May 21, 2015
By Sheryl Smolkin
Buying a home is probably the most significant purchase most people make in their lifetime. Whether you are buying your first house or you are a seasoned homeowner, it is important to understand your legal rights and obligations.
Buying and Selling a Home by The Public Legal Education Association of Saskatchewan (PLEA) and Buying or Selling Real Estate in Saskatchewan written by lawyer Kevin Rogers for The Lawyers Weekly are both excellent resources.
PLEA suggests that you keep the following 10 things in mind before you go house hunting.
- What can you afford? Generally mortgage lenders suggest that the cost of your mortgage payments, property taxes, heating and condo fees (if applicable), make up no more than 32% of your household’s monthly income before taxes. Lending institutions generally look at keeping total debt payments below 40% of a household’s gross income.
- Mortgage costs: It’s usually a good idea to shop for financing before you start house hunting to determine the maximum amount of money you can borrow and discuss payment schedules. Your lending institution may commit to a certain size of mortgage at a set interest rate. This is called a pre-approved mortgage and it will help you determine your price range.
- Down payment: Generally speaking, you will have to come up with a down payment of at least 20% of the purchase price to qualify for a mortgage. However, if you can obtain mortgage loan insurance through government programs such as Canada Mortgage and Housing Corporation (CMHC), or private mortgage insurers you may be able to obtain a mortgage with as little as a 5% down payment. Some restrictions apply.
- Ongoing Costs: In addition to mortgage payments you should budget for annual property taxes plus heating water and electricity bills. Therefore, the energy efficiency of the home may be one thing to keep in mind when you are considering properties. You may also have to buy furniture, appliances, window coverings and tools to do repairs and maintenance work.
- Closing costs: Closing costs are additional expenses that must be paid before the purchase is complete. Generally, buyers should budget 1.5% to 4.5% of the purchase price for these costs. Some of the closing costs include legal fees, including disbursements; pro-rated property taxes for the portion of the year the vendor paid for when you will be the owner; the GST for new homes or homes that have been substantially renovated or re-located; property insurance; mortgage life insurance; and, utility deposits and hook up charges.
- Real estate agent vs private sale: Generally speaking real estate commission is paid by the seller and free to the buyer. The advantage of using an agent is he/she can show you all of the suitable listed properties in your price range and preferred area. However, you can buy property directly from a seller and the price may reflect the fact that the seller does not have to pay a commission. But if you do purchase a home privately, have a lawyer review or draft the offer or any other documents to ensure that they are legally sound and contain only the terms you have agreed to.
- Caveat emptor: Generally when buying a home, the rule is “buyer beware.” Check out the home carefully and make the offer conditional on a home inspection. However, the seller must tell you about any defects he is aware of that could not be discovered by a reasonable inspection of the property. Things like past problems with water in the basement, windows that leak when it rains or faulty plumbing would likely be included in this category if the seller knows about the problem.
- Farmland or other non-residential property: Each type of purchase involves its own unique considerations. If you are 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. You should seek advice from a real estate agent or a lawyer to ensure that all the relevant factors are adequately considered.
- Building /renovating: If you are planning to purchase land where you can 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 building plans. Whether you 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.
- Condominiums: Condominiums are typically made up of individually owned units and common areas used by all the owners, as well as common areas that are set aside for the exclusive use of particular units (such as dedicated parking spaces). The cost of maintaining these common areas comes out of the condo fees all owners pay. The fund for major repairs is called the Reserve Fund. Satisfy yourself as to the state of repairs of common areas and the health of the Reserve Fund. Otherwise you may be in for a nasty surprise when you have to pay an unexpected levy of thousands of dollars.
Also read: Owning a home in Saskatchewan became more affordable in Q4 2014, RBC Economics