Buying a Home? What You Need to Know (Brochure)
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Purchasing a home can be an exciting and overwhelming process. To help with the stress of purchasing a new home, there are certain steps you should be aware of. The first step is to decide on a property. Once you have a property in mind and want to make an offer, your lawyer or realtor will draft an offer to purchase. The offer will include things such as purchase price, deposit, closing date, and the necessity that certain conditions be met prior to sale such as:
- Home inspection
- Water test
- Property is insurable
- Approval for financing
The term buyer beware generally applies when purchasing a new home. As such, it is important to ensure your purchase and sale agreement provides options for you in case any defects are found prior to purchase. It is also a good idea to hire a home inspector to review the property prior to purchasing.
To ensure the property is ready for purchase, your lawyer will review the following:
- Title to the property
- Zoning information
- Any judgments or liens against the property
Once he/she has ensured good title, your lawyer meets with you to sign the required documentation. There are also certain costs over and above the purchase price. These costs include:
- Deed transfer tax (varies between 0.5%-1.5% of purchase price depending on municipality)
- Recording fee of deed and mortgage
- Location certificate or title insurance, depending on the requirement of any mortgagee
- Lawyer fees
Most people purchasing a home will require a mortgage. In getting a mortgage, you are giving the lender a recorded interest in your home which will be released when the mortgage is paid off. As the Mortgagor, you promise to do such things as make regular mortgage payments to the lender, pay your taxes, and protect the security by ensuring the property remains in good repair and remains properly insured. As the Mortgagee, the bank promises to release its interest in the property once the full amount of the mortgage is paid.
In applying for a mortgage there are generally two steps: (1) pre-approval and (2) appraisal. In order to be pre-approved to receive a mortgage the bank will want to assess your credit worthiness to ensure you are able to handle the debt. Once you have found the home you intend to purchase, the lender may want to ensure the property is worth at least the value of the mortgage. If so, the value of the home is ascertained through an appraisal that you will pay for.
The financial institution you choose to mortgage your home with will generally require the following documentation from your lawyer:
A Location Certificate – Outlines property boundaries. Vendors may provide a Location Certificate to the Buyer however, as the Vendor does not warrant the boundaries of the property, it is best to hire a Surveyor to prepare this document.
Title Insurance – Insures Buyer and financial institution from defects which may arise such as water potability problems, encroachments and title fraud.
Insurance – Required for your new home on closing. The financial institution should be named as Mortgagee on the insurance. The policy must cover at least the amount you are borrowing.
Water Test – If water is not provided by municipal services, a current water test (within 3 months) is required by the financial institution.
Taxes – Your lawyer will ensure property taxes are paid to date.
Judgments – If you have any judgments against you, they will need to be satisfied before mortgage funds are disbursed.
Once the bank is satisfied the above conditions have been met, it will disburse the funds required to your lawyer.
A construction mortgage is a special mortgage used when financing the building of a new home. The bank will generally require the same documents on closing as for a regular mortgage, but the funds are released in a number of advances (usually 3 or 4) rather than in one lump sum. Essentially, as the value of the property increases (construction moves along) more money is advanced.
Prior to each advance, your lawyer will ensure no liens have been recorded against your property.
If you are building in an area without municipal services, additional documents may be required, such as:
Septic Installation Form – Provided by contractor once septic system is installed.
Well Drillers Report – Provided by contractor once drilling of well has been completed. This may also include a water test.
Occupancy Permit – Issued after a building inspector has inspected your home and is satisfied it meets the required building codes.
Survey and Location Certificate – Provided by a professional land surveyor.
Title Insurance – Ordered through your lawyer.
This memorandum is not intended to contain advice specific to your situation. Your use of this memorandum should be reviewed with your legal adviser.