WHY HIRE RC TO BUY?
Whether you’re buying your 1st or 14th home, hiring a seasoned professional to guide you through the ever-changing marketplace will pay off in dividends.
Your first contact with the Real Collective will cover the intake process: discussing representation, agency relationship, talking about what you can afford and what you feel comfortable spending, your dreams, wants, and needs in your next home, how to coordinate viewings, the offer process and associated paperwork.
Representation isn’t show and tell.
Agency is the most important factor to us, it’s in our name: Real Estate Agency Leaders (REAL) Collective, the simple idea that we act for our clients as if we were acting for ourselves. Your agent will owe you fiduciary duty, which is a commitment to act in the best interests of another person or entity. Specifically, care, obedience, accounting, confidentiality, loyalty, disclosure.
During your very first meeting you and your agent will decide if you’re a good fit to work together. You’ll notice the professionalism, listening skills and compassion that all our agents bring to their client relationships.
We typically go from home to home, unlock the door, turn on the lights and tell you all the things we don’t like about the home based on what’s important to you. Neighbourhood and home issues will be flagged. We tell you all the things we don’t like and never push you into a purchase, but rather protect you along the way.
How Much Can You Afford?
Real Collective REALTORS® deliver results. Homes come in every size, style and price range. Knowing what you can afford at the beginning of your search saves you time and disappointment later on. The following calculations outline the process financial institutions use to determine how much you can afford.
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This percentage is known as your gross debt-to-income or gross debt service (GDS) ratio.
Housing costs include:
- your monthly mortgage payment (principal and interest)
- property taxes
- heating expenses
- 50% of condo fees (if applicable)
Your monthly debt load includes:
- housing costs (amount calculated in rule 1)
- car loans or leases
- credit card payments
- line of credit payments
- other mortgage payments
The maximum amount you can afford to spend on a home depends on these numbers and the size of your down payment.
In addition to GDS and TDS ratios, financial institutions base their lending decision on your credit history, job stability and the amount of your down payment. Interest rates also affect the amount of financing you will be able to obtain.
*Please note that many lenders are prepared to exceed these guidelines.
Understanding Financing
It is important to be qualified or pre-approved for financing before you start looking for a home. This lets you and your Real Collective REALTOR® know what you can afford as well as providing a written confirmation or certificate for a fixed interest rate good for a specific period of time. To obtain pre-approval, contact your Real Collective REALTOR® for our list of approved vendors, or your mortgage broker directly. The benefit of a mortgage broker is that he or she operates independently of the lender and therefore can assist you in finding the best financial product at the best rate from a variety of sources and usually at no expense to you.
The maximum amount of conventional mortgage is 80% of the purchase price. The amortization or length of time in which to repay the loan is usually 25-30 years. The term of the mortgage is the number of months or years, usually six months to five years, for which the rate of interest is set.
For most people the hardest part of buying a home, especially the first one, is saving for the necessary down payment. With mortgage loan insurance, you can put as little as 5% down payment on homes up to 500,000.
Mortgage loan insurance protects the Lender, and, by law, most Canadian lending institutions require it. The cost of high ratio mortgage loan insurance is in the form of a premium. The premium is calculated as a percentage of the principal and can be paid in a single lump sum or be added to your mortgage and included in your monthly payments.
Here Are the Major Guidelines for This Program:
- You are a first-time home buyer or have not owned a principal residence in Canada during the past four years
- The RRSP must have been in existence for at least 90 days
- You must be a resident of Canada both at the time the funds are withdrawn and at the time the home is acquired
- A minimum of 1/15 of the amount is withdrawn has to be repaid annually
- Repayment of more than 1/15 of the borrowed amount in any particular year will be carried forward and can be applied towards a future year’s repayment
- Not every RRSP is eligible under this program. Check with your investment firm to see if you qualify. Also, advise your lawyer well before closing that you will be using these funds.
The following is an estimate of the costs involved in the normal operation of a home in Ontario. Costs vary from one area of the province to another so these figures should be used only as a guide.
Realty Taxes
Property owners have the option of paying their property taxes in installments over the course of the calendar year. Mortgage companies may insist that they pay the property tax and collect it with your monthly mortgage payment. Realty taxes in Ottawa are typically around 1% of the assessed value. Values are typically reassessed every four years.
Heating
Home heating will usually be provided by natural gas, oil, or electricity. Costs vary depending on the type of fuel, size of home, amount of insulation, exposure, and usage.
Electricity
Costs vary greatly depending on usage, for example how many people you have in the home, the size of your home, and how many energy efficient cost measures you have undertaken (such as Energy Saver appliances). Usually billing is every second month, or you can go on equal billing and pay monthly.
Insurance
Insurance is essential for all homeowners and is required by your mortgage company before it will release funds to close the deal. Premiums are based on the replacement cost of the building and start at around $350 to $700 per year.
