First Time Buyer Information


Buying a home is one of the biggest emotional and financial decisions you'll ever make. The differences between renting and buying a home are vast, and there's a long list of pros and cons for both options. Everyone must make his or her own best decision. Buying a home is not for everyone. Take a moment to think through the advantages and disadvantages of both owning and renting.

Here are some Calculators that can help

Get a Mortgage Pre-Approval

It’s a very good idea to get a pre-approved mortgage before you start shopping. Many realtors will ask if you’ve been approved. A lender will look at your finances and figure the amount of mortgage you can afford. Then the lender will give you a written confirmation, or certificate, for a fixed interest rate. This confirmation will be good for a specific period of time. A pre-approved mortgage is not a guarantee of being approved for the mortgage loan.

Even if you haven’t found the home you want to buy, having a pre-approved mortgage amount will help keep a good price range in mind.

Bring these with you the first time you meet with a lender:

  • Your personal information, including identification such as your driver's license

  • Details on your job, including confirmation of salary in the form of a letter from your employer

  • All your sources of income

  • Information and details on all bank accounts, loans and other debts

  • Proof of financial assets

  • Source and amount of down payment and deposit

  • Proof of source of funds to cover the closing costs (these are usually between 1.5% and 4% of the purchase price)

Figure Out the Up-front Costs

There are many up-front costs when you buy a home. Early planning will help make sure things go smoothly.

Down Payment

A down payment is the part of the home price that does not come from the mortgage loan. The down payment comes from your own money. You can buy your home with a minimum down payment of 5%, if you have mortgage loan insurance from CMHC. You need a down payment of at least 20% for a conventional mortgage.

Deposit

The deposit is paid when you make an Offer to Purchase to show that you are a serious buyer. The deposit will form part of your down payment with the remainder owing at time of closing. If for some reason you back out of the deal without having covered yourself with purchase conditions, such as financing, home inspection, etc., your deposit may not be refundable and you may be sued for damages. The size of the deposit varies. Your realtor or lawyer / notary can help you decide on the amount.

Appraisal Fee

Your mortgage lender may ask you to pay for a recognized appraisal in order to complete a mortgage loan. An appraisal is an estimate of the value of the home. The cost is usually between $250 and $350 and must be paid when you contract for those services.

Having an independent appraisal done on a property before you make an offer is a good idea. It will tell you what the property is worth and help ensure that you are not paying too much.

The appraisal should include:

  • Assessment of the property's physical and functional characteristics

  • Analysis of recent comparable sales

  • Assessment of current market conditions affecting the property

Ask your realtor or other member of your team to help you find an appraiser

Mortgage Loan Insurance Premium

If you make less than a 20% down payment, you typically have a high ratio mortgage. With a high-ratio mortgage your lender will need mortgage loan insurance. Mortgage loan insurance lets you buy a home with a minimum down payment of 5%.

Most Canadian lending institutions require mortgage loan insurance because it protects the lender. If the borrower defaults (fails to pay) on the mortgage, the lender is paid back by the insurer. You pay a premium for mortgage loan insurance. Your lender will add the mortgage loan insurance premium to your monthly payments, or ask you to pay it in full upon closing.

Mortgage Broker’s Fee

You may have decided to use a mortgage broker. The job of the mortgage broker is to find you a lender with the terms and rates that will best suit you.

Home Inspection Fee

CMHC recommends that you make a home inspection a condition of your Offer to Purchase. A home inspection is done by a qualified home inspector to provide you with information on the condition of the home. It generally costs about $500, depending on the age, size and complexity of the house and the condition that it is in. For example, it may be more costly to inspect a large, older, home, or one in relatively poor condition or that has many pre-existing problems or concerns.

Survey or Certificate of Location Cost

The mortgage lender may ask for an up-to-date survey or certificate of location. If the seller has a survey, but it is more than five years old, it will probably need to be updated. You should ask the seller to provide an updated survey, especially if there has been a new addition, deck or fence built close to the property line. If the seller does not have one, or does not agree to get one, you may have to pay for it yourself.

Remember, you must have permission from the property owner before hiring a surveyor to go onto the property. Ask your realtor to help co-ordinate this with the owner. A survey or certificate of location can cost $1,000 to $2,000.

Title Insurance

Your lender, lawyer, or notary may suggest that you get title insurance. This will cover loss caused by defects of title to the property.

Land Registration Fees

Land Registration fees are sometimes called Land Transfer Tax, Deed Registration Fee, Tariff or Property Purchases Tax. In some provinces and territories, you may have to pay this provincial or municipal charge when you close the sale. The cost is a percentage of the property’s purchase price. Check on the internet or with your lawyer (or notary) or other team member to find out about the current rates. These fees can cost a few thousand dollars.

