Home Buyers Guide
So you’re looking to buy a home in Ontario!
Let’s walk through those pre-determination steps, post-agreement considerations, and resources available to you.
Requirements before purchasing will include:
A Down Payment - Unless you are purchasing a home in full from your own finances, a down payment is a required portion of a purchase price credited towards a mortgage. Amounts put down are adjusted given the purchase price of the home. Properties $500,000 or less require a 5% minimum down payment. Properties $1.5M or less require a 5% down payment on the first $500,000 and 10% of the purchase price over that amount. For example, an $800,000.00 home would require 5% on the first $500,000.00 - $25,000.00 - and 10% of the remaining $300,000.00 - $30,000.00 - which would be a $55,000.00 down payment with a lender to secure a mortgage for an $800,000.00 home. Depending on the borrower, mortgage insurance may be an additional cost as well, which can range from 0.6-4.6% of the mortgage amount monthly (www.canada.ca). Best advice, the bigger the down payment, the lower the mortgage.
A Pre-Approval - A pre-approval is a range provided by a lender buyers can expect to borrow as a loan or a mortgage. Pre-approvals are not confirmed financing for a specific property. Factors that can affect ultimate borrowing capacity for a specific home can include: the state of the property itself, whether the sale price is appraised as market value by your lender, and/or the credit and work history of the buyers. A “Pre-Qualification” is a less rigorous process than a Pre-Approval in assessing borrowing capacity. To acquire a pre-approval, buyers should be connecting with a Mortgage Broker who can direct them to a range of lenders and assist in assessing the strengths and weaknesses of the available options.
A Deposit - A deposit is an amount submitted to the listing brokerage within 24 hours of an accepted Agreement of Purchase and Sale which is credited towards the purchase price at closing. Deposits can range between $10,000.00-$20,000.00 on properties under $500,000 and between $30,000.00 and over on properties over $500,000.00. Sellers typically want to see stronger deposits to determine stronger financial viability that will signal to sellers a smooth and successful closing. Deposits are returned to buyers without penalty when Agreements are conditional and buyers do not fulfill conditions, however, deposits can also be held onto when buyers are in *Breach of Contract,* for example, when a buyer fail to close on a firm agreement. You should consult your Realtor and Real Estate Lawyer regarding possibilities of Breach of Contract prior to offering.
Conditions - Conditions are terms in an offer that would render an Agreement of Purchase and Sale null and void if those conditions were not fulfilled or were waived. There are three typical conditions in Real Estate including
1) A Condition of Financing,
2) A Condition of Home Inspection, and
3) A Condition of Lawyers Review of the Offer.
Typically these conditions are no more than a week for Buyers to confirm financing, the state of the home and/ or have their lawyer review the offer or additional documentation (for example a status certificate with a condominium property). Sellers typically don’t entertain conditional periods longer than a week in these cases given lost time and momentum on the market if conditions are not fulfilled or waived.
A Condition of the Sale of a Home is also an option to buyers, however this condition functions differently from others in that it is longer, from several weeks to months, and typically has a 24-48 hour escape clause for Sellers who can continue showing the property even as it is marked Sold Conditionally through MLS if they receive a superior offer in their opinion.
*Conditions have unique effects in every offer scenario, so be sure to ask your Realtor about all of the possible outcomes with each condition before you submit.
Costs to budget for during the Purchase process also includes:
Inspections and Appraisals: Home inspections can range from $250.00 to $600.00 on average depending on the content and quality of the assessment and report. Buyers can include a condition of Home Inspection, a short window of time within which the buyers will have the property inspected by a professional Home Inspector before waiving the condition or mutually releasing from the agreement. Appraisals done by lenders to confirm financing are often in that range as well and are determined as a closing cost with your lender. When purchasing condominium properties, buyers also have the option to have a Lawyers Review as a condition to their Agreement of Purchase and Sale. A condition of a Lawyers Review of the Agreement of Purchase and Sale is available to all buyers in an Agreement of Purchase and sale be it Residential or Condo, however typically buyers purchasing condominium properties may also want to have their lawyer review the Status Certificate of the Corporation to more thoroughly confirm financing, any special assessments, rules and regulations, and the reserve funds.
*The buyer’s lawyer also conducts the Title Search before closing within a specific time frame outlined in the Agreement of Purchase and Sale as well. The title search confirms that the seller holds clear and undisputed ownership of the property, identifies any liens, encumbrances, or disputes and seeks to resolve a seamless transfer of ownership. This process occurs after an Agreement of Purchase and Sale is mutually accepted. Disputes against a transfer of title that could not be resolved would render an agreement null and void and the deposit held in trust by the listing brokerage would be returned in full to the buyers without penalty.
After the Agreement of Purchase and Sale is firm and before closing: whether conditions are fullfilled, waived or without conditions to start, buyers are entitled to walk through the property a set number of times mutually agreed upon by the seller(s) and buyer(s) to ensure the property remains as presented at the time of purchase and prepare for the move-in date regarding measurements and planning. The number of walk-throughs a buyer is entitled to should be set in writing in the Agreement of Purchase and Sale.
At closing:
Legal fees - are charged hourly by your Real Estate Lawyer who is ultimately administering the sale upon closing. Be sure to verify their fees before searching and/or ask your Realtor about their contacts.
Land Transfer Tax - When you acquire land in Ontario, you pay a land transfer tax upon closing. Additional taxes may be incurred in Toronto and/or whether buyers are not citizens or permanent residents of Canada (the Non-Resident Speculation Tax). This amount is payed out at closing and calculated against the value of the land. Check Ontario.ca to calculate land transfer tax rates and speak with a lawyer about possible limitations or rebates available to you (ex. first time homebuyers.)
Appraisal Fees - Appraisal fees are typically incorporated into closing costs when a lender requires an appraisal to confirm a mortgage/financing for the buyer. An appraisal can range between $300-800 depending on the lender.
Title Insurance - Title Insurance, not mandatory but possibly recommended by your lawyer or lender, is a one-time payment that covers the discovery of any legal obstacles affecting the property's legal title, even if they existed before the purchase. Existing liens secured against a property could include condominium fees, property taxes, mortgage payments or utility bills.
Movers - At the time of securing a firm Agreement of Purchase and Sale be sure to ask your realtor to connect you with a mover, we work with the best! Costs can vary depending on the amount to move and the type of content to be moved, which can range anywhere between $600-$4000.
Utilities - Between 1-2 weeks ahead of closing be sure to set up your utilities!
Re-Keying - Some buyers may choose to have properties rekeyed with new locks if there are concerns about keys or access. Rekeying can cost between $50-$100 per lock given the locksmith.
Commission - to Realtors is payed out from the sale price of the home and by the listing brokerage to both the listing and buyers representatives, so no additional cost here to buyers!
Each property and buyer will contain a unique set of considerations, so ask your Realtor, your lawyer, your mortgage broker and your lender to provide you with comprehensive options and advice at each step of your real estate journey. Qualified experts in legal, finance, construction and inspection are in our contact list and at the ready to ensure you are protected and informed about your move every step of the way. If you haven’t found “the one” yet, be sure to have your Realtor set you up on a search for property listings that meet your search criteria to start your search!
References:
https://www.canada.ca/en/financial-consumer-agency/services/mortgages/down-payment.html
https://www.ontario.ca/document/land-transfer-tax/calculating-land-transfer-tax
https://rocketmortgage.ca/learning-centre/home-buying/closing-costs/
https://www.fsrao.ca/consumers/property-and-other-insurance/understanding-title-insurance
