The ABCs of buying a house
Part I: The players
Are you a bagong dating who is thinking of buying your first house in Canada? Are you a long-time renter who is finally taking the plunge into home ownership? Are you a homeowner who has outgrown your current home and looking for a bigger house to accommodate your growing family? Or are you an empty nester who is looking to downsize and buy a retirement home?
There are many different types of house buyers. But regardless of whether this is your first house purchase or your fifth; the same basic issues will confront most types of house buyers.
Once you have made that all important decision to purchase a house, what is your next step? Do you know what processes are involved in buying a house? Should you use a real estate agent? Do you use a bank, a credit union or a mortgage broker? What are the fees involved? What are closing costs? What is CMHC and why should you care what they say?
This article will be in three parts and it will discuss the basic information that all homebuyers need to know before making the legal and financial commitment towards a house purchase. Part One will discuss the professionals that might be involved in the home buying process. Part Two will discuss the Offer to Purchase and the Mortgage process. Part Three will discuss the costs involved in the home buying process.
When purchasing a house, there are many parties involved. You, as the purchasers, will ultimately decide who you want to hire to assist you in the process.
Who are the players?
Purchasers – the process starts with you as the purchasers of the house.
Vendors – the sellers of the house you wish to purchase are called the vendors.
Real Estate Agents – many homes are sold with the assistance of a real estate agent. If you are interested in purchasing a house, you have the option of also hiring a real estate agent to assist you in your search and to prepare the Offer to Purchase. Most real estate agents will not charge you a fee when they assist you to find a house to buy. This is because they will receive their fee from the commission paid by the vendor, once the house is sold. However, there are some real estate agents who will charge the purchaser a fee separate from the seller’s commission. In these cases, the agent will ask the purchaser to sign a commission agreement. If you engage the services of a real estate agent to help you find a house to buy, make sure you ask how they intend to collect their fee.
Mortgage Brokers or Mortgage Specialists
Once you decide to purchase a house, you will need to determine how much you can afford to spend. The decision of whether to go directly to one specific bank or credit union or to shop around rests with you. If you decide to shop around, you can do this on your own or you can hire the services of a mortgage broker. A mortgage broker is an independent professional whose job it is to find you the best possible mortgage. Their fees are paid for by the financial institution, once your mortgage is funded. If you decide to go directly to a specific bank or credit union, you will be dealing with one of their internal mortgage specialists or financial advisors. These professionals are paid by the specific bank or credit union they are employed by.
You will need to hire the services of a lawyer to prepare the mortgage and purchase documents for you. Your lawyer will be responsible for the registration process and the transfer of the title into your name. If you purchase a house that is not listed by a real estate agent and is being sold by private sale, you will also need a lawyer to prepare the Offer to Purchase for you.
Once you have found the house you wish to purchase, it is your responsibility to ensure that the house is structurally sound and that everything works properly. There is no legal requirement for a new homeowner to conduct a home inspection prior to making an offer to purchase. However, if you choose not to conduct a home inspection and you later discover that there are problems with the house, the law will take the side of the vendors because you gave up your chance to do the inspection. The law essentially takes a “buyer beware” position because you take the house in the same condition it was in when you made your offer. The prudent homebuyer will have an inspection done. However, because inspections can range anywhere from $400 to $1000, many purchasers choose to take the risk of not having one done.
If you are thinking about making an offer on a house but you are unsure what the property is worth, you may want to hire an appraiser to conduct an appraisal of the house’s value. This will give you the peace of mind that you are not over paying for the property.
Home Insurance Agent
One of the requirements for obtaining a mortgage is placing adequate fire insurance on the property. This means that the purchasers will have to hire a home insurance agent to provide them with a policy. There are many different types of policies available and it will depend on the type of house you are purchasing; its age; size; location; etc. There are also discounts available on the policies – for example some agencies offer discounts for seniors and most offer discounts if the house has an alarm system installed. Before making a purchase, make sure you canvass the different policies available.
When you obtain a mortgage to purchase your home, your financial institution will offer you mortgage insurance to cover the cost of your mortgage in the event of your death. Keep in mind that if you purchase the mortgage insurance from your financial institution, should you decide to move your mortgage to a different financial institution when it comes up for renewal, the mortgage insurance you purchased is cancelled. You cannot transfer this insurance to your new financial institution. You will need to purchase a brand new mortgage insurance policy (provided you are still healthy enough to qualify).
The alternative to purchasing mortgage insurance from your financial institution is to purchase mortgage insurance or a term life policy from a private insurance agent or broker. This private insurance policy does not care where your mortgage is located and therefore you can transfer it as many times as you wish without cancelling the policy.
Another advantage of obtaining a private insurance policy is the return value on the policy. For example, if you have a $250,000 mortgage from a financial institution and you obtain a $250,000 mortgage insurance policy from them but at the time of your death, there is only $10,000 left outstanding on your mortgage, the financial institution will only pay out your outstanding mortgage amount and not the original policy amount. If, however, you had obtained a private insurance policy for $250,000, your beneficiary will be provided with the full $250,000. After paying off the $10,000 mortgage your beneficiary will still have the benefit of $240,000. There are pros and cons to obtaining a policy with the financial institutions and with an insurance broker. Speak to both professionals to get the information about their specific policies before you make your decision.
The content of this article is not intended as legal advice and is for information purposes only. Should you require legal advice on a specific issue relating to the contents of this article, please seek the services of a legal professional.
Alona C. Mercado is a lawyer practicing in Winnipeg with the law firm of MONK GOODWIN LLP. She was called to the Manitoba Bar in 1999 and the Ontario Bar in 2003. Her preferred areas of practice include wills and estates, committees, real estate and immigration law. Alona can be reached at (204) 956-1060 ext. 233 or firstname.lastname@example.org.