Some information to help you along the way The Home Buying Process Simplified
Let Spectrum Realty Help You Through The Home Buying Process
Buying real estate in Toronto can feel overwhelming, Spectrum Realty is here to walk you through the process with our personalized customer service and expertise.
While closing costs vary, you can expect to pay anywhere between 1.5% and 4% of the selling price of your property. Closing costs go toward the legal fees, title insurance, taxes and insurance among other administrative expenses incurred during the home buying process.
Closing costs are a list of charges your lawyer presents to you on the closing date of your home. Many people are surprised at the additional costs over and above the price of the home.
According to the CMHC and Genworth Financial you should have at least 1.5% of the purchase price for closing costs in addition to the down payment (have around 2.5% to be on the safe side). The costs vary among provinces and cities. Below you will find a brief explanation of these costs. Please note these are some of the closing costs you may encounter depending on your specific situation. Use this as a guideline then talk with your lawyer who can provide a more realistic estimate for your situation.
Appraisal Fee Generally Required with New Homes
An appraisal provides the lender with a professional opinion of the market value of the property. This cost is normally the responsibility of the homeowner and it can cost between $100 - $300.
Home Inspection Fee Generally Required with Resale Homes
A professional inspection of the home, top to bottom, is for the benefit of the buyer. A home inspection can cost anywhere from $300 - $400 and is well worth the investment. When hiring a home inspector make sure the inspector has liability insurance just in case they overlook something.
Mortgage lenders require a certificate of fire insurance to be in place from the time you take possession of the home. The amount required is generally the amount of the mortgage or the replacement cost of the home. This cost can vary on the property size, amount of coverage, the insurance company and the municipality. The cost can vary anywhere from $250-$600 annually for most properties.
Provincial Sales Tax on Mortgage Insurance
If your mortgage is insured, (CMHC or Genworth Financial), you will be required to pay the applicable taxes on the insurance premium on closing. While the insurance premium can be added to the mortgage amount, the tax must be paid at closing.
Land Survey Fee or Title Insurance Fee
A recent survey of the property is usually required by lenders. If one is not available the cost can range between $600 - $900 for a new survey. In lieu of the survey most lenders today will accept title insurance which can cost considerably less.
Legal Costs and Disbursements
Lawyers and notaries charge fees for their services involved in drafting the title deed, preparing the mortgage, and conducting the various searches. Disbursements are out-of-pocket expenses incurred during the process such as registrations, searches, and supplies.
Land Transfer Tax
Most provinces charge a land transfer tax payable by the purchaser. The amount varies depending on the province. Land transfer tax is based on the purchase price. First time home buyers purchasing a new or re-sale home may be entitled to a refund.
New Home Warranty
In most provinces, new homes are covered by a new home warranty program. The cost to the purchaser for this warranty is approximately $600 and should the builder default or fail to build to an agreed-upon standard the fund will finish or repair the deficiencies to a maximum amount. For more information on Ontario new home warranty visit http://www.tarion.com.
HST is payable on the purchase of newly constructed homes only. If you are purchasing a new home make sure you know who pays this, you or the builder. On the offer, the purchase price will say "Plus HST" or "HST Included" and who gets any HST rebates. Many builders have included this cost into the purchase price so the buyer does not have to come up with it at closing.
An estimate should be made for closing adjustments for bills the seller has prepaid such as property taxes, utility bills, and other charges. Any bills after the closing date are the responsibility of the purchaser. A lawyer will let you know what they are once the various searches have been completed.
Elements of an Offer Explained
Several key components go into making an offer. Aspects of an offer include the price, deposit, terms conditions, inclusions and exclusions, and closing and possession date.
Price: This is the amount of money you are willing to pay for the property you are interested in purchasing.
Deposit: When the buyer puts a deposit down on a property, it is showing the sellers your good faith to purchase the property.
Terms: This includes the total price offered for the property and financing details.
Conditions: These are terms and qualifiers that must be satisfied before the final purchase of the property. Conditions may include, but are not limited to, home inspections, financing or be subject to additional deposits.
Inclusions and Exclusions: The seller and buyer agree what will, or will not, be left within the property on closing. Items such as fixtures, major appliances, and faucets are left behind. Your agent will help negotiate these items for you.
Closing and Possession Date: This is the day the property is legally transferred to you, and the transaction is final.
Land Transfer Tax
Purchasers in most large Canadian centres can add Land Transfer Taxes to their list of closing costs.
Unless you live in Alberta, Saskatchewan, or rural Nova Scotia, land transfer taxes (or property purchase tax) are a basic fact of life. These taxes, levied on properties that are changing hands, are the responsibility of the purchaser. Depending on where you live, taxes can range from a half a percent to two percent of the total value of the property.
Many provinces have multi-tiered taxation systems that can prove complicated. If you purchase a property for $260,000 in Ontario, for example, .5 per cent is charged on the first $55,000, 1 per cent is charged on $55,000 - $250,000, while the $250,000 - $400,000 range is taxed at 1.5 per cent. Your total tax bill? $2,375.00.
The following list shows Land Transfer Taxes by province.
