Buying a home is one of the most important and significant transactions a person will make in their life. It is important that you understand the different requirements and potential costs you may encounter. We created this guide for everything you need to know when buying a home.
Extra Costs You May Not Expect When Purchasing a Home
Land Transfer Tax
There is provincial LTT, and if you’re in Toronto, municipal LTT too. LTT is approximately 1.5% of the purchase price and is payable on closing, so you have to have it available in order to buy your house. There are rebates available for first-time buyers, and you should check whether you’re eligible, but be prepared to pay this upfront.
Some banks charge you to do an appraisal; some charge a lender fee. If you’re putting down less than 20%, you will definitely have to pay for mortgage default insurance, and while they often will simply add that to your mortgage, you will have to pay the tax on it upfront. Budget accordingly.
How Much Will Closing Costs be?
Closing costs are a one-time fee when you complete the purchase of a property. These costs will vary depending on the purchase price.
Closing costs can include:
- Appraisal fees
- Inspection fees
- Lawyer / Notary fees
- Land transfer tax
- Title insurance
Property Taxes and Condo Fees
Both of these are adjusted on closing so that each party pays their proportionate share for the year or month. You will want to speak to your real estate lawyer about what you should expect to have on hand to be able to pay for these.
Whether or not you are getting a mortgage, you will want to have insurance in place, and you will usually have to pay at least a portion of it upfront so that it is available for closing.
Many lawyers (including our firm) will give you an estimate of legal fees and disbursements before you make a decision about who to hire. Get a quote if you can so that you know how much to set aside for this.
This is a one-time premium for insurance to protect against fraud, as well as against a former owner doing something to the house that was not permitted. If you’re getting a mortgage, it’s effectively mandatory; even if you’re not getting a mortgage, it’s usually a good idea.
First-Time Home Buyer Rebates
We get asked a lot about rebates for first-time buyers. The rules can be a bit complex, which is why it happens fairly regularly that someone thinks they qualify when they don’t. Here are the basic rules:
- You have never owned property anywhere in the world. That means never. Not “I owned a property in another country.” Not even “I went on the title to my parent’s condo in Florida.” You can’t ever have been on title to any property, anywhere.
- You do not, or did not, have a spouse who has owned property at any point while you were spouses. The key point to remember here is that Ontario’s Family Law Act has two definitions of the term “spouse” – one is that you are legally married, and one that is expanded to include two people who have been living together for at least three years or have a child together. For Land Transfer Tax, the broader definition is used, which means that if you have been living for at least three years with your partner in a house that they own, you are no longer eligible for the rebate. Even if you break up, you lost the right to the rebate during your relationship and cannot get it back.
It’s really important to be aware of the rules and to be sure that you fit into them, before assuming that you’re going to get the full rebate.
Joint Tenancy and Capital Gains
I have a lot of clients who ask about adding a child on to their house or vacation property in order to avoid probate taxes. Usually, this is a bad idea. For one specific reason, it is often a very expensive idea.
Even if the property is your principal residence, your child will eventually sell it. If he or she already has a home, then they will sell that property as a secondary residence. If the value has gone up between the time they went on the title and the time it is sold, they will pay capital gains on that increase.
It’s even worse if it’s a secondary residence, because not only will there be capital gains tax at the time your child sells it, but you will also have to pay capital gains tax at the time that you transfer it to your child. Even if your child doesn’t pay you anything for the property, for CRA, it is a deemed sale and tax is owed at that time.
If you’re thinking about doing this, get advice from an accountant first.
When Do You Need to Insure Your Lender’s Investment?
In Canada, whenever you purchase a property and finance more than 80% of the purchase price you are required to purchase mortgage default insurance. This is generally purchased through one of two companies, either Canada Mortgage and Housing Corporation (CMHC) or Genworth. Mortgage default insurance protects your lender if you cannot pay back your mortgage; high-ratio loans are also high-risk loans, but the federal government wants to encourage new buyers to be able to get into the housing market without having to save a large down payment. Requiring mortgage default insurance allows lenders the comfort of knowing that their loans are protected while allowing borrowers the ability to obtain mortgages when they are looking for their first home.
What does a Real Estate Lawyer do when buying a home?
Most of the time, for most people, what a real estate lawyer does throughout a deal may be a bit mysterious. You send over your agreement, and a few weeks or months later, you go in to sign the paperwork. What exactly has the lawyer been doing that whole time?
The first thing I do, if it’s in the offer, is review the agreement to make sure there is nothing that would be a problem for you. Generally, a lawyer review is one of the last conditions to be dealt with, so after that point, you have a firm offer and my office will open your file and start working on it.
We pay very close attention to title search dates and start our searches fairly early on in the process. We do a full title search to ensure there are no restrictions, etc. that we need to worry about. We also search to make sure that the seller’s taxes and water are paid, so that you don’t get stuck with someone else’s bill. Then we take all of the information we receive and send a letter to the seller’s lawyer, requesting the removal of anything we want to take off the title.
After that, it moves fairly quickly. We receive and review mortgage instructions (if you are getting a mortgage), and start preparing all of the paperwork for the transfer and the mortgage. Then you come in to sign, and then it closes.
There’s a lot more going on behind the scenes in the time between agreement and closing than you think.
Can You Make Changes to a New Home Build?
When you buy a brand-new home from a builder, the agreement often states that certain features can be changed at the builder’s sole discretion, such as flipping the house to a mirror-image floorplan, adding or removing garage access to the house or a basement walkout, or changing certain finishes. Many buyers are surprised to arrive for their final walkthrough and find these types of changes.
Ultimately, the agreement rules. If something is important to you, it is very important to have it written into the contract. If you want to be able to get out of the agreement if certain changes are made, you need to include this in the agreement. When I am given the opportunity to review new home agreements, I always try to add at least that the builder has to give the buyer notice if anything is going to be changed so that the buyer can be involved in the decision. If it is particularly important to you, write it down and give yourself a way out.
Speak With a Real Estate Lawyer
Buying a home is the most significant purchase that most people will ever make. At Wall-Armstrong & Green, we strive to make the process as easy as possible. We provide legal services for all residential real estate, including new and resale homes and condominium units. If you have any questions or are considering purchasing a home contact one of our real estate lawyers today.