Water Tests

If the home has a well, you will want to have the quality of the water tested to ensure that the water supply is adequate and the water is drinkable. You can negotiate these costs with the vendor and list them in your Offer to Purchase.

Septic Tank

If the house has a septic tank, it should be professionally checked to make sure it is in good working order. You may negotiate the cost with the vendor and list it in your Offer to Purchase.

Estoppel Certificate Fee (does not apply in Quebec)

This applies if you are buying a condominium, or strata unit, and could cost up to $100. Also called a Status Certificate it outlines a condominium corporation’s financial and legal state.

Prepaid Property Taxes and/or Utility Bills

Property taxes are charged by the municipality where the home is located. They are based on the value of the home. The seller may have already paid property tax or other expenses that apply to the time after the house passes into your hands. You need to pay back the seller for taxes and other costs (including items like filling the oil tank).

Property Insurance

The mortgage lender requires you to have property insurance because your home is security for the mortgage. Property Insurance covers the cost of replacing your home and its contents in case of loss. Property insurance must be in place on closing day.

Legal Fees

Legal fees and related costs must be paid on closing day. The minimum cost is $500 (plus GST/HST). In addition, your lawyer or notary will charge you direct costs to check on the legal status of the property.


 


Making an Offer to Purchase

After you have found the home you want to buy, you need to give the vendor an Offer to Purchase. It is very helpful to work with a realtor (and/or a lawyer/notary) to prepare your offer. The Offer to Purchase is a legal document and should be carefully prepared.

These items are typically included:

  • Names
    Your legal name, the name of the vendor and the legal civic address of the property.

  • Price
    The price you are offering to pay.

  • Things included
    Any items in or around the home that you think are included in the sale should be specifically stated in your offer. Some examples might be window coverings and appliances.

  • Amount of your deposit

  • The closing day
    The closing day is the date you take possession of the home. It is usually 30 – 60 days after the date of agreement. But, it can be 90 days, or even longer.

  • Request for a current land survey of the property.

  • Date the offer expires
    After this date the offer becomes null and void — that means it’s no longer valid.

  • Other conditions
    Other conditions may include a satisfactory home inspection report, a property appraisal, and lender approval of mortgage financing. This means that the contract will become final only when the conditions are met.

What Happens After You Make an Offer to Purchase?

This offer includes all the details of the sale. To be extra cautious (since you know an Offer to Purchase is legally binding) ask your lawyer to look at it before showing it to the vendor. The realtor presents the offer to the vendor. What can you expect to happen next? There are three possible responses.

  • Response 1
    The vendor accepts your offer. The deal is concluded and you move on to the next steps in the buying process.

  • Response 2
    The vendor makes a counter-offer. The counter-offer might ask for a higher price, or different terms. You can sign the offer back to the vendor, offering a higher price than your original offer, but lower than the vendor’s counter-offer. If the vender accepts this counter-offer, the deal is concluded.

  • Response 3
    The vendor makes a counter-offer, asking for a higher price or different terms. If a counter-offer is returned to you at a higher price, ensure that you know exactly how much you can afford before you start negotiating. You don’t want to get caught up in the heat of the moment with costs you can’t afford. You reject the counter-offer because the price is still too high, or you can’t agree to the conditions. The sale doesn’t go through, and your deposit is returned.


Getting A Mortgage

Once your Offer to Purchase has been accepted, go to see your lender. Your lender will verify (and update, if necessary) your financial information and put together what’s needed to complete the mortgage application. Your lender may ask you to get a property appraisal, a land survey, or both. You may also be asked to get title insurance. It usually takes five days to process a mortgage application. The actual time depends on how quickly the lender can get an appraisal of the property, a credit report and verification of employment and accounts. Your lender will tell you about the various types of mortgages, terms, interest rates, amortization periods and, payment schedules available. Depending on your down payment, you may have a conventional mortgage or a high-ratio mortgage.

 

Closing Day

Closing day is the day when you finally take legal possession and get to call the house your home. The final signing usually happens at the lawyer or notary’s office. On closing day; your lender will give the mortgage money to your lawyer/notary, you must give the down payment (minus the deposit) to your lawyer/notary. You must also give the remaining closing costs.  Your Lawyer/notary will pay the vendor, register the home in your name and give you the deed and the keys to your new home.  The closing document contains the date of your first mortgage payment, usually about thirty days after closing.

Copyright © Aros Realty LTD, Brokerage

Jim Straughan · Broker Of Record

22709 Jury Road · Komoka, Ontario N0L 1R0

 

 

Email: jim@straughan.ca · Office: 519.657.8899 · Cell: 519.872.6616

 

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