- Land Transfer Tax
- Up to $55,000 X .5 % of total property value
- From $55,000 to $250,000 X 1 % of total property value
- From $250,000 to $400,000 X 1.5 % of total property value
- From $400,000 up X 2 % of total property value
- Property Purchase Tax
- Up to $200,000 X 1 % of total property value
- From $200,000 up X 2 % of total property value
- Land Transfer Tax
- Up to $30,000 N/A
- From $30,000 to $90,000 X .5 % of total property value
- From $90,000 to $150,000 X 1 % of total property value
- From $150,000 up X 1.5 % of total property value
- Transfer Tax
- Up to $50,000 X .5 % of total property value
- From $50,000 to $250,000 X 1 % of total property value
- From $250,000 up X 1.5 % of total property value
- Land Transfer Tax
- 1.5 per cent on total property value
Outside Halifax County
- Check with local municipality.
Making an Offer
Buying real estate is incredibly exciting. You may already have found your dream home. Perhaps you’ve already started thinking about how you want to decorate your new dream home, paint colours, furniture, the works. But before you get into your newly purchased home, you need to make an offer to the sellers.
First, Get Pre-Approved
Before considering buying real estate, you need to ensure you are pre-approved for a home loan. Not only does this give you a general idea of how much money you will be able to borrow for your purchase, but it also helps the process of making an offer and purchasing real estate much smoother.
Have an Exceptional Real Estate Agent
Making an offer isn’t as simple as deciding on an amount to offer the sellers for their property. There are a few factors to consider before you choose to purchase your home. You need to consider other buyers may have their hopes set on the same house as you do, the sellers may not accept your offer, or the inspection/appraisal may go south.
The first thing to do once you are ready to make an offer is talk with your Spectrum Realty agent. Your best bet is to let our qualified agents walk you through the process step-by-step to ensure you are getting the most out of your purchase. Your Spectrum Realty agent will offer guidance in making your offer with a fair price and terms.
After discussing your desire to make an offer to purchase real estate to your Spectrum Realty agent, the following process is how offers usually occur.
Terms And Conditions
The terms and conditions involve what you want to offer the seller. This includes price, conditions, closing date and terms.
Agreement Of Purchase And Sale
Next, you will sign the paperwork for the agreement of purchase and sale; this is the formal offer to the seller. During this step, you will sign a significant amount of paperwork.
The offer you make is time-sensitive, it is valid for a specific amount of days, this is called the irrevocable period. It is the given time the seller must look over and contemplate the terms of your offer. If the seller has not accepted your offer within the irrevocable period, your offer will be null and void. In markets such as Toronto, the irrevocable period can be as short as a few hours so once you enter this phase the purchase of your property can go very quickly.
Once the agreement of purchase and sale is signed, your Spectrum Realty agent will officially register your offer. This paperwork is telling the seller's agent’s office that there is a signed offer from a buyer. The terms, price, and conditions of the offer are kept private at this stage. Keeping the offer private ensures every offer is trackable and fair, especially when there are multiple offers on a real estate property.
In this step, your Spectrum Realty real estate agent will formally present your offer to the seller and their real estate agent. Typically, this process takes around 15 minutes or less. You want your agent to present your offer to ensure he/she can submit the proposal in the best way possible. Explaining the reasoning behind the terms, conditions, and pricing of your offer. A formal offer presentation can occur in person, via email or by fax.
Elements of an Offer Explained
There are six key components to the elements of an offer. They are:
Depending on the local market conditions and information provided by your Spectrum Real Estate Professionals, the price you offer may be different from the seller's price.
Your deposit shows good faith and will be applied against the purchase of the home when the sale closes. As your Real Estate Professionals, we can advise you on an appropriate amount.
Includes the total price offered and the financing details. You arrange your own financing or ask to assume the seller's mortgage, especially if it has an attractive interest rate.
These might include "subject to home inspection", "subject to you obtaining financing", or "subject to you selling your property".
Inclusions and Exclusions
These might include appliances and certain fixtures or decorative items, such as window coverings or mirrors. These items would remain in the house.
Closing or Possession Date
Generally, the day the title of the property is legally transferred and the transaction of funds finalized.
The seller now has your formal offer in hand; they can do one of three things. They can accept your offer as it stands, they can counter offer with different terms, or they can decline the offer altogether.
If the seller accepts your offer as you presented it, that means they agree to the terms and conditions you set forth. It merits congratulations as you are now well on your way to owning your dream property.
The seller could also counter your offer, for example offering you a different price, closing date or something similar. This scenario is the most common when it comes to negotiating an offer. There can be quite a few back-and-forth terms and conditions that go between the seller and buyer during this time. Typically, each side, the buyer, and the seller both, will make concessions on their terms and conditions until they reach a middle ground.
The last option a seller has is to decline your offer; this means your offer was not acceptable to them at all. They may reject the offer due to a “low-ball” offer or multiple other reasons. The bottom line here is the seller isn’t interested in your offer.
Considering buying a residential property or commercial property is an enormous undertaking. With the assistance of your exceptional and experienced Spectrum Realty agent, you can move forward with the purchase of your ideal real estate property with confidence.
