When you buy your first home, you’ll work with your real estate agent and a host of other professionals. Each of the experts listed below will play an important role in protecting your best interests and your legal rights. The work they do will directly affect your financial life for a long time. Choose them with care.
You will need a lawyer with real estate expertise to complete the purchase of your first home.
After your agent, your lawyer is the next most important person on your team. You won’t have to call upon him or her until you’re ready to sign an Offer to Purchase, but you should start your search as soon as you decide you’re going to buy a home.
Your lawyer is responsible for completing all the paperwork associated with your real estate transaction, and for ensuring your rights are protected. Real estate lawyers have unique responsibilities under the law, and perform many complex tasks for you. In the end, however, they have two simple goals: to make sure you legally own the house, and to get all the money into the right hands.
When you pay your real estate lawyer, you’re paying for two things: fees and disbursements. The fee is the amount the lawyer charges for professional services. While doing the paperwork, the lawyer will have to lay out money to search for, file, copy and send documents – these are called disbursements.
Depending on the cost of the home and the complexity of the purchase, most first-time buyers can expect to pay between $1,000 and $2,500 in legal fees and disbursements, combined. Different lawyers charge different amounts, and the fees can sometimes be subject to negotiation. You don’t necessarily want to go with the cheapest lawyer, as that may be a sign of inexperience or other issues. At the same time, you should shop around and find a competitive price, just as you would for any service. Most importantly, find someone you’re comfortable working with. Ask Christina at TorontoProperty.ca for her expert recommendation.
You pay your lawyer’s fees and disbursements on closing day, as part of your closing costs. For more information on closing costs, see Chapter 3.
Your real estate agent supply you with a list of lawyers to choose from. Here at Torontoproperty.ca, we work closely with an excellent firm. You may also want to ask friends and family for referrals. You can also use Google to find lawyers near you.
When choosing a lawyer to handle your real estate transaction, look for lawyers who specialize in real estate, and then follow the same procedures you used when selecting a real estate agent.
Make a list of three lawyers you like, and call to get a quote on the fees they charge, along with an estimate of disbursements. Ask for references. Consider asking if the lawyer is familiar with the type of property you’re looking at, whether that’s a co-op, a condominium, a new build, a piece of farmland or a property alongside a body of water, just to name a few.
Most importantly, you’re looking for someone you can trust, and who will be available to you when you have legal questions. Trust your gut.
When you’re satisfied you’ve found the right lawyer for your team, you may simply hire them by way of a verbal agreement – no documentation required – or the lawyer may require a formal written retainer. Your real estate agent will send them the Offer to Purchase and the Status Certificate when you’re ready to buy.
Lawyers have a lot of responsibilities in a real estate transaction. You’ll probably only talk to your lawyer once or twice during the process, but they will do a great deal of work behind the scenes. If you want to know exactly what you’re paying for, here’s a complete list.
If you are like most Canadians, you will need to get a mortgage to pay for your home. In Toronto, you can get a mortgage directly from a lender (like a bank or a credit union), or you can use a mortgage broker who will deal with multiple lenders on your behalf. This decision is not clear-cut, and it’s important to understand your choices. In this section, we will help you understand the difference between your two options.
Regardless of which option you choose, you’ll be in good company. In 2016, 47 percent of Canadians went to a bank or other lender to get a mortgage, while 43 percent used a mortgage broker, according to Mortgage Professionals Canada.
Simply put, a mortgage broker acts as the middle-man between you and the lenders. Their job is to find a lender that will give you the best mortgage terms and interest rate for your specific situation.
The mortgage brokering industry is regulated by the provincial government under the Mortgage Brokerages, Lenders and Administrators Act. A mortgage broker or agent is licensed under this act.
The licensing process is handled by the Financial Services Commission of Ontario, on behalf of the Government of Ontario. To get a licence, a student must first complete an approved mortgage agent education program and then pass an exam. If successful, the student becomes a mortgage agent and can work under the supervision of a mortgage broker. To become a mortgage broker, the agent must upgrade his or her education and pass a second exam that shows they meet Ontario’s mortgage broker qualifying standards. A mortgage broker can work independently, open a brokerage and oversee mortgage agents.
For the purposes of this guide, we’re going to use the term mortgage broker to refer to both mortgage agents and mortgage brokers.
Licensed mortgage brokers or agents connect you with lenders and negotiate on your behalf to the get best possible deal. They do the comparison shopping, and their job is to find the mortgage that is right for you.
Mortgages can have many different features, and interest rates can vary significantly between lenders. If you only shop at one bank, you’ll only have access to the features and interest rates on offer at that bank.
