- What is the difference between a Firm and Conditional offer? What does 'Sold Conditionally' mean?
- What are Closing Costs and how much are they for Buyers?
- How do we build a Credit Report starting from scratch? (We are new to Canada).
- What does a Home Inspection include? Is it important to get one done before purchasing a property?
- What is a Seller's pre-listing home inspection? As Sellers should we get one done?
- What do the New mortgage rules (announced Oct 2017, effective Jan 1, 2018) mean and how will they impact buyers and the market?
- I want to invest in real estate but have never been a Landlord before. What is the best advice you can give me?
Q. We have been doing some reading regarding the home buying offer process. What is the difference between a firm and conditional offer? And what does 'conditionally sold' mean? Thanks! - Cindy and Gord T., Oakville
A. Great question Cindy and Gord!
The offer process involves more than drafting the legal paperwork (which requires knowledge and expertise) and presenting the offer to the seller or seller's representative. You will need to work with an experienced and knowledgeable Realtor who knows how to do a proper market analysis so that you offer right price. A good Realtor will also prepare a contract (the offer) structured in a way that ensures you are protected, and get the house you want under the best terms and conditions possible.
An offer which has conditions is called a Conditional Offer.
In a balanced market, offers are usually prepared with a few conditions in place, most often for Financing and Home Inspection, and at times for Home Insurance as well. There can be a number of other conditions too, depending on e.g. the location of the house (subject to approval from the conservation authority re: flood plain restrictions), market conditions (e.g.. subject to the sale of buyer's existing home), circumstances specific to a particular transaction (e.g.. subject to receiving probate in an estate sale), and so on.
If worded correctly, a clause for any specific condition ensures that the buyer has the opportunity to ensure that the condition is met to their satisfaction, within the prescribed number of days. If a condition is not fulfilled (or waived), the buyer has the option to walk away from the deal, and have their deposit returned to them in full without deduction.
When a Conditional Offer is accepted by the seller, the property is 'Conditionally Sold' till the terms of the condition(s) have been fulfilled or waived. Once the conditions are fulfilled or waived, the property is Sold Firm.
In a seller's market, or when a much sought-after property attracts strong market attention, buyers compete to make their offer as attractive as possible. From a seller's perspective, it is ideal to have terms in the contract that favors the seller vs the buyer. Having conditions in the offer is not in the seller's best interest, and offers that have no conditions are generally favored by the seller, other important terms being equal. When an offer is made without any conditional clauses, it is known as a 'Firm Offer'.
When a Firm Offer is accepted, the property is Sold Firm as soon as the seller signs his acceptance of the offer.
Giving up the option to inspect a property prior to purchasing, or any of the other conditional clauses used to protect buyers, may seem like a risky way to move forward. A knowledgeable and experienced Realtor will expertly guide you through the process and show you ways to minimize your risk.
If you have any more questions, or need more details or recommendations please feel free to fill out the form below or call me at 416-712-5134.
Q. What are Closing costs and how much would they be when we buy a house? Thank you. - James M., Toronto
A. This is a topic I always like to discuss with my buyers in advance, so that they are well-informed and therefore, well-prepared. I aim to make the home buying (and selling) experience as stress-free as possible for my clients, and unexpected financial 'surprises' are never welcome! Thank you James, for asking this important question.
Closing costs are a list of charges your lawyer presents to you on the closing date of your home, and are different for buyers and sellers. Many buyers are surprised at the additional costs over and above the price of the home. According to the CMHC and Genworth Financial you should have at least 1.5% of the purchase price for closing costs in addition to the down payment (have around 2.5% to be on the safe side). The costs vary among provinces and cities.
Below you will find a brief explanation of these costs. Please note these are some of the closing costs you may encounter depending on your specific situation. Use this as a guideline then talk with your lawyer who can provide a more realistic estimate for your situation.
Appraisal Fee Generally Required with New Homes
An appraisal provides the lender with a professional opinion of the market value of the property. This cost is normally the responsibility of the homeowner and it can cost between $100 - $300.
Home Inspection Fee Generally Required with Resale Homes
A professional inspection of the home, top to bottom, is for the benefit of the buyer. A home inspection can cost anywhere from $300 - $400 and is well worth the investment. When hiring a home inspector make sure the inspector has liability insurance just in case they overlook something.
Mortgage lenders require a certificate of fire insurance to be in place from the time you take possession of the home. The amount required is generally the amount of the mortgage or the replacement cost of the home. This cost can vary on the property size, amount of coverage, the insurance company and the municipality. The cost can vary anywhere from $250-$600 annually for most properties.
