terms, or if interest rates have gone up since you locked in to your current mortgage
EXAMPLE: If you have a $200,000 mortgage at 6 percent interest, and you’re in the third year of a five-year term, you can transfer the mortgage with you to the $375,000 house you are planning to purchase. However, you will need an additional loan to be added to your principal.
. Both conventional mortgages and high-ration mortgages can be portable. However, if you have a portable high-ratio mortgage, the one element you can’t transfer to a new property is the CMHC insurance premium required on all high-ratio mortgages. The insurance is property-specific, so you’ll have to pay it again at your new home.
Assumable Mortgages
. When planning to purchase a house, in addition to contacting financial institutions about mortgages, you may want to inquire from the sellers whether they would allow you to take over their mortgage as part of the price you pay for the house.
. This option is quick and it saves you the usual costs of mortgage arrangements such as appraisals and legal fees. It may also save you money in interest payments if the seller’s mortgage rate is lower than what is currently available on the market.
. Having an assumable mortgage on your home means that when you are prepared to sell it, you can have a qualified buyer assume the mortgage. This is a great incentive if you have attractive terms and conditions.
. Most mortgages are assumable as long as the buyer can qualify for the mortgage amount.
. You should still expect to go through some sort of financial examination even if you’re assuming the seller’s mortgage as the lender will still would like to ensure that you meet the mortgage requirements.
Vendor (seller) Take Back Mortgages (VTB)
. In some cases, if the sellers are anxious to move and the market is really sluggish, or if they’re looking for a good investment once they get their equity out of the house, seller may offer to lend you the money for your mortgage. This is called a Vendor Take Back Mortgage.
. The sellers may offer you lower rates than big financial institutions will, and they won’t require the appraisals, inspections, survey fees, and financing fees you would expect to pay a traditional lender.
. You will, however, want to have your lawyer draw up the papers to guarantee that everything is in order.
Mortgage Life Insurance
. Mortgage life insurance guarantees your mortgage will be paid in full if you pass away.
. Some lenders offer this insurance and will add the premium to your mortgage payments.
. You may want to get insurance coverage for all parties responsible for the mortgage.
KEY:
It may be a good idea to shop around through an insurance broker for the best rates.
Title Insurance- Law Society Requirement
. The Law Society of Ontario requires all lawyers, when acting for purchasers, to inform clients about title insurance and its advantages.
What is Title Insurance
BRIEF HISTORY
. Traditionally, Ontario purchasers have relied solely on their lawyer’s “legal opinion” that they have “good and marketable title” in order to confirm a clean title.
. Unfortunately, no lawyer can completely assure a purchaser that there is absolutely no chance of an error in the governments records, that there are no undisclosed claims, or that what appears to be the signature of the prior owner or consenting spouse is a true signature, there having been no prior fraud or forgery on title. Title Insurance can satisfy such “gaps” in a lawyer’s opinion to cover not only frauds or forgeries prior to closing but also after closing.
. Title Insurance is an insurance policy covering the condition of title or ownership of real property at the time the policy is issued and is used to provide ownership protection for a purchaser against losses or damages suffered as a result of title problems.
. Title Insurance is obtained, typically by the purchaser’s lawyer prior to closing a purchase for the benefit of the purchaser.
. Title has gained popularity as part of the typical Ontario residential real estate purchase transaction.
What does Title Insurance cover
. Title insurance does not replace the role of the lawyer. It simply provides an added level of protection for the purchaser(s). Ontario lawyers still must search title and certify the status of title before a title insurance policy can be issued.
. The lawyer purchases Title Insurance for the client.
. The Title Insurance policy will be issued to purchasers directly from the Title Insurance Company after completion of the purchase.
. The policy protects the purchaser(s) and mortgage lender against losses suffered from matters set out below as well as other matters more specifically outlined in the policy:
. defects that would have been revealed by an up-to-date survey
. survey errors or illegibility of survey
. encroachments (before or after closing)
. contravention of municipal zoning by-laws
. unmarketability of title
. defects in the title
.
invalidity or unenforceability of the mortgage on title
. liens
. easements (other than usual easements for utilities, etc.)
. contravention of subdivision, development and other agreements
. priority of certain construction liens
. priority of unregistered easements and rights of way
. fraud or forgery (prior to and after closing)
. solicitor error, omission or fraud
. unpaid property taxes or local improvement charges by a prior owner
. In addition to policy coverage, the insured also receives:
. indemnity for actual loss or damage for the amount of the policy (being the price paid for the property) and automatically increasing coverage (with inflation and rising property value) overtime to a coverage which can be double the price originally paid for the property.
. payment of legal fees and cost to address title issues
. a “no-fault” method to resolve title problems
KEY
For residential real estate transactions with a purchase price of less than $500,000.00, a policy can be purchased for $150-$299 (depending on the type of residential property and whether there is a mortgage). The cost is largely offset by the cost of certain legal disbursements which are no longer required in title insured transactions. As municipalities continue to increase their fees for zoning, subdivision and tax searches, title insurance is becoming an increasing competitive option.
