Nunavut Power LIsting

A home is likely the single largest purchase a person will ever make. It is not a decision that should be rushed into. A contract to purchase property places a number of financial and legal obligations on the buyer. It is important to consider these obligations when deciding to purchase a home.  The first thing buyers should consider is whether they can afford to buy a home. 

A suggested guide is to spend no more than 30% of gross annual income each year on the purchase of a home. This figure should cover the payments made on the principal and interest for the mortgage as well as the taxes (p.i.t.). For example, a person who earns $2000 a month before deductions should plan to spend no more than $600 per month on p.i.t. payments.

A suggested guide is to spend no more than 30% of gross annual income each year on the purchase of a home. This figure should cover the payments made on the principal and interest for the mortgage as well as the taxes (p.i.t.). For example, a person who earns $2000 a month before deductions should plan to spend no more than $600 per month on p.i.t. payments.

The down payment

If a mortgage is required to finance part of the purchase price, buyers need to pay a down payment of at least 5% of the purchase price. This should be money you already have. It is generally unacceptable to commercial lenders for you to borrow money to make the down payment. A buyer can put more than 5% of the purchase price down. A larger down payment reduces the total amount of money that needs to be borrowed.

A buyer may have to meet certain Canada Mortgage and Housing Corporation (CMHC) requirements to be eligible to make only a 5% down payment.

Other expenses

The down payment is not the only expense associated with the purchase of property. There are many costs buyers are often unaware of. The following chart indicates some of the additional expenses that may arise.

THE EXPENSE

What are you paying for?
legal expenses     Legal costs in a real estate transaction consist of two main parts - fees and disbursements. Fees are what the lawyer charges for professional services - for doing the work to represent you and protect your interests in the transaction. Fees may vary from lawyer to lawyer. The Law Society has set guidelines for what it views as a fair price for legal fees in various real estate transactions. However, the guidelines are voluntary, and whether a lawyer follows the Law Society guidelines depends on the pricing policies of his or her law firm.  Disbursements are the out-of-pocket expenses that are paid on your behalf. Generally, disbursements will be the same regardless of which lawyer you choose. These costs can include things like...

• registration of the Transfer and Mortgage (buyer’s cost only)
• remove seller’s encumbrances, such as a mortgage, caveat, tax lien or writ of execution from Title (seller’s cost only)
• tax search, Title search and writ search, to ensure that all claims against the land are accounted for
• general file administration costs, such as photocopying, courier charges, long distance telephone or facsimile

• Goods and Services Tax (GST) will be added to legal fees and other services, and the Provincial Sales Tax (PST) on the fee portion.
• Property taxes     It will be necessary to pay the property taxes for the part of the current tax year that the buyer will own the property. For example, if the seller paid the taxes for January to December of one year and the buyer takes possession on October 1 of that same year, the buyer will need to repay the seller the taxes paid for October, November and December.

The buyer may have to pay the mortgage company a tax adjustment or tax credit if the mortgage payment includes principal, interest, and taxes (P.I.T.). This is necessary to ensure that there will be enough money on hand to pay the annual property taxes on the day they are due. The lender can explain how an adjustment or credit is calculated and paid.
property insurance     The buyer has to insure the property against loss in order to get a mortgage. Insurance must be effective on the possession date.

Mortgage insurance    

If the buyer makes less than a 25% down payment, she or he will get a high ratio mortgage. This type of mortgage must be insured to protect the lender, in case the borrower defaults on the loan. The insurance fee is calculated as a percentage of the mortgage amount. It can be added to the mortgage and repaid as part of the monthly mortgage payments or, the full amount can be paid directly to the lender.

Appraisal    

The lender of mortgage money may require an appraisal of the property before approving the mortgage. The lender arranges for the appraisal and the buyer has to pay the cost of having it done.

Mortgage application fee    

If the borrower applies for a high ratio mortgage, the lender may require payment of a fee to process the application for a mortgage. This fee will not be refunded even if the application is refused.

Surveyor’s real property report    

If there is not a current surveyor’s real property report for the property, the buyer may need to have one done. A survey indicates the exact boundaries of the property and any easements. This is important because it will show whether part of the garage, shed, fence or the house itself is located on someone else’s property. Or, a building on someone else’s land may encroach onto the property you want to buy. Either situation can affect the value of the property, and a lender’s decision to give a mortgage on it.