Provincial Sales Tax on Mortgage Insurance
If your mortgage is insured, (CMHC or Genworth Financial), you will be required to pay the applicable taxes on the insurance premium on closing. While the insurance premium can be added to the mortgage amount, the tax must be paid at closing.
Land Survey Fee or Title Insurance Fee
A recent survey of the property is usually required by lenders. If one is not available the cost can range between $600 - $900 for a new survey. In lieu of the survey most lenders today will accept title insurance which can cost considerably less.
Legal Costs and Disbursements
Lawyers and notaries charge fees for their services involved in drafting the title deed, preparing the mortgage, and conducting the various searches. Disbursements are out-of-pocket expenses incurred during the process such as registrations, searches, and supplies.
Land Transfer Tax
Most provinces charge a land transfer tax payable by the purchaser. The amount varies depending on the province. Land transfer tax is based on the purchase price. First time home buyers purchasing a new or re-sale home may be entitled to a refund.
New Home Warranty
In most provinces new homes are covered by a new home warranty program. The cost to the purchaser for this warranty is approximately $600 and should the builder default or fail to build to an agreed-upon standard the fund will finish or repair the deficiencies to a maximum amount. For more information on Ontario new home warranty visit www.tarion.com.
HST is payable on the purchase of a newly constructed homes only. If you are purchasing a new home make sure you know who pays this, you or the builder. On the offer the purchase price will say "Plus HST" or "HST Included" and who gets any HST rebates. Many builders have included this cost into the purchase price so the buyer does not have to come up with it at closing.
An estimate should be made for closing adjustments for bills the seller has prepaid such as property taxes, utility bills, and other charges. Any bills after the closing date are the responsibility of the purchaser. A lawyer will let you know what they are once the various searches have been completed.
If you have any more questions, or need more details or recommendations please feel free to fill out the form below or call me at 416-712-5134.
Q. We are newcomers to Canada. We are told we need to have a 'good credit rating' for everything - to get a loan to buy a car, to get a credit card and even to lease a house. However, being new to Canada, we have no financial history here and have no credit score. How can we quickly build our 'credit report' starting from scratch? Thank you. - Omar & Aisha F., Mississauga
A. Thank you for your question Omar & Aisha. It would be my pleasure to explain this in detail for you.
Starting a new life in a new country is exciting, but not without it's challenges. One of the most important things you can do to safeguard your financial future in Canada is to build a strong Beacon score / credit score and history. Beacon score is the same as a credit score. You are absolutely right - it is critical to start establishing your credit history as soon as possible.
Basically, different lenders will use your credit score to determine how reliable you are to lend money to. A high credit score will be looked upon more favorably and you will get a better interest rate on your loan, as well as be approved for a higher amount. This can translate to thousands of dollars in your favor - so keeping a close eye on your credit history and credit score is worth big money!
Your credit score and history will be reviewed every time you apply for a car loan, mortgage to buy a house, or any other kind of loan. Landlords will also want to review your score and history before they accept you as a financially responsible tenant.
How to build credit:
So here's where it gets interesting. In order to build a credit history, you need to first borrow money, get a credit card, or other loan. However, the catch is that to get a loan or credit card, lenders want to see a strong credit score!
Here's how you can overcome this challenge:
- Apply for a secured credit card: The easiest way to build a credit history in Canada is to get, and responsibly use, a credit card. If you do not get approved from your bank, ask them to give you a secured credit card, where you give the issuer a deposit. It is sometimes a bit easier to qualify for credit cards from stores like The Bay or Canadian Tire. Using your credit card regularly and making payments on time, every time, will help you establish a strong credit history. IMPORTANT TIP: Once you get a credit card, use it. Use it for buying your coffee, groceries, gas...everything. Having a credit card that is never used will not help build your credit. However, make sure you pay it off every month to keep track of your financials, which is critical when you are new to the country and trying to get established.
- Avoid multiple credit cards: We talked about how important it is to get and use a credit card to build credit. However, do not rush out a get several credit cards in an attempt to build your credit faster. Every time you apply for a credit card, there is a credit enquiry into your file, which negatively impacts your credit score. Also, having several cards may tempt you to spend more than you can pay off, and late payments can have a terrible impact on your credit score.
Get separate credit cards for both spouses/partners: Both spouses or partners should apply for their own separate credit cards, not be supplementary card holders. This will create a credit history for both, and both spouses/partners having a strong credit report will be extremely beneficial when you apply for a mortgage to buy (or lease) a house.