By contrast, a mortgage agent or broker studies the market and can work with many wholesale lenders, from big banks to small, private “B” lenders who are more likely to take on high-risk mortgage applicants. As a result, a broker can be a good choice for a non-traditional home buyer or someone with an imperfect credit history.
Mortgage brokers work on a tiered system, which means they get access to different mortgage interest rates depending on how much business they bring to an individual lender. This could influence their decisions about which lender to recommend. Further, not all lenders will work with a mortgage broker. Among Canadian banks, for example, only TD and Scotiabank will work with a mortgage broker who is representing you in a transaction. This means they don’t have access to mortgages at other banks, and those mortgages might be a better fit for you.
If you’re self-employed or have a poor credit history, a mortgage broker will help you find lenders that will work with you. If you’re looking for a portable or transferrable mortgage, your broker will only look at lenders who offer these types of features.
Mortgage rates are not set in stone, and lenders who want your business may lower their rates to get it. You are also free to negotiate on mortgage interest rates yourself, but your mortgage broker will likely have more experience in conducting these types of negotiations.
It is important to understand how mortgage brokers are paid, because while they are free to work with multiple lenders, their fee structure may influence their objectivity.
Mortgage brokers can be paid several ways: by commission, with trailing fees, and with bonuses. The money to pay the broker ultimately comes out of your pocket, but the payments are typically made by the lender, not by you.
A mortgage broker’s commission can range from .5 percent to 1.2 percent of the loan amount, depending on the type of mortgage they sell you. The commission will typically be higher when the broker sells you a more lucrative mortgage. For example, a lender makes more money on a 10-year fixed-rate mortgage, and therefore offers a higher commission to the broker.
Mortgage brokers can also be paid by trailing fees. Usually this means a lower initial commission, followed by a smaller “trailer fee” that is paid each year until the mortgage expires. Lenders also sometimes offer bonuses and other incentives to encourage mortgage brokers to do business with them.
Always ask your broker how he or she will be paid. While payment can be complex, it is important for you to understand, and a good mortgage broker will take the time to make sure you know where your money is going.
Your real estate agent may be able to give you a list of recommended mortgage brokers to choose from, and you can also ask friends or family for referrals. A Google search will also turn up mortgage brokers in your region.
When choosing a mortgage broker, use the same tools you used in hiring a real estate agent or a lawyer.
When your research is complete, select a few candidates and call for a brief interview. Here are some questions to ask:
Call the broker’s references and talk to them. The goal is to find out whether the broker is honest and trustworthy. Ask whether the broker explained the loans in an easy-to-understand way, and whether he or she was easy to reach with questions and concerns. Ask if the broker locked in the rate that was promised. Most important, ask if any unexpected fees popped up at the last minute – charges like this are a red flag.
When you’re satisfied you’ve found the right mortgage broker for your team, you need only make a verbal agreement to work together. Once you’ve started the pre-approval process, however, you are committed to following through with your broker as your representative.
The name for the person in this position can vary, but generally speaking, a mortgage specialist is a person who works for a lender processing mortgage applications. If you walk into a bank or a credit union and ask to apply for a mortgage, you’ll find yourself sitting down with the mortgage specialist.
This is the traditional method of getting a mortgage: you deal directly with the bank giving you the loan. Canadians with a long-term, full-time job, a good credit score and a solid down payment are most likely to succeed in getting a mortgage at a bank. Mortgage specialists who do a high volume of business for the bank will often be able to access the very best rates for these conventional mortgage clients.
Banks and credit unions are subject to tight federal and institutional regulations, however, and are less likely to provide mortgages to non-traditional applicants (like self-employed people), and those with lower credit scores.
Mortgage specialists will be experts in the mortgage products available at the bank or credit union where they work, but they will not have access to mortgage products at other banks. If you’re looking for a portable mortgage and the bank you choose doesn’t offer that option, you’ll have to forgo portability or go to another lender.
You may also choose to apply at multiple banks and credit unions to see which of them will give you the best rate. Normally, when credit bureaus see multiple hard inquiries on your credit report, they assume you are seeking additional credit from multiple sources and your credit score falls as a result.
For this reason, it is very important to submit all of your mortgage loan applications at one time. If you make all your applications in a 14-day period, the credit bureaus will understand that you are shopping for the most competitive mortgage rates, and the multiple hard inquiries on your credit report won’t have an unduly negative influence on your credit score.
It is relatively easy to understand how a mortgage specialist is paid. They are employees of the bank, and they draw a salary. They may also get a bonus for hitting sales targets, and some may work in a commission structure as well. But there can be no confusion about where the specialist’s loyalties are: they are there to help you, but they’re working for the bank.
