You’re buying a home!
Purchasing a home can be extremely exciting, but also pretty scary. It’s not something you do every day. At Parkland Law, we understand this and promise to do everything we can to lessen your headaches and make sure your experience is a happy one. We will explain every part of the process to you and are available always by phone or e-mail. You will be dealing directly with a lawyer rather than an assistant. We won’t put you on the back burner until closing. Our first meeting, which will be shortly after the conditions of your deal are firm (or before if you want) will be an introductory meeting to go over your agreement, obtain information, explain the process to you, and answer any of your questions. Usually a second meeting will involve signing the mortgage.
When is a Lawyer Required?
You will need a lawyer to represent you from the legal end of things when purchasing a home.
If you are using a REALTOR®, he or she will do most of the preliminary work involved in the agreement to purchase your house. If and when you are ready to place an offer on a property, your REALTOR® will sit down with you and draft an “Agreement of Purchase and Sale” (your offer).
Once you and the seller have agreed on the terms of the sale and both sides have signed the Agreement, and once the “conditions” (such as confirming your financing, home insurance, and carrying out your inspection) have been satisfied, the Agreement becomes one that is legally binding.
It is at this point that your lawyer will get involved. One of the conditions in your Agreement is that your lawyer has a certain number of days to review the agreement from a legal standpoint and if there are any problems, they will be dealt with.
If you and the seller are not using a REALTOR® (a “private deal”), you will still need a lawyer, who will sit with you and draw up an agreement of purchase and sale (your offer). It is not usually a good idea to attempt to do this on your own, even with available forms from the web, as your particular offer must be carefully designed for your needs and a lawyer can ensure that you are protected as much as possible.
What Will Your Lawyer do for You?
Among many other things, your lawyer is responsible for ensuring that the legal title for the property is good and that you get what you contracted for. As well, your lawyer will also guide you through the terms and conditions of the Agreement of Purchase and Sale, and ensure that title is properly changed from the vendor to yourself (the Purchaser).
If you are getting a mortgage, your lawyer will also prepare the mortgage based on the bank’s or mortgage company’s instructions.
What is a Mortgage?
Many people tend to take mortgages for granted. From one aspect, a mortgage is merely a contract allowing you to borrow money, while at the same time using your property as collateral.
From a legal standpoint, a mortgage is a document that transfers or “conveys” an interest in your property. After you have signed the mortgage, the bank actually owns a legal interest in your property. You will own what is called an “equitable interest”. This is of course why we say that a property owner has equity in their house. Under the terms of the mortgage, you reserve a right to have that legal interest given back to you when you have paid off the mortgage, by way of a Release of Mortgage.
You should also keep in mind that most lenders allow you to make extra payments during the course of the mortgage in order to pay it off sooner. The details of these payments will be contained in the mortgage.
Do I Need a Survey?
It is not usually necessary to obtain a full survey of your property, which can be expensive, in a normal house purchase. You should, however, confirm that the house, garage and driveway are actually within the boundaries of the lot. If they are not, you may not be able to enjoy the property to the extent that you thought would be purchasing. You could also be encroaching on another person’s property and affecting their enjoyment of their property.
If you are getting a mortgage, your bank will also want to make sure their interest is protected. One way you and the bank can feel more comfortable is to see an existing location certificate or surveyor’s certificate to ensure that the house: the house, deck, walls, driveway, pool, detached garage, other buildings, etc, are indeed within the boundaries of the lot. This is not a full survey, but only references the boundaries of your lot. The seller is not obliged to give you one of these, but may provide one as a courtesy.
You can then compare that previous location certificate to your observation of the property now. Instead of requiring you to have a new location certificate prepared, some banks will accept a Statutory Declaration from you stating that the property remains the same now as compared to the location certificate. While this will be at no cost to you, relying on old location certificates can be dangerous. If anything is wrong with an old location certificate, you do not have any legal recourse against the surveyor for a mistake, since it was not you who ordered the survey. Further, as you are not yet the owner, you are not perfectly familiar with the physical property, so you may not notice changes in the property since the original location certificate was drawn up.
If a location certificate does not exist and you need one for your mortgage, you can do one of two things: order a new location certificate or get title insurance.
What is Title Insurance?
As it sounds, title insurance exists to insure against risks to the “title” of your property, that is, the extent of your ownership (as opposed fire insurance, which insures your physical assets). Such risks include incorrect boundaries, errors in a survey, zoning problems, work done by a previous owner without obtaining a building permit, some conflicts with the municipality over taxes, and mortgage fraud. Faced with the possible cost of the unknown problems which may occur, the one-time cost of purchasing title insurance may be a good idea. Every property lawyer has at least one horror story that would have been prevented with a title insurance policy.
The cost of title insurance is much less than obtaining a new location certificate and will depend on the value of the property. For instance, for one title insurance company, for a house valued between $200,000 and $500,000, the cost is $279 (no tax). Getting title insurance will often mean your lawyer will not need to obtain a tax certificate, which saves you a further $75. It is a one-time premium and the owner’s portion of the policy will protect you as long as you own the home. The mortgage company portion will protect the mortgage company for as long as the mortgage is in effect. (i.e., you would not need a new policy when your term renews, only if there is a new mortgage.)
We will discuss whether title insurance is appropriate for you. If you wish to proceed with title insurance, we will take care of obtaining your policy. We do not receive any benefit whatsoever from any title insurance company for ordering a policy.
The Land Registration Act
Nova Scotia has now implemented a new process for registering property-related documents. If you are selling or refinancing your property, you may have to transfer or “migrate” your property to the new Land Registration System. Only a lawyer authorized by the province can do this.