Establish good financial habits: Develop and maintain sound financial management skills. Pay all your bills in full and on time, every time. This includes utility, insurance, phone and other bills. Unpaid bills go to collection agencies, which can dramatically hit your score. With regard to your credit card bills, make sure you pay at least the minimum balance each month, and if you must carry a balance, never let the balance owed exceed 80% of your total limit.
- Open a regular or high-interest savings account: If you show a bank or lending institution that you can save money, they may trust you with small lines of credit or credit cards. ADDED BONUS: The Tax-Free Savings Account is a good way to take advantage of some tax-free savings.
For important information on how to build credit in Canada, how to better understand how lenders and landlords review your score, what makes up your credit score and on the importance of keeping a close eye on your credit report to prevent fraud, read more here.
If you have any more questions, or need more details or recommendations please feel free to fill out the form below or call me at 416-712-5134.
Q. What does a Home Inspection include? Is it important to get one done before purchasing a property? Thanks. - Sean B., Oakville
A. When buying a house, Buyers have the option of getting a home inspection done on the property. The most important reason is for peace of mind, and also to become aware of any serious deficiency in the house in order to make an informed decision. I generally always recommend getting one done, although depending on the market, there are times when not putting a condition of home inspection in the offer can give Buyers a better chance of getting the property. (Important: There are ways around that to ensure Buyers have the opportunity to get a home inspection done, even if they do not include it as a condition in the offer. I'd be happy to explain how).
In a typical home inspection, the home inspector does a detailed visual inspection of the property (without looking behind finished walls), and provides a written report on his findings. However, good inspectors have instruments which allow them to e.g. detect moisture levels in basement walls, infra-red cameras that can reveal deficiencies etc.
What does a home inspection include? Well, that depends on whether you are getting a detailed Full pre-purchase inspection or a 7-point Insurance inspection done. The difference? The Full inspection is more detailed, takes 2 to 3 hours (or even longer) depending on the size of the house, and Buyers are charged accordingly. The 7-Point inspection covers 7 major areas of concern (which is information the insurance companies will also need), is usually comepleted within an hour, and costs less.
The items usually covered in a Full Inspection by a thorough, qualified home inspector are:
- Roof, vents, flashings, and trim
- Gutters and downspouts
- Skylight, chimney and other roof penetrations
- Decks, stoops, porches, walkways, and railings
- Eaves, soffit and fascia
- Grading and drainage
- Basement, foundation and crawlspace
- Water penetration and foundation movement
- Heating systems
- Cooling systems
- Main water shut off valves
- Water heating system
- Interior plumbing fixtures and faucets
- Drainage sump pumps with accessible floats
- Electrical service line and meter box
- Main disconnect and service amperage
- Electrical panels, breakers and fuses
- Grounding and bonding
- GFCI's and AFCI's
- Fireplace damper door and hearth
- Insulation and ventilation
- Garage doors, safety sensors, and openers
- Attic insulation and check for mold or Vermiculite
- and more, depending on the house
The 7-point Insurance home inspection covers:
1 - Foundation for leaks and structural anomalies
2 - Furnace for operation and age and condition
3 - A/C for age and condition, operation if temperature allows
4 - Plumbing for KITEC and Lead or Galvanized
5 - Electrical main panel for Safety, check for Aluminum or Knob & Tube
6 - Attic for mold or Vermiculite
7 - Roof for condition of shingles
If you have any questions, or need more details please feel free to fill out the form below or call me at 416-712-5134.
If you want to learn more about Seller's Pre-Listing Home Inspection, please scroll below.
Q. What is a Seller's pre-listing home inspection? As Sellers, should we have one done? - Mike and Jen K., Burlington
A. Great question Mike and Jen - this is a question that I'm being asked increasingly often.
So as a home Seller, you want to take all necessary steps (within reason) to:
- get maximum possible price for your property
- have a quick, minimum stress sale
- minimize (or eliminate) negotiations over deficiencies in the house
A Seller's pre-listing home inspection is one of the steps to facilitate this. (Feel free to contact me regarding the other necessary steps to achieve best results).
In a typical home inspection, the home inspector does a visual inspection of the property (without looking behind finished walls), and provides a written report on his findings. In a Seller's pre-listing home inspection the home inspector will:
- show you what the Buyer's home inspector will see when he inspects the house
- suggest repairs that will help sell your house for top dollar
- advise you on costs for repairs and / or upgrades
- find major items like Vermiculite Insulatation, Knob & Tube Wiring and Structural Problems (which can become insurance issues for the Buyers and jeopardize the deal)
What is the benefit to Sellers to get a Seller's pre-listing home inspection done?
