Buying your first home can be very stressful. In order to protect your legal interests, it is highly recommended to contact a lawyer as early in the transaction as possible. If you need answers immediately, I have compiled and answered the top 5 questions that I get asked by first time home buyers in my legal practice.
For a quick overview, we will be covering:
1. How much are the closing costs?
5. What if I notice damage to the property or one of the appliances is not working after I move-in?
Let’s get started…
1. How much are the closing costs?
Closings Costs when purchasing a home include:
A) Legal Fees & Disbursements: $1000 – $1500 on average
B) Government Registration Fees
C) Title Insurance
D) Ontario Land Transfer Tax – Based on Purchase Price of Home
2. My offer was accepted by the seller and there are no conditions or conditions have been waived or fulfilled. I have the fully executed Agreement of Purchase and Sale. What are the next steps with my legal representative?
Here is a general overview:
A) Retain the services of an experienced real estate lawyer
B) Provide your real estate lawyer’s contact information to your real estate and mortgage representatives
C) At the intake time, your lawyer will likely ask for:
- Copy of the Agreement of Purchase and Sale
- Copy of 2 pieces of ID for all purchasers — Health Cards not accepted
- Spousal Status for all purchasers
- If two or more individuals are purchasing together, how do you want to take the title? There are two options. Joint Tenants – If one person dies, the other person automatically becomes the owner of the whole property. Tenants in Common – If one person dies, that person’s share goes to his or her heirs as directed in the person’s will. Another key difference between the two options is that Joint Tenants always have equal ownership and cannot vary the ownership percentage. In contrast, Tenants in Common can vary the ownership share. As a result, for Tenants in Common, one person can own 80% while the other owns 20% of the property.
- Are you a Permanent Resident or Citizen of Canada? If you are not a Permanent Resident or Citizen of Canada, the Non-Resident Speculation Tax (NRST) may apply. The NRST is a 15 percent tax on the purchase of an interest in residential property located in the Greater Golden Horseshoe Region (GGH). The GGH is the urban region centered around the city of Toronto.
- Is the property you are purchasing going to be your primary residence or rental property? The first time home buyer land transfer tax rebate is only applicable for primary residences, the rebate is not available for investment or rental properties.
D) Your lawyer will ask you to obtain home insurance (also known as fire insurance) and provide the law office with a copy of the confirmation policy or binder prior to the closing. When obtaining a mortgage, it is important to listen to your lawyer’s instructions as you will be asked to include the mortgage lender’s exact name and service address as a loss payee within the home insurance policy.
E) Your lawyer will conduct title searches, writ searches, and any other required due diligence. Based on the search results, your lawyer will ask the seller’s lawyer (requisition) to remedy any items or issues in order to ensure that you obtain a clear title to the property.
F) If you are obtaining a mortgage, your mortgage lender will send the mortgage instructions to your lawyer prior to the closing. Once your lawyer receives and reviews the mortgage instructions, you will be asked to make a bank draft or certified cheque for one amount payable to the law firm in Trust to cover the remaining down payment, land transfer tax, title insurance cost, government registration fees, legal fees and disbursements.
G) Meet with your lawyer to sign paperwork and provide the bank draft/certified cheque mentioned above.
H) Once the closing is completed (usually around 3-5 pm on the closing date), pick up the keys from your lawyer’s office or your lawyer may provide a lockbox code to access the keys. The lockbox is usually secured to the front door of the property.
3. What is Home Insurance?
Home Insurance covers loss and damage to your property. It is not mandatory by law, however, it will likely be required by your mortgage lender if you are buying a freehold property.
If you are buying a condominium property, please note that there are two layers of insurance. The first layer of insurance is provided by your condominium corporation which generally covers the main structure of your unit and common areas of the entire condominium. This is paid through the common expenses/maintenance fees. The second layer of insurance is obtained by the owner of the condominium unit and it covers unit improvements and betterments, loss assessments, and belongings, which the condominium corporation’s insurance is unlikely to cover. For resale of condominium properties, mortgage lenders are satisfied with the condominium corporation’s insurance and as a result, it is up to you whether you want to obtain the second layer of insurance. For new condominium properties (new construction), mortgage lenders and/or builder may require you to obtain the improvements and betterments insurance.
A wide variety of coverage options exist and generally speaking, there are three main types of coverage in most standard policies:
Dwelling
Covers damage or loss of the actual building (also known as dwelling). This coverage protects you from certain events and occurrences that may put your home at risk (known as insured perils). These insured perils include events such as:
- Fire
- Smoke
- Theft
- Lightning strikes
- Water Damage
- Wind
- Aircraft or vehicle impact
- Explosion
- Falling objects (except those as a result of earthquake or snow slide)
Contents
Covers your personal possessions against theft, damage or vandalism. This includes items such as your furniture, furnishings, electronics, clothing, equipment, boats and toys.
Personal Liability
If another person gets hurt on your property, you are vulnerable to a lawsuit and could be held liable for legal and medical costs. Personal liability coverage will pay for your legal defense and settlement.
It is important to note that each coverage type has coverage limits and it is important to look at and assess how much coverage suits your needs and budget.
It is your duty to speak with your insurance broker or agent and find the coverage that works for you. A law office does not order home insurance on the client’s behalf.
4. What is Title Insurance?
Unlike home insurance which requires a monthly premium payment and is ordered by the homeowner, title insurance is a one-time payment and ordered by the law office. Title Insurance is an insurance policy that protects the owner of a real estate property against loss or damage incurred in the event of a defect affecting the title to the land. This specifically is referred to as the owner title insurance policy.
It is not mandatory by law, however, title insurance is always obtained as the alternative to title insurance is to order and examine more extensive searches which is often much more expensive than the cost of title insurance.
Anytime a mortgage is obtained, the mortgage lender will require a lender title insurance policy as well which protects the lender against the actual loss or damage incurred in the event of a defect affecting the title and/or if the lender’s security (legally known as a charge on the property) is not enforceable against title to the land. Lawyer for a purchaser who is obtaining a mortgage will order both owner and lender title insurance policies.
Title Insurance may provide protection from losses such as:
- Existing liens against the property’s title (e.g. The previous owner had unpaid debts from mortgages, property taxes, utilities or condominium charges);
- Title fraud;
- Unknown title defects which prevent you from having clear ownership of the property;
- Errors in surveys and public records;
- Encroachment issues (e.g. a structure that you believe is on your property needs to be removed because it is actually on your neighbor’s property); and
- Other title-related issues that can affect your ability to mortgage, lease or sell your property in the future.
5. What if I notice damage to the property or one of the appliances is not working after I move-in?
Most Purchase and Sale Agreements state that the seller “represents and warrants that the chattels and fixtures as included in this Agreement of Purchase and Sale will be in good working order and free from all liens and encumbrances on completion.” If you have not signed the Purchase and Sale Agreement yet, discuss with your realtor to ensure that the above clause is included. In a scenario where such a clause is included in the Agreement and an appliance such as a washing machine is not working, document it with pictures and video and tell your realtor and lawyer immediately. They will contact the seller’s representative and request the seller to reimburse you for any repairs or replacement if needed.
There are two caveats to this situation. First, it is important to notify the seller through your representative within the first few days of the closing date as any later may give the seller an opportunity to blame you for the damage and as a result, ignore or deny any request to reimburse. Second, even if you document and report immediately, the seller may still refuse to pay and you will need to initiate legal proceedings to seek reimbursement.