Water & Solid Waste Management
Most properties in Ontario are now on water meters and are billed according to usage. As of November 1st, 2008, your water bill will also include a fee for Solid Waste Management. Your Solid Waste Management fee will pay for garbage, recycling, green bin, litter prevention, landfill management and other diversion programs. These utility bills will be sent about three times a year.
Home Inspection
A home inspection is strongly recommended for most residential properties and will usually be a condition of the offer. Your Real Collective REALTOR® can assist you in choosing your home inspector. This ranges from $450 – $600 depending on the size and value of the property.
Septic / Well / WETT Inspection
You may need to hire a septic / well / WETT inspector as well as a home inspector if you are buying a home with a well septic or wood burning device. This could add up to $1200 over and above the cost of your inspection.
Appraisal Fees
When you apply for a mortgage, the lender will want to see an appraisal on the property to ensure that the price you are paying falls within the accepted range of value for that type of property and that area of the city. The fee for this is usually between $250 to $350.
Land Survey
When you make an offer on a freehold property you will usually ask the Seller to provide a copy of the survey for the property. The purpose of this survey is to show the boundaries as well as the footprint of the building on the site. If there is no survey available, you may wish to hire a surveyor to prepare one at a cost of approximately $1,000 to $2,000.
Title Insurance
Title insurance provides insurance against the future costs of remedying most problems with the title on your property. Ask your Real Collective REALTOR® to explain the benefits and cost of this service.
A condominium can be an ideal starter home since it may cost considerably less than single family homes in the same neighbourhood. However, a condominium can restrict your freedoms through a list of rules and bylaws governing how you may use the unit. It’s important to be fully aware of the corporation’s bylaws before you buy.
How do Co-ops and Co-ownerships Differ from Condominiums?
In an equity co-operative the owner is not registered on title but receives a form of proprietary ownership. The corporation is registered on title and issues a share certificate to each owner. The corporation owns the property and the rights of occupation come from a separate agreement that sets out the exclusive right of each owner to occupy a certain unit.
This agreement also sets out the owner’s obligations to pay a proportionate share of the building’s mortgage, operating expenses, and property taxes. Since responsibility for payment of taxes and mortgage in a co-op is joint, if one owner goes into default, the other owners must make up the shortfall or risk losing their equity.
Many older co-ops have no mortgage and Buyers must pay cash since most banks are reluctant to finance share certificates. However, there are some institutions that provide financing for these types of properties. In a co-ownership, each Buyer has his or her percentage interest in the property registered on title. Possession of an individual unit in the property comes by way of a separate agreement which sets out each owner’s rights and responsibilities.
Mortgages are often available for this type of property through credit unions and trust companies. Have your Real Collective REALTOR® check with the Listing Agent. As a result of these factors, reselling a co-op or co-ownership is often more difficult than selling a condominium.
Make sure you work with a lawyer who is familiar with this area of real estate law, we can point you in the right direction.
How are Condominiums Owned?
Condominium ownership is generally divided between two or more parties, each of whom owns a portion of the structure separately and a portion of it in common. For instance, if you are an owner in a high-rise apartment building where there are several other owners, you own a unit individually and it is legally registered in your name. You also own a proportionate share of the common areas in the development. These generally include the outside grounds, recreational facilities, lobby, stairs, halls, and elevators, as well as the air conditioning, electrical and plumbing systems. Some common areas may be reserved for the exclusive use of specific owners such as roof gardens, balconies, parking spaces and storage lockers. As a unit owner, you are automatically a member of the condominium corporation. In essence, you’re a voting member of a self-governing community with one vote per unit.
What is Included in the Maintenance Fees?
In addition to the costs associated with owning your own unit (mortgage payments, taxes and so on), you are also required to pay your shared cost of maintaining the common areas in a monthly maintenance fee. It’s important to know what is and is not included in your maintenance fee. For example, heat may be included while the cost of electricity may not be.
What is a Reserve Fund?
In Ontario, at least 10% of this maintenance fee must be held in a reserve fund to pay for minor repairs on items like heating systems, roofs, and plumbing. If you are considering buying a unit in an older building, be sure that the reserve fund is sufficient to pay for any anticipated major repairs. Newer buildings may not have had time to accumulate a large reserve fund. Information on the status of the building’s reserve fund is contained in the Status Certificate.
You’ve found that perfect home! What do you do now? Your Real Collective REALTOR® will prepare an Agreement of Purchase and Sale, including any custom clauses you may require. Most Buyers will make an offer provided certain conditions are met. These may include:
Financing
Even if you have been pre-approved for a mortgage, the property will require an appraisal to assure the lender that the price you are paying falls within accepted market value. Once your financing has been approved you are required to provide written notice to the Seller in the form of a waiver of amendment before the expiry of the condition.