- The inspection gives the Sellers an opportunity to assess the repairs (if any) needed, so they can make informed decisions based on facts and numbers regarding which repairs or upgrades will give them the highest return. Once the important repairs have been made, the chances of Buyers coming back to neotiate price downwards, is minimized.
- Many good home inspectors will come back after the repairs have been done, to do a revised inspection. Having a Seller's pre-listing home inspection available for Buyers to review, gives them the confidence to move forward with an offer without a condition for home inspection, which is of course, of benefit to the Seller. (Some home inspectors will offer a free return consultation with the Buyer of the house. This can be an attractive incentive for potential Buyers).
- A house that has a clean bill of health (as indicated by the home inspection report) will also attract more Buyers to the house and this will, of course, push the final selling price up even higher.
Q. What do the new mortgage rules (announced Oct 2017) mean and how will they impact buyers, sellers and the market? - Kelly and Rob K., Oakville
Thank you for your question Kelly and Rob - this is a topic of hot discussion (and speculation) these days and as usual, there are facts, and rumours, flying around. I have sourced reliable information to be able to answer your question as informatively and as factually as possible.
The Office of the Superintendent of Financial Institutions (OSFI) released new guidelines for the mortgage industry which will be official as of Jan 1, 2018, which include a requirement to 'stress test' ALL borrowers - those with insured AND uninsured loans.
Although these new regulations do provide a much-needed cooling of an over-heated market especially in Vancouver and Toronto, these new regulations also present new challenges for both borrowers and lenders in Canada.
What is a Mortgage Stress Test?
A mortgage stress test determines if home buyers will be able to continue making their mortgage payments if interest rates increase. This ensures that Canadians are not borrowing more than they can really afford.
What is an Insured Mortgage?
By law, borrowers with a down payment of under 20 per cent for a home must purchase mortgage insurance, since they are considered high-risk. The borrower must pay a premium for this insurance which protects the lender in case the borrower defaults on his loan.
Borrowers who put down 20 per cent or more down payment on their house purchase, do not need to purchase mortgage insurance and are 'uninsured' borrowers.
Changes under the NEW RULES
Prior to Oct 2017 only a portion of home buyers needed to undergo a mortgage stress test - usually only those home buyers who took a riskier high-ratio insured mortgage. Among the major new rules is a requirement to stress test insured AND uninsured borrowers.
According to the Bank of Canada, the big banks currently have an average five-year posted mortgage rate of 4.89 per cent. The stress test is designed to assess a borrower's financial situation by assuming they would have to pay back the loan at the posted average — not whatever lower rate they were able to negotiate. So under OSFI's new rules, borrowers would be stress tested at either the five-year average posted rate, or two per cent higher than their actual mortgage rate — whichever one is higher.
In practical terms, the stress test would mean that a potential buyer of a $1 million home with a 20 per cent downpayment would see their purchasing power knocked down by about 15 per cent, Bank of Montreal economist Doug Porter estimated.
TD Bank economist Brian DePratto says, "On balance, these changes should help enhance the resilience of the Canadian banking system in a rising interest rate environment."
DePratto estimates that by extending the stress test to all buyers, demand for housing will be depressed by about five to ten per cent, and that there may be a mini-rush to get in before the new rules come into effect in January 2018.
"The ultimate impact on the housing market will depend on the extent to which borrowers will ‘migrate’ to non-federally regulated mortgage lenders that will NOT be subject to the new OSFI rule,” RBC bank said in a press release. “These lenders include provincially regulated credit unions and caisses populaires.
“Our view is that such migration is likely to be material.”
The bank does not expect a 'crash-landing' at all, but instead a more desirable soft landing for Canada’s housing market.
Note: The new stress test rules won't apply to mortgage renewals as long as they are with the borrower's existing lender.
The new mortgage rules will create a busy Nov and Dec 2017 market, but will probably cause a slight drop in demand come Jan 2018, as buyers may need to lower their expectations as they get approved for lower amounts by the federally regulated banks. However, a significant migration is expected by buyers to non-federally regulated mortgage lenders who are not restricted by the new OSFI rules, like credit unions and trust companies, who will grant higher loan approvals, at a slightly higher interest rate.
Considering housing is one of the basic necessities of life, genuine buyers and sellers will continue to buy and sell property. Keeping in mind the steady flow of immigration, relocation within Canada, First Time Home Buyers, an aging baby-boomer population, people wanting to upgrade to a better lifestyle and the high livability index of Canadian cities - there will always be property changing hands, especially in the economically strong Greater Toronto Area.
