You’ve been thinking about it for a while but now you feel you are finally ready to buy your first home!
Congratulations! You are about to start a new chapter in your life!
You want a place of your own, where you have the power to make all the decisions to reflect your personal taste and lifestyle.
Buying a home can be a challenge but fear not, there are lots of professionals to help you every step of the way.
Steps to Buying your first home
Visit open houses and speak to the Realtor hosting the event. Ask friends and relatives to refer their Realtor. Meet with 2 or 3 Realtors and select the one you feel is competent, knowledgeable and with whom you feel comfortable. Your Realtor will advise you about the various Government Programs for First Time Buyers. Your Realtor will then guide you through all the steps you will take on your way to home ownership. It is your Realtor’s responsibility to coordinate all the other professionals involved in your home purchase and to represent you and your interests through out the process.
If you are not already pre-qualified, your Realtor will give you the contact information for 2 or 3 experienced mortgage brokers from whom you can choose. To determine what price home you can afford, you will be required to complete a mortgage application and get pre-approved. Your lender will require all your financial details: savings including RRSP’s and investments, household income, all debt and credit card commitments and employment information. Then, based on your completed application, the Mortgage Broker will be in a position to tell you the amount of mortgage the financial institution has determined that you can afford. So the mortgage amount (eg. $200,000) together with your down payment ($10,000- minimum 5%) equals the maximum price ($210,000) of the house you can purchase.
Make a list of your needs and wants. Determine your preferred locations. How many bedrooms do I need? What about condos? What should my home be close to? Once you have reviewed this Buyer Profile information with your Realtor, he/she will then set you up on our Automated Home Finder System. You will then automatically receive all the listings in our active MLS databank that match your criteria. More importantly, you will begin to receive all new listings before they are available on www.Realtor.ca That is at the same time as the Realtors do! Arrange with your Realtor to view a few of the homes that really interest you. Once you have found the Right Home it is time to make an Offer!
What price should you Offer? How much deposit is required? What about a home inspection? How long should I allow for financing? What can I include in the Offer? Your Realtor will answer these and many more questions as he/she guides you through this step of the process. Your Realtor will prepare a market analysis for you including recently sold comparable homes in the area explaining any differences that may affect the sale price. Based on this analysis, Your Realtor will be able to recommend an Offer Price. Terms and conditions will also be added for your protection. Typical “conditions” usually inserted in an Offer include: getting your Lawyer’s approval, finalizing your mortgage, getting a home inspection, verifying that you can obtain insurance. Other terms and conditions will be added as required.
Your Realtor will give you the names of Lenders, Home Inspectors, Insurance Agents, Lawyers and other professionals, from whom you can choose with whom you would like to deal.
Time is of the essence! Your accepted Offer will usually provide about 7 days (or 5 business days) for you to satisfy the “conditions” in your Offer.
You or your Realtor should email a copy of your Offer together with a copy of the listing details to your Mortgage Broker as soon as possible so he can finalize the paperwork and submit your application to the lender for final approval.
In the meantime, you can choose your home inspector and set up an appointment for the home inspection. This must also be coordinated with your Realtor and the homeowner as your Realtor must be present and the homeowner is expected to vacate the property for the purpose of the inspection. This process usually takes about 2 hours but some inspectors require up to 3 hours in which to complete their routine. This is typically a very thorough process and gives you good insight and education into all aspects, including mechanical, of your new home. So it is strongly recommended that you attend and follow along with your inspector.
Once you have completed your house inspection, you can call or visit your preferred Insurance Company. You need to verify that you will be able to insure your new home as of the closing date as this is a prerequisite for obtaining a mortgage. You can refer to your home inspection report to answer many of the insurance agents questions. On completion, your mortgage company requires that you provide proof of adequate insurance to protect the mortgagee’s interest.
You can also have a condition in your Offer to allow you to review the Offer with your Lawyer. This is generally a 24 or 48 hour condition to be satisfied prior to proceeding with financing and inspection.
Your Realtor will send your accepted Offer to the Lawyer of your choice, so that he/she can open up a file. The lawyer will wait until the conditions in your Offer are satisfied and removed before beginning to do any work on you behalf.
Your lawyer will review the documentation and schedule the work to be done by his/her office on your behalf.
A few days before the scheduled closing date, your lawyer will meet with you to explain the various documents needed to transfer the house into your name including the mortgage documents. He will also review all the expenses he has incurred to make sure the Title is good and can be transferred to you
Once all the paperwork has been signed and you have submitted the required certified cheque to your lawyer, now you just have to wait until Closing Day to get the keys!
A very important topic!
“How much money will I have to come up with to buy this house” is a frequently asked question by first time buyers.
You have submitted a deposit with your Offer, let’s say $1000.00.
Your accepted Offer price is $200,000 so you require a minimum down payment of
5% which is $10,000. You have been approved for a mortgage of $190,000 so the mortgage plus your down payment equals the total price of your new home! You have already given $1000 as deposit so the balance owing for your down payment is $9000.
The Ontario Government charges the buyer a tax when land is transferred from one party to another. The current formula for Land Transfer Tax paid by the buyer is as follows:
So if you purchase a home for $200,000 your LTT will be 1% = $2000 minus 0.5% for $55,00 = $275; which is $1725.00
If you are a first time buyer of a home you may be exempt from the first $2000 of LTT. Your lawyer will verify that you fulfill the requirements.
Your lawyer will have incurred expenses on your behalf to search title of the property. There are title search fees, Teranet User fees, off-title searches (property taxes, zoning searches, easements, outstanding work order, liens and many more), photocopies, faxes, postage. Collectively these are called “disbursements” and generally amount to $700 or $800. You in turn must reimburse your lawyer for these expenses.