Life insurance on the mortgage    

A buyer can decide to buy life insurance on a mortgage. The insurance will pay the outstanding balance of the mortgage in the event of the property owner’s death. If there are joint owners, insurance may be bought for one or both owners. Disability insurance also may be available.
repair work     The cost of any necessary repairs to the property should be considered.
appliances or furniture     The buyer should consider the cost of major appliances or furniture required for the house. Examples are fridge, stove, dishwasher, draperies and lawn mower.
moving expenses     The buyer may incur moving expenses when moving into the new house.
utility deposits and hook-up charges     The buyer will have to arrange and pay for the utilities to be hooked up and charged to them as the new owners of the property. Utility companies may require a deposit before hooking up services.

Planning ahead

Before beginning to look at property, buyers should have an idea how much they can afford to spend. The buyer’s price range often depends on the amount of money available for a down payment and the amount of mortgage money that can be borrowed. It is also wise for buyers to have some idea of the type of property and features they are interested in. Buyers should identify their own priorities - this may help them to avoid rushing into a contract they may later regret.

The Purchase 

Using a real estate agent

There are advantages to using the services of real estate agents when purchasing property. An agent can show all suitable listed properties available in the buyer’s price range. Normally, buyers will be made aware of a greater number of properties than they would without an agent.
The services of a real estate agent are free to the buyer. Real estate fees are paid by the seller on a commission basis. The commission is a percentage of the sale price.
There is no contract between a buyer and a real estate agent. Buyers are free to change agents, to decide not to purchase, or to purchase unlisted property privately.

Private sales

It is possible to buy property directly from the seller. It is important to take steps to ensure all legal aspects of the transaction are properly handled when buying privately. The buyer may wish to have a lawyer go over or draft the offer or any other documents before signing, to ensure that they are legally sound and contain only the terms the buyer has agreed to.

Inspecting the property

It is important to ask questions about the property before signing any type of agreement, offer, or contract to purchase. Once something is signed, it is often too late. Buyers have the opportunity to inspect the property before agreeing to buy it. Use this time wisely.

Generally, the courts will not protect a buyer who later discovers an inadequacy or flaw in the property that could have been discovered on inspection. If the real estate agent or the seller are asked questions about the property, they must answer honestly. If the answers misrepresent the nature of the property, it may be possible to get compensation through the courts. Some of the things to check beforehand are:
• Is the property worth the price offered?
• What are the yearly taxes, utility and heating costs?
• Are the foundation and building structure sound?
• Are there any problems with the water and sewer systems?
• Do the furnace and water heater work?
• What kind of and how much insulation is in the house?

Buyers who do not know much about houses and who want an informed, objective opinion about the property should contact someone they know and trust who knows about property. Commercial inspection services are also available. Some people will make an offer on a house conditional on obtaining a favourable building inspection.

Buyers should also be aware of the zoning of the property. If a house is in a mixed residential/commercial area, it may be zoned for commercial use. This would allow redevelopment of the property next door as a business or apartments. In addition, if the house has a rental suite, the buyer would want to make sure that the zoning allows the unit to be rented.

Purchasing a condominium

The condominium is a different type of private ownership. The purchaser of a condominium becomes the owner of a specific unit in a multiple unit dwelling, and has the exclusive right to use that one unit. The rest of the property, such as the walks, garden, and swimming pool, is “shared” with the owners of the other units. The buyer has to contribute to the cost of maintenance and repair of these common areas, and carry out other terms of the Condominium Bylaws or Owners' Agreement. There are differences in the law for this type of home ownership. Buyers may wish to seek legal advice before buying.

Buying a home from a non-resident

A person should be careful when buying property in Canada from a person who does not live in Canada. When a person who lives outside Canada sells property located in Canada, he or she may need to pay a tax on all or part of the purchase price. If the seller does not pay any tax that is owing and the buyer did not try to find out if the seller was a non-resident, the buyer may have to pay it.

The purchase of farmland or other non-residential property

Each type of purchase involves its own unique considerations. If considering the purchase of farmland, acreages, commercial, recreational, or rental property, there may be additional things to find out about the property before making an offer to purchase. Buyers should seek advice from a real estate agent or a lawyer to ensure that all the relevant factors are adequately considered.

Planning to build a new home or major renovations to existing properties

When looking to purchase land on which to build a home, have the land inspected to ensure that it is suitable for the type of construction planned. Whether considering new construction or major renovations, it is important to find out if there are any municipal bylaws that may limit the buyer’s ability to do the work. Whether the buyer will be doing all or part of the work or using contractors, it is important to seek legal advice before signing contracts for materials or services. A lawyer assists in drafting contracts that best meet the buyer’s needs and can advise about the best ways of financing the project. The lawyer may also assist in ensuring that the work done is permitted and meets building code requirements and zoning bylaws.