If you have a long-term relationship with a single bank, you’ll want to contact that bank and see what the mortgage specialist there will offer you. There can be advantages to working with your current bank – for example, they will have much of your financial information on file already, so the process may be faster.
Some real estate brokers work closely with mortgage specialists at dedicated lenders, so consider asking your agent for a referral. Your family or friends may also be willing to share their experiences with a local mortgage specialist.
Mortgage specialists are employees and their work is regulated by the bank, which is, in its turn, heavily regulated by the federal government. As a result, you’re less likely to encounter aggressive sales tactics and false promises (though recent reports suggest that Canadian bank employees are under significant pressure to sell, as well). Your best defense is to seek out a mortgage specialist you trust, and ask questions when he or she is presenting your mortgage options.
Before you purchase your first home in Toronto, you’ll want to have it inspected. This will give you some protection any problems that might not be readily apparent to you (such as foundation defects or outdated wiring), and it will serve as an introduction to owning and operating a home.
Home inspectors are not regulated in Ontario, which means anyone can call themselves a home inspector.
However, in April 2017, the Government of Ontario passed a new piece of legislation to regulate home inspectors, introduce minimum standards for home inspection reports and require inspectors to carry insurance.
It is not yet clear when the new rules will come into effect. In the meantime, first-time home buyers should consult with their real estate agent before selecting a home inspector. Top agents will have a roster of inspectors they trust, and can arrange an inspection on short notice. Here at TorontoProperty.ca, we have a long list of trusted inspectors we work with.
If you must hire a home inspector yourself, use the same method you used for other professionals on your team. You can also canvas friends and family for recommendations, or conduct a Google search. Once you have a few names to work from, do some background research.
When your research is complete, select a few candidates and call for a brief interview. Once again, your goal will be to find a home inspector you can trust. Here are some questions you can ask:
Call the inspector’s references and talk to them. Ask whether the inspector was thorough during the initial inspection, and whether he or she missed anything that ought to have been caught. Keep in mind, it’s not possible to see everything during an inspection – many problems are invisible even to a trained eye. Use your best judgment.
Your home inspector should give you a solid picture of the home you are buying. During the visit, a good inspector will explain how the systems of the home should be working, and point out any potential problems. Inspectors are trained to spot issues that may not be visible to the untrained eye, from signs of water damage to termite infestations. Some inspectors offer additional services, such as an infrared camera to identify moisture problems that are invisible to the naked eye.
In a buyer’s market, it is common to make the sale of a home conditional upon inspection. This means that if the inspector finds a significant problem with the home, the price might be re-negotiated to account for the cost of fixing the problem. Alternatively, the prospective buyer is free to withdraw the offer entirely.
In 2017, however, Toronto’s market is a very hot seller’s market. It is all but unheard of for potential buyers to request that an offer be conditional upon inspection. It is still an option, of course, but adding this condition makes it much less likely that a seller will accept your offer,especially if you’re competing in a bidding war. Most Toronto buyers today will make an offer without this condition.
But in many cases, especially if the seller is hoping to spark multiple offers, he or she, will obtain a pre-listing home inspection. The results are then provided to potential buyers in lieu of an inspection. Pre-listing inspections are usually reliable when the home inspector is an unbiased third party working for a reputable company. The absence of a pre-listing inspection might be a red flag, but it may also simply be a sign that the seller or agent are pinching pennies. Your agent should be asking questions.
If you’re serious about putting an offer on a home, there is usually time to conduct a home inspection before doing so. You will not likely be able to use the findings to negotiate a lower price on the home, but you will benefit from knowing what work needs to be done. Once you have paid for an inspection and disclosed the results to the seller, they are legally bound to disclose the results to any other potential buyers as well, regardless of whether or not you decide to put an offer on the house. So if the seller refuses to have an inspection done at all, be especially cautious.
Be sure to accompany your home inspector as they make their way through the home. A good inspector will explain how to operate and maintain the home. They can give you a wealth of information about the different systems and components in the home, explaining how it works, what condition it’s in, what kind of maintenance it needs, how long it will last – and under what circumstances it might stop working. All of this advice will help you get the most out of the systems already in place in your home.
From a structural and mechanical point of view, there are few perfect houses. Don’t be disappointed if the inspector points out numerous things that need to be fixed, maintained or monitored. Most of these items will be a minor, normal part of home ownership. Only a small percentage of homes have significant structural or mechanical deficiencies.
In Toronto, a standard home inspection costs $300 to $600. The size of the home typically dictates the cost of the inspection, with larger homes costing more. In addition to the standard inspection, many companies offer additional services like infrared water damage detection, mould-sniffing dogs and even appliance warranty checks. All of these services come at an additional price. Your real estate agent can advise you on what type of inspection should be done in your specific circumstances.