In my opinion, moving forward, a more stable and steady housing market will be beneficial for everyone.
If you have any questions, need more details, or would like the contact info of a few trustworthy and competent mortgage specialists, please feel free to contact me by filling out the form below or call / text me at 416-712-5134.
I'm always here to help :)
Q. I want to invest in real estate but have never been a landlord before. Some of my friends have been successful, while others tell me horror stories. What is the best advice you can give me? Javed Ahmed
A. Considering the strong Canadian economy, low unemployment rate, lower Canadian dollar, steady immigration and hence increased demand for housing, smart investors are turning increasingly towards the Canadian real estate market, so you are in good company!
However, like any investment, research and a thorough understanding of the process and the product, is imperative.
- Location, Location, Location: Yes, these are the 3 most important considerations when selecting a property to purchase, regardless of future use. As an investor, it is critical to do extensive due diligence (or work with a knowledgeable Realtor) to understand which pocket will be most suitable for your investment dollars. If you are looking to keep a property long term for positive cash flow, then you will need to find a property where the numbers work, but resist the temptation to pay less in a depressed neighbourhood, since it is more likely that the tenants you will attract will be lower income and more likely to default on rent payment. Another important consideration is the area's amenities and features. For example if you are looking to invest in a student housing style property, then you need to ensure that there are universities nearby, there is easy access to transit etc. If you are looking at single family dwellings, then good schools, parks, convenient shopping and commute are going to be important considerations for your potential tenants. If you want to flip the property in a few years, you will also need to consider the neighbourhood's annual price appreciation rate.
- Big Ticket Items: Ensure that items like furnace, air-conditioner, wiring, roof and windows are updated, since if they break down they are expensive to replace. Plus if, for example, the furnace breaks down in the middle of winter, you will be faced with an upset tenant.
- Style of Dwelling: If you are considering a multi-residential dwelling (also known as multiplexes), keep in mind that you will not only be called upon to deal with issues related to the unit itself, but also to deal with disputes between tenants. If diplomacy, peace-making and dealing with disgruntled tenants who don't get along is not your forte, consider hiring a property manager, or perhaps you will be better off investing in single family dwellings.
- Style of ownership: Condominium or Freehold? There is a general misconception that condominium means apartment units. This is incorrect. Condominium or Freehold are different styles of ownership, not styles of housing. There can be condo apartment units, condo townhouses, and even detached condos in gated communities. The advantage of investing in a condo is that many maintenance issues are taken care of, and attractive amenities are offered to the residents, which in turn, attracts good tenants. However, the fee required to be paid for the upkeep and maintenance of these units and common areas are an additional expense to factor in. Freehold is the highest form of property ownership with the least restrictions, and no maintenance fees. However, they can be more expensive to buy than a unit in a condominium complex. You have to work out which numbers work best for you.
- Know the law: The law generally deems the landlord to be the more powerful party, and favours protecting the tenant and the tenant's rights. Familiarize yourself with the Ontario Residential Tenancies Act (or work with a Realtor who is knowledgeable about the RTA). Make sure you take care of your tenants and their rights, or you could face fines and penalties. It is important to know your own rights and responsibilities as well. Click here for a guide to the Residential Tenancies Act.
- Thorough Screening: This is last but certainly not least. In fact I cannot stress this point enough. Over the years, I have recieved 'Photoshoped' credit reports, uncovered fraudulent applications, illegal impersonations, counterfeit credentials and fake references. There are 'professional' tenants who know the Ontario Residential Tenancies Act inside-out, especially the loop-holes, which they use unfairly to their advantage. The only defense a landlord has, is to screen potential tenants extremely carefully before handing the keys of their property over. On a positive note, none of my investor clients have suffered at the hands of such unscrupulous tenants. I admit, I do go into 'Sherlock Holmes' mode and investigate and cross-check everything provided by prospective tenants applying to lease my investor client's properties. If you do the same, you will have a positive leasing experience too.
If you keep the above mentioned 6 points in mind, carefully consider your options and their feasibilty, and follow through ensuring that all the checks and balances are in place, you will have a positive and lucrative leasing experience. After all, good information and careful planning are key to any successful venture, and real estate investment is no different :)
P.S. Click here to download my extremely useful FREE Canadian Mortgage App, which will help you calculate expenses, cash flow, closing costs, land transfer tax, affordability, compare the feasibility of various options side by side, and much more! The best feature of this App is that it automatically updates to incorporate new Canadian rules and regulations related to mortgages, real estate and taxes.