Renting vs. Home Ownership
There are pros and cons when it comes to owning vs. renting a home. To help you work through the decision, here are some facts to consider.
One significant advantage to renting a home includes minimal maintenance costs to you. Another upside is a predictable monthly rent payment that can be less expensive than a mortgage payment. Lastly, if you chose a neighbourhood you expected to love, but don’t, you can quickly move to a new location, with a lot less hassle.
When it comes to owning a home, the most significant advantage is you are paying your mortgage. Think of it as paying yourself instead of someone else since your mortgage payment goes toward equity in your home. While renting can be cheaper, don’t dismiss the fact that it can be more cost-effective to buy. With a decent down payment in the right area, your mortgage could be less than rent. One of the most significant advantages is the ability to do what you want to your space; you can renovate, paint and upgrade to your heart's content.
This is a decision which many people face, and the decision is not as easy to make as it may sound.
As a homeowner, you can reasonably expect the equity in your home to increase over time as your mortgage is paid down. That, combined with regular appreciation in property values, can be a rapid and rewarding way to increase your net worth. In contrast, the person renting over the same amount of time is left with no property investment but may have enjoyed lower living expenses and the opportunity to invest in other opportunities.
When comparing owning to renting, you have to add up all of the figures, including the cost of your home, the size of your down payment, utilities, immediate repairs, interest rates and insurance, and compare them with how much you are currently spending on rent.
Of course, you also have to place a value on the enjoyment and satisfaction that you will derive from owning your own home.
Title Insurance Explained
Title insurance is growing in popularity in Canada. But what is it exactly? Should you get it? Do you need it? Whether title insurance is right for you is something you should discuss with your lawyer, as it depends on the circumstances of your transaction.
This article will provide you with some background information about title insurance to help you make an informed decision.
Title to Property
Title is the legal term for ownership of property. Buyers want "good and marketable" title to a property - good title means title appropriate for the buyer's purposes; marketable title means title the buyer can convey to someone else. Prior to closing, public records are "searched" to determine the previous ownership of the property, as well as prior dealings related to it. The search might reveal, for example, existing mortgages, liens for outstanding taxes, utility charges, etc., registered against the property. At closing the buyer expects property that is free of such claims, so normally they must be cleared up before closing. For example, the seller's mortgage will be discharged and outstanding monetary expenses (such as taxes and utility charges) will be paid for (or adjusted for) at closing.
Sometimes problems (or defects) regarding title are not discovered before closing, or are not remedied before closing. Such defects can make the property less marketable when the buyer subsequently sells and, depending on the nature of the problem, can also cost money to remedy. For example, the survey might have failed to show that a dock and boathouse built on a river adjoining a vacation property was built without permission. The buyer of the property could be out-of-pocket if he is later forced to remove the dock and boathouse. Or, the property might have been conveyed to a previous owner fraudulently, in which case there is the risk that the real owner may come forward at some point and demand their rights with respect to the property.
Who is Protected With Title Insurance?
Title insurance policies can be issued in favour of a purchaser (on new/resale homes, condos and vacation properties), a lender, or both the purchaser and lender. Lenders will sometimes require title insurance as a condition of making the loan. Title insurance protects purchasers and/or lenders against loss or damage sustained if a claim that is covered under the terms of the policy is made.
Types of risks that are usually covered under a title insurance policy include: survey irregularities; forced removal of existing structures; claims due to fraud, forgery or duress; unregistered easements and rights of-way; lack of pedestrian or vehicular access to the property; work orders; zoning and set back non-compliance or deficiencies; etc. For a risk to be covered, generally it has to have existed as of the date of the policy. As with any type of insurance policy, certain types of risks might not be covered, for example, native land claims and environmental hazards are normally excluded. Be sure to discuss with your lawyer what risks are covered and what are excluded.
The insured purchaser is indemnified for actual loss of damage sustained up to the amount of the policy, which is based on the purchase price. As well, some policies have inflation coverage, which means that if the fair market value of the property increases, the policy amount will also increase (up to a set maximum).
How Long is the Insurance Coverage?
In the case of title insurance covering the purchaser, title insurance remains in effect as long as the insured purchaser has title to the land. Some policies also protect those who received title as a result of the purchaser's death, or certain family members (e.g., a spouse or children) to whom the property may have been transferred for a nominal consideration.
In the case of title insurance covering a lender, the policy remains in effect as long as the mortgage remains on title. A lender covered under a title insurance policy is insured in the event the lender realizes on its security and suffers actual loss or damage with respect to a risk covered under the policy. Lenders are usually covered up to the principal amount of the mortgage.
The premium for title insurance is paid once (at the time of purchase). Generally speaking, in Canada the purchaser of the property pays for the title insurance, though there can be situations where the seller pays for it. Some policies automatically cover both the purchaser and lender; others will cover both for a small additional fee.
Protection and Peace of Mind
Title insurance can help ensure that a closing is not delayed due to defects in title. And, if an issue relating to title arises with respect to a risk covered under the policy, the title insurance covers the legal fees and expenses associated with defending the insured's title and pays in the event of loss.