What to know before you buy a home?
- Buying Costs
- Types of Mortgages You Can Get
- Types of Home Ownership
- Writing an Offer on a Property
Property Transfer Tax
The British Columbia Provincial Government imposes a property purchase tax, which must be paid before any property can be legally transferred to a new owner. The tax is 1% on the first $200,000 of the property value and 2% on any value over $200,000. Most first-time buyers can be exempted from the purchase tax. There is an entire page of qualifications, but the major criterion is a BC resident buying their first home priced less than $425,000.
Goods & Service Tax
GST is usually only charged on the sale of brand new housing. Therefore, the majority of home sales are not subject to GST. Most brand new property sold today in the Vancouver Area has the GST for owner-occupiers included in the asking price. Nevertheless, if you purchase a newly constructed home, you may be subject to 5% GST on the purchase price. However, if the home is under $350,000, a rebate will reduce the GST paid to about 3.5% of the purchase price. If the price is over $350,000 the net GST to be paid increases gradually until it is a full 5% at amounts over $450,000.
Your bank or credit union usually requires an appraisal of the property before approving your loan. It is usually your responsibility to pay the appraiser’s fee. The cost would range from $200 to $350.
The lending institution may also require that a survey certificate be presented to them. The purpose of the survey is to formally establish the boundaries of the property and to ensure that all buildings are within those boundaries. If the current owner cannot provide a recent survey certificate, it will be your responsibility to pay the survey’s fee which is usually around $250-$450.
Fire & Liability Insurance
The mortgage lender will insist that you purchase an insurance policy, which guarantees that, in the event of fire, the lender will receive the balance owing on the mortgage loan, before you receive any insurance proceeds.
The transfer of property ownership from the seller to the buyer must be recorded in the Land Title Office in order to protect the new owner’s interest. You will probably want to engage a lawyer or notary public to act on your behalf during the completion of your purchase. The legal fees for this service will include payment of a registration fee. If you are financing your purchase with a new mortgage loan, there will be a further fee to prepare and register the mortgage documents. The cost will range from $600 to $1200.
Most buyers today choose to have a professional building inspector complete a full 2-3 hour inspection of the property they plan to buy. This inspection prevents any surprises from happening such as unexpected roof leaks, water in the basement, etc. The cost of an inspection would range from $350-$900.
Types of Mortgages You Can Get
You should have one objective when you take out a mortgage: to minimize the amount of interest you pay by repaying the principal (the actual amount borrowed) as quickly as you can. You can choose different options to achieve this objective. You can arrange for a short amortization period (the time required to pay-off the mortgage through regular payments.) You can arrange weekly or biweekly payments. You can also make periodic lump sum payments against the principal when permitted under the terms of you mortgage agreement. Lenders constantly add features and incentives to their mortgage products to attract business in a highly competitive market. It pays to shop around because there are many types of mortgages available today ordering repayment options that can save you significant amounts of money.
All Mortgages are of Two Different Types:
The buyer can borrow up to 80% of the purchase price or the value of the property, whichever is less. The buyer has to pay 20% of the purchase price as a down payment. A conventional mortgage cannot exceed 80% of the value of the property.
Insured or High-Ratio Mortgage
A buyer can borrow up to 95% of the purchase price or the value of the property, whichever is less. The down payment can be as low as 5%.
You can choose any of these mortgage options which fit into the two basic mortgage types. Lenders may even customize these options to suit your needs.
Usually the only financing required. Gives borrowers the best rate of interest;
A higher interest loan that provides borrowers with additional financing if their first mortgage does not meet their total financial requirements.
This type of mortgage allows borrowers to repay all or part of the total amount of their mortgage at any time without penalty. Because of flexibility, this is ideal for borrowers who plan to sell their homes in the near future or who want to switch from a short-term mortgage at high interest rates to a longer term when mortgage interest rates fall.
Usually has the lowest interest rate available but lacks the flexible features of other mortgage options. A good choice for those who want the security of knowing their monthly payment is fixed for a long term. Prepayment options are available but they are subject to conditions which could involve a high repayment penalty.
Under Canadian law, certain lending institutions cannot provide