Condominium Status Certificate
This condition applies only to the purchase of a condominium. It allows your solicitor to review the condominium’s documents to ensure the corporation is financially sound and meets all the requirements of the Condominium Act. Under the Condominium Act, the property management company has up to 10 days to prepare the Status Certificate and can charge a maximum of $100 for the service.
Home Inspection
This condition provides an opportunity to have the property inspected by a qualified person who will look for any major defects in the building prior to your entering into a firm agreement. Many Buyers purchasing a rural property may require a well and septic inspection, as well as a possible WETT inspection.
Fintrac (The Financial Transactions and Reports Analysis Centre of Canada)
As of June 23, 2008, for every Purchase and Sale in real estate, the Brokerage must obtain an Individual Client Information Record. This record sets out the Buyer/Seller name and address, and the nature of your principal business/occupation and date of birth. You will need to show a piece of identification that confirms your identity. For example, birth certificate, driver’s license, passport. For more information go to www.fintrac.ca
For the offer to be valid, it must contain a number of specific dates and times. Your initial offer will be valid for a specific period of time, based on the negotiation strategies implemented, after which the offer is deemed to be void. This time frame is called the irrevocable period.
Completion Date
This is the date set for the transfer of ownership of the property negotiated between you and the Seller and can also be referred to as the closing date.
Requisition (Title Search) Date
This is the date by which your lawyer must determine if there are any problems with the title of the property and is usually set 14 days prior to the completion date.
Fixtures
Fixtures are any items permanently attached to the property. For example, a bathtub, sink or toilet permanently plumbed in would be a fixture. Technically, anything nailed to the building is a fixture while items screwed in (because screws can be removed) are chattels. This is often an area of contention when buying a resale home. So be aware of this distinction and, if in doubt, put it in the offer.
Chattels
Chattel, unlike fixtures, are not deemed to be part of the property and must be specified in the offer if you want them included in the sale. The following are some items you may wish to include in the offer: area rugs, ceiling fans, chandeliers and other light fixtures, draperies, wood burning stoves and accessories, microwave ovens, refrigerators, freezers, stoves and ovens, washers and dryers, window air conditioners, garage door openers, storage sheds, swing sets and other playground equipment, garden furniture, barbecues, central vacuums, and equipment.
The Deposit
A deposit cheque must accompany the offer to the Seller. The amount of the deposit will vary depending upon the value of the property but usually represents between 1-5% of the purchase price, sometimes more.
Negotiating the Offer
After signing the offer, your Real Collective REALTOR® will register it with the listing broker. A time will be set for the listing REALTOR® and your Real Collective REALTOR® to meet and present the offer to the Seller. The Seller has a number of options available:
- Reject the offer;
- Accept the offer exactly as presented, making no changes;
- Make a counter-offer back to you with whatever changes the Seller wants, such as price, closing or conditions.
You then have the option of accepting the Seller’s counter-offer or making your own changes and signing the newly amended offer back to them. This is where your Real Collective REALTOR®’s negotiation skills come into play.
Your lawyer’s job is to certify good and marketable title to the property, free of encumbrances, liens, and judgments. Your Real Collective REALTOR® will deliver all documentation related to the sale to your lawyer.
Registering the Mortgage
The lawyer receives instructions from the mortgage company, prepares the draft mortgage document, forwards the draft to the lender, makes amendments if required and arranges for you to sign the documents. The mortgage company then releases the funds to your lawyer. Some lenders prefer to pay the property taxes on your behalf to ensure the taxes are never in arrears. In this case, the mortgagee will hold back a certain amount from the advance on closing to start a tax account. Your payment will include the taxes in addition to the regular principal in interest. Check with your mortgage representative to see how your taxes will be handled.
Insurance
You are required to place fire insurance on the property. The coverage should be for at least the amount of the mortgage to be acceptable to the mortgagee. A guaranteed replacement clause is usually acceptable and must take effect on the closing date.
Statement of Adjustments
The closing balance to be paid by the Buyer is “subject to the usual adjustments.” The statement of adjustments is a system of credits and debits whereby amounts are added to or subtracted from the balance to be paid by the Buyer, depending on whether the Seller has paid certain items in advance: taxes, hydro, water, etc.
Legal Fees
A lawyer will usually charge between $1000 and $1,500, plus disbursements, for a straightforward real estate transaction. This is payable prior to closing.
Land Transfer Tax
Payable by the Buyer on closing, the tax is based on the purchase price, if you budget for 2% of the purchase price, you’ll have more than enough.
Day of Closing
The lawyers or clerks exchange documents and funds to close the transaction. You can expect to get access to your new home by late afternoon on that day but check with your lawyer. Changing locks is recommended after closing as a safety precaution. If you have any dead-bolt locks on your doors, it is a simple matter to remove the cylinder and replace it with a new one.