In addition, there is the Lawyer’s fee for service. The fee is the payment for the Lawyer’s time and service for acting on your behalf. In our area legal fees charged for a home purchase range from $500 to about $700 and this too is part of the closing costs.
Generally, as a rule of thumb, we recommend that buyers should set aside at least 1.5% of the purchase price to cover the closing costs.
So at this point the seller has accepted your Offer, you have satisfied all the conditions in your Agreement and there is a “SOLD” sign on your future home! Now its time to start packing and get ready for closing day!
Closing day is the day, set out in your Agreement, on which your purchase is completed.
All your documents have been sent to your lawyer and he has lots to do to make sure all is ready for “Closing Day”
Although it is possible to “close” a transfer of ownership from one individual to another within 7 days, lawyers generally prefer to have at least 3 weeks so that they can ensure that they have sufficient time to complete all the various “searches” involved with closing a sale.
Closing Day is the day your lawyer will receive the mortgage funds from your Financial institution. Then he will take these funds together with your down payment and send the total purchase funds, and all the signed documents, to the seller’s lawyer. The seller’s lawyer in turn sends other executed documents to your lawyer.
Once this process is completed, by both lawyers; your lawyer has registered the deed and your mortgage; paid the fees and the Land Transfer Tax; then your lawyer is in a position to release the house keys to you.
Sometimes it is very late in the afternoon on closing day before you can access the keys and this can be frustrating.
So to make things easier for yourself, if at all possible, try to close your purchase a few days before you must be out of your present home.
Congratulations! You have realized your dream.
You are now a Home Owner!
When you buy a brand new home, you get the best of both worlds….all the traditional value you expect in a home plus the advantages that only a newly constructed home can provide.
Buying a “new” home is very different from buying a “resale” home. Unless the home you are buying is already built, you will be working with the builder’s design representative to make selections to design or customize a home to suit your lifestyle and wallet.
Even if the new home is already built, there are still many considerations to ponder.
Tarion Warranty An important part of the process is to learn about the New Home Warranty, including your rights and obligations under the warranty.
Here in Ontario, all builders must be registered with Tarion Warranty Corporation, a private corporation established to protect Ontario consumers who purchase a newly constructed home.
A copy of the Tarion Warranty, for your specific property, is usually included as one of the schedules in the Offer you will sign in order to buy your new home.
A visit to www.tarion.com will give you access to lots of important information including:
Information about the builders (licensed builder directory) you may be considering, how long they have been in business, their customer service with the corporation, and any complaints, if any, registered against them, is also available at Tarion web site.
Standard Specifications All homes are not created equal! What is the base price and what does it include?
Even though the size and floor plan from one builder to another may be similar, the price difference can be due to the differences in the “Standard Specifications”! This is therefore a very important aspect to consider when comparing different builders.
This detailed list of elements and materials includes not only Building Code standards required by the building and construction industry, but also the additional features one builder may include as standard that may be upgrades for a different builder. For example, fireplace, central air, hardwood or ceramic flooring, 9’ ceilings or granite countertops may be standard with one builder but for which there will be extra charges with another builder.
So when viewing a model home make sure to ask for a copy of the standard specifications and a price list for all the upgrades in the model home. Then compare feature to feature with other new homes that also may appeal to you.
So when you are ready to make an Offer you will have a good idea of what the market price should be and what is included and what is not!
Builders Offer There is no mandatory standard form for builders in Ontario. Although some builders use a custom Offer developed by their lawyer, many new homebuilders use forms adapted from model contracts developed by their provincial Homebuilders Association.
Typically a builder’s Offer includes the Offer itself and various schedules which form part of the Purchase Agreement. These schedules may include a schedule for “conditions,” one for Standard Specifications, a site plan showing the lot location, a copy of the house plans, a schedule for extras and upgrades, one for restrictive covenants and possibly others.
Your Realtor will complete these documents based on your instructions. It is a complex document so read the contract carefully. A home purchase is a significant investment, so consider having a lawyer review the contract before you sign it. A good approach is to go ahead and finalize the contractual arrangements with your builder first, but to make them conditional on a favourable legal review. That way you are certain that you have reached an agreement with your builder before you invest in legal advice.
Deposits: At the time of signing the Offer to purchase your new home you will be required to provide the initial deposit, usually at least $10,000, payable to the builder. With a completion mortgage, you will likely be required to provide another deposit when you waive the financing or other “conditions” in your Offer.
Some builders also require you to pay additional sums of money known as “draws” at various stages of construction. A draw, commonly referred to as a “Progress Draw Mortgage”, is when funds are advanced to the builder as the house is being built. Banks vary on draw schedules but generally there are 3 draws: one at frame or rough in completion, one at the time the exterior envelope is enclosed and one at completion/possession. Whatever the mortgage amount may be, draws on funds will have interest accrued on it!
Depending on whether you have a draw or a completion mortgage, the bank will order an appraisal completed based on the information included in the contract.
Deposits on freehold homes are protected up to $40,000 by Tarion.
Extras and Upgrades Once you have decided what extras and upgrades you may want to include in your Offer, your Realtor will prepare a separate form (a Schedule) listing these extras and upgrades, together with the extra charges you will have to pay. Many of these will be spelled out with an exact dollar figure, such as Tarion Enrollment Fee, Survey costs, gas fireplace or appliance allowance. Note; these extras and upgrades will be PLUS HST! The house price quoted to you in the model home will be the base price of the home, inclusive of HST!
To avoid any surprises on closing, be sure to ask your builder’s representative or Realtor for a list of all extra costs, over and above the purchase price shown on your agreement to purchase, that you will be expected to pay on closing.