KEY
When a vendor or purchaser wishes to close a transaction quickly, a policy of title insurance is often the best option.
By eliminating some of the procedures otherwise required, a policy of title insurance can facilitate closings on very short notice.
Property Tax
. Property Taxes are calculated based on your home’s assessed value and local tax rates.
. Property tax rates can fluctuate yearly, and they vary from region to region.
.Some real estate listings will state the amount of the previous year’s taxes for the property being sold. Therefore, when you’re searching for a new home, find out from the selling agent or the owners what the previous year’s taxes were.
.If you are obtaining a high ratio mortgage to buy a new home, your lender may insist that property tax installments be added to your monthly mortgage payments.
. If the previous owners of your new home paid any property taxes in advance, the tax paid is pro-rated to the closing date, and you have to reimburse the sellers.
. The reimbursement you make is called an adjustment.
. Once you take possession of your new home, all bill payments become your responsibility.
Land Transfer Tax
The provinces with a land transfer tax are:
. Ontario
. British Columbia
. Manitoba
. Quebec
. New Brunswick
. Nova Scotia.
Your real estate agent or lawyer will be able to tell you exactly how much you need to pay.
Generally, the amount of the land transfer tax works out to between 1 and 4 percent of a purchase price of your home.
Goods and Services Tax
If you are purchasing a new house or condominium from the builder, you will be charged GST. This will also apply if you purchase a house that has been substantially renovated.
Speak to your lawyer about the implications of GST regarding your particular transaction.
Fees- Things You Must Pay For
. Generally, your closing fees include three components:
1) Financing Fees
2) Insurance Fees
3) Legal Fees and Disbursements
1) Financing Fees
. If you employ the services of a mortgage broker, the lender will probably pay the brokerage fee. However, if you have had past financial difficulties, you may be required to pay this fee yourself; it will likely be about 2 percent of the total mortgage.
KEY:
Ask early in the process what to expect.
. Most lenders charge an application fee when you apply for a mortgage. You can usually have these fees waived, so inquire from your lender for these savings.
2) Insurance Fees
. If you have a high-ratio mortgage, you must obtain mortgage loan insurance. Insurance costs range between 0.5 and 3.75 percent of your total mortgage amount.
. For convenience, you can incorporate your insurance fee into your monthly mortgage payments.
. An application fee is also payable on your mortgage loan insurance. The fees will range from $75 to $235 depending on whether an appraisal is required.
3) Legal Fees and Disbursements
. You need a lawyer to review the offer to purchase, perform a title search, draw up your mortgage documents, and tend to the closing details.
Fees- Things You May Have to Pay For
. In addition to your Financing Fees, Insurance Fees, and Legal Fees, you may also have to pay for the following items before the closing day:
1) Appraisal
2) Survey
3) Inspection
4) Condominium Certificate
1) Appraisal
. You will probably need to get an appraisal for your lender.
. An appraisal is an independent confirmation that the purchase price is of fair market value.
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A basic appraisal fee is about $150 to $350, but this figure could vary depending on whether you are buying a large home or a home located in a neighborhood with very little turnaround.
. Appraisals are done on a comparison basis, and if there is nothing to compare with, more work is involved, hence the higher fee.
2) Survey
. The Land Title Office, or your lender, may require an up-to-date survey in order to approve your mortgage.
. A survey verifies the boundaries of your property and ensures that there are no encroachments either by your onto your neighbors’s property or vice versa.
. The price of surveys varies widely, depending on the location and type of property. Your real estate agent should be able to give you an idea of what to expect.
3) Inspection
. Most Real Estate agents will recommend that you look into having a professional home inspection done on the home you are planning to purchase. An inspection is a report on the presence and apparent condition of the structural and operational systems of a home.
. The cost of an inspection ranges depending on:
. the size of the property
. whether there is any unusual construction
. whether there is a well or septic tank involved (mostly in rural areas)
4) Condominium Certificate
. If you are purchasing a condo, you will need a document confirming that the seller has fulfilled all obligations to the condominium corporation.
. This information is contained in a document variously known as the:
. Condominium Certificate
. Estoppel Certificate
. Information Certificate
. Status Certificate
. This certificate and its supporting documents will cost you anywhere form $50-$100.
Additional Cost to Keep in Mind
Moving Costs
. Research to arrive at a reasonable budget for your move. Obviously the amount will vary depending on how much you are planning to move, how far you have to move, and how much you are willing to move on your own.
. Put together a game plan.
. Expect moving rates to be higher during the end of a month or summer time, as these are high-traffic times for moving companies.
. If you decide to rent a van or truck, reserve it in advance.
Utility Charges
. Be prepared to pay connection fees for the hook-up of your telephone, cable, and hydro, and DON’T forget to get your mail redirected by the post office.
The Closing Date
. This is the day that you complete all the paperwork to buy your house.
. It is also the day that the property will be transferred into your name.