If you are purchasing a property, you will not have to worry about migrating that property as it will already have been done by the seller. As well, a title search is no longer required to be done by your lawyer, with the exception of a quick search to ensure that the property has been migrated properly.
Each town or municipality in Nova Scotia. For example, Halifax Regional Municipalityhas rules with which property owners must comply regarding things like how they can use their property, driveways, frontage, etc. These are called land use by-laws (zoning). Your new property will have a zoning designation associated with it, such as R-1 or R-2. Your lawyer will tell you how the property is zoned and will outline the various uses permitted by that designation under that particular by-law in that particular area. For instance, if you want to run a business out of your home, it is important to know what types of business are permitted.
If you are a member of the Canadian Forces, we are registered with Brookfield Global Relocation Services. If you qualify for their services, just give them the name of our real estate lawyer, Russ Quinlan.
What Will My Home Cost Me?
As a buyer, your main question is probably, “How much will all this cost me?”
Unfortunately, real estate agents, mortgage people, and lawyers all seem to speak different languages when it comes to terms like “down payment” and “closing costs”. To simplify it, your lawyer will want one bank draft from you before closing. This amount will include your down payment, adjustments, and closing costs, all mixed together. It may be simpler to think of this amount as the difference between what the mortgage company will give to the lawyer and what it will cost to close.
It’s important to know that a “down payment” is not an amount you have to pay the bank (although they will want to know it is in your bank account so that you can afford the house). It is the difference between the value of the house and what the bank will disburse to the lawyer. For example, if the bank says they want you to have “5% down” or a 95% mortgage, that means, for a $200,000 house, they will give the lawyer $190,000 in cash. The rest is made up by you (the draft we just mentioned).
Closing costs are those expenses or costs that the purchaser is responsible for paying that are over and above the base purchase price of the house. When deciding how much you want to offer on a property, you should also think about the closing costs that you will have to pay.
Some of the usual closing costs (and for simplicity, we will include the adjustments such as taxes and fuel here, since they will increase your cost), are:
- Harmonized Sales Tax (HST):
- HST is not usually paid on a used residential home purchase, with some exceptions. You will usually have to pay HST on the purchase of a building lot or a newly-built house. This amount is usually included in the purchase price. If you have any questions about whether HST is involved, consult your agent or lawyer.
- Deed Transfer Tax:
- This is usually the largest of the closing costs. Depending on the municipality in which you are purchasing, the deed transfer tax will be calculated by multiplying the purchase price (before HST, if any) by the applicable tax rate. In Halifax for example, the rate is 1.5%. If you are purchasing in another county or municipality, your lawyer or your agent can provide you with the applicable tax rate.
- Recording of Documents:
- The deed transferring title to you must be recorded in the Land Registration system. If you are getting a mortgage, this will have to be recorded as well. Currently, the cost of recording a document is $85.18 per document.
- Property taxes:
- In Nova Scotia, property taxes are billed twice a year and are paid in advance. It is generally accepted practice to make sure the property taxes for your new home are paid up-to-date upon closing. Your lawyer and the seller’s lawyer will make an adjustment to the purchase price so that the seller will be responsible for taxes to the date of closing, and you will be responsible for taxes from that point on. The amount of the adjustment to the purchase price will depend on the date that you close of course.
- Fuel Oil Adjustment:
- The Agreement will usually state that fuel will be adjusted on closing. This will usually mean that the seller will fill the oil tank just before closing and the purchase price will be increased by the cost of a full tank (this will be the current cost of oil per litre at the time of closing multiplied by 850 liters and adding on 5% taxes)
If there is a propane tank, the owner may also leave a full tank of propane and the cost of this will be calculated in a similar way.
- Title Insurance
- As discussed above.
- Condo Fees
- If you are buying a condominium, we will adjust for the sellers’ prepaid monthly condo fees.
- Lot or Pad Fees
- If you are buying a mobile home, we will adjust for the sellers’ prepaid lot fees.
- Legal Fees & Disbursements:
- Give us a call for a quote.
Your lawyer will have all these figures clearly set out in statements (a Statement of Adjustments and a Trust Account Statement) so that you can see where every penny of your hard-earned money is going.
Using an RRSP to buy a home – the Federal Home Buyers’ Plan
The Federal Home Buyers’ Plan allows first-time home buyers to withdraw up to $25,000 from your RRSP for the purpose of buying or building a qualifying home for yourself or for a related person with a disability. You may be considered a first-time home buyer if, for the last five years prior to the purchase, you have not owned a home which you occupied as your principal place of residence. The RRSP issuer will not withhold any tax from your withdrawal and you will not have to claim the amount as income. The amount must be repaid back to the RRSP within 15 years with a minimum annual payment of 1/15th of the amount withdrawn. If a repayment is not made for a given year the minimum repayment is included as taxable income for that year. For complete information, read the Home Buyers’ Plan on Canada Revenue Agency’s website.
Buying a Condominium
Are you buying a condominium? The process of buying a condo is not very different than any other home, but there are extra considerations with regard to your ownership. For instance, you will be buying not only your unit, but you will have a certain percentage interest in the “common elements” of the condominium, such as elevators, parking areas, lobby, gym, swimming pool. Your lawyer will discuss the privileges, responsibilities and risks of condominium ownership with you. You can download the CMHC Condominium Buyers Guide published by the the Canada Mortgage and Housing Corporation for some helpful information.
IMPORTANT!!! Are you Currently Renting?
If you are renting an apartment and are planning to purchase your first house, make sure that you can get out of your lease before you sign an Agreement of Purchase and Sale. If you have a year-to-year lease, try to convert the lease to a month-to-month lease, or arrange to have the closing date as close to your rental anniversary date as possible.