Overview of Home Buying Process

One of the biggest decisions in a person's life is the decision to buy a home. The process can be very time consuming and stressful & having a knowledgeable and trustworthy salesperson to assist you is very helpful and oftentimes necessary.

1. Find a Realtor: It is important that you choose a real estate agent who is experienced and knowledgeable in your search area. More importantly, you must feel comfortable and reassured by this person as you will be spending lots of time together and will be relying on them to make the largest purchase of your life.

2. Documents:
a) At the first practical opportunity, your real estate agent will present you with a document entitled Working with a Realtor. Signing this document does not bind you to your agent. The pamphlet explains the difference types of representation in the industry and by initialing and signing it, you acknowledge having read and understood its contents.

b) Next your agent will present you with a Buyer Representation Agreement which is an agreement that formally documents your exclusive relationship with the realtor for a defined geographical area and time period.

c) As of June 23, 2008, the Federal Government through the Financial Transactions and Reports Analysis Centres of Canada (FINTRAC) requires realtors to document the personal information of all parties to a real estate transaction. FINTRAC receives, analyzes, assesses, and discloses financial intelligence on suspected money laundering, terrorist financing and threats to security of Canada. As a buyer you will be asked to provide identification - driver's license, passport, or birth certificate. The realtor will record the information but does not need to photocopy the document. When you submit an offer on a property, you will also be required to indicate the account information from which the deposit monies were drawn.

3. Mortgage Broker/Lending Institution: Before you begin your search, it is recommended that you contact a mortgage broker or your bank to determine how much money you can borrow to purchase a home. This amount, plus your deposit, will become the budget for your home search. If your downpayment is less than 20% of the purchase price then you will be required to purchase mortgage insurance (between 2.8% and 4% of the loan value for those unable to put 20% or more down) which is rolled into your mortgage. Bear in mind that PST (8%) is owed on the mortgage insurance premium at the time of closing as this is not rolled into your mortgage; it's part of your closing costs!

Also keep in mind that you are able to borrow up to $25,000 from your RRSP to buy your home ($50,000 for a married or common law couple). The money must be paid back over the following fifteen years. Click here for additional details.

Please refer to the "Mortgage Qualifier" tab by clicking here; this is a useful calculator that with just a few inputs will provide you with an estimate of the mortgage amount you'll likely qualify for assuming good credit. Keep in mind that lenders/mortgage brokers will require proof and documentation of your key inputs!

MUST READ: Due to federal legislation introduced in 2016/2017, the calculator is in the process of being modified to reflect these significant changes. The legislation impacts all mortgages (insured or not) and essentially changes how the banks qualify borrowers. Unfortunately for some, these legislative changes will lower the mortgage amount they qualify for by 20%-30% (approximately)! 

4. Lawyer: The lawyer will search the title, order the survey and prepare tax and other items related to the statement of adjustments, look for liens, advise you on any restrictions which would affect your enjoyment of the property and generally oversee most aspects of your purchase. Once a deal is reached, the lawyer takes over and ensures the deal closes on schedule. It is important that you find a lawyer who specializes in real estate. It is preferable to find a lawyer before your search begins so that the process runs smoothly once the offer is accepted.

5. Showings: Determine your search criteria so that your Realtor can provide you with a proper list of properties to view: budget, location, number of bedrooms, number of washrooms, number of parking spots, property type (detached, semi-detached, townhouse), property style (bungalow, 2-storey), as well as any other requirements such as an inground pool, central air conditioning, basement apartment, etc.

6. Property Match Emails: Your Realtor will set you up on the MLS system so that you will receive daily emails of all new properties that hit the market that match your search criteria.

7. You Found THE House: When you find the house that you would like to purchase, your Realtor will provide you with comparable sales in the area in order to establish an offer price. If you are in a multiple offer situation, the rules of the game change dramatically, and the final selling price is likely to exceed the list price. In these situations it is imperative that you do not get emotionally involved in the process. If you offer $100,000 over asking, you may end up winning the bidding war, but your lending institution may not appraise the house for the amount that you paid, and you will be responsible to make up the difference. In short, know your budget and stick to it!

8. The Offer: When it comes time to signing the offer, it is important that your Realtor explains all the clauses in the Agreement of Purchase and Sale (Freehold or Condo). You will submit a deposit with the offer that is normally 5% of the purchase price; this is not a legal requirement but a sign of good faith on your part. The money must be in the form of a certified cheque, bank draft, or money order made out to the listing brokerage in trust. The deposit is meant to ensure that you fulfill your contractual obligations. i.e. If the Agreement is conditional on a home inspection, make sure you get a home inspection!

9. Conditions: You can make an offer conditional on any number of things, the most common being financing and inspection. If your offer is accepted, you will have an agreed upon number of days to fulfill the conditions. If all the conditions are met, you will sign a waiver and the agreement will become firm. If, for example, you are unsuccessful at obtaining proper financing or the home does not pass inspection, the deal will fall through, you will sign a Mutual Release, and your deposit will be returned in full.

A home inspection is essential when you purchase a home. An inspector may reveal issues with the home that can seriously affect your decision as to whether or not to proceed with the purchase. Insurance issues are of particular importance when it comes to a home inspection. For example, many insurance companies will not insure a house if there's evidence of a buried oil tank or if it has Knob and Tube wiring. Also, there are several neighbourhoods in the City of Toronto that are infested with termites. If you choose to buy in one of these areas, it is wise to have the property inspected by a certified termite inspector before proceeding. Be aware that a home inspection is limited in its scope; talk to your home inspector to learn what is not included in the Inspection Report.

If you are buying a condominium, your offer will likely be conditional on your solicitor's approval of the Status Certificate. This critical document outlines the current financial status of the condo corporation as of the date of issue as well as several other important items that you should be aware of such as any special assessments, any litigation involving the condo corp, rules and bylaws, etc. The condo corporation has 10 days to issue the document (usually at the expense of the seller) and once provided to your lawyer, he or she will have an additional 3 days to review it (or however long specified in the Agreement). If it is met with approval, you will sign a waiver and the deal will firm up.

10. Multiple Offers: Over the last few years, the Toronto market has experienced a real estate boom and as such there have been many instances of multiple offers. When faced with the prospect of competing against numerous other buyers, it is wise to perform your due diligence prior to the offer date so that you can enter the bidding war with a firm offer, ie no conditions. Obviously offer price and possession are other factors in determining whether your offer is accepted but your chances are drastically lower if you enter the process with a conditional offer. Perform the home inspection and get approved for financing prior to the offer date to improve your chances of succeeding in a multiple offer situation.

11. The Offer is Firm: Congratulations! Your offer was accepted and you now have "x" days before you take possession of your home. During this period, you can visit the property for the purpose of taking measurements and decorating (the number of times must be stipulated in the agreement). Your lawyer will ensure the transaction runs smoothly by performing the appropriate land searches. You'll need to make arrangements with the utilities (gas, water, cable, hydro, phone) to let them know you'll be moving in. You'll also have to arrange home insurance. It would be wise to book a mover immediately, especially if you are closing at the end of a month which is when moving companies are normally at their busiest. 

12. Closing Costs: It is important to budget for closing costs when purchasing a home. Canada Mortgage and Housing Corporation (CMHC) suggests as a guideline, setting aside roughly 1.5%-4% of the purchase price of the property for closing costs (including adjustments). Examples of closing costs include but are not limited to land transfer taxes, home inspection fees, appraisal fees, legal fees (including various disbursements), title insurance, survey (if applicable), home insurance, moving costs, furniture & decorating costs (if applicable). Adjustments are items that have been prepaid by the seller beyond the closing date and that need to be partly reimbursed. Examples include but are not limited to property taxes, utilities, interest, etc. 

Feel free to contact me for estimates for some of the above mentioned fees.

Just an added note - If you purchase a home within the city limits of Toronto, you will unfortunately be required to pay municipal land transfer tax which is in addition to the provincial land transfer tax.

Please refer to the "Calculators" tab for a Land Transfer Tax calculator.

13. Possession: The day has arrived! During the day, your lawyer will electronically transfer title from the seller's name into your name, monies will be exchanged and when the evening rolls around, your lawyer will send you the keys to your home. As excited as you are, it's really important to ensure that all chattels and fixtures mentioned in the Purchase & Sale Agreement are present and that all is in working order. Assuming everything is as agreed upon, you can begin getting your new home in order.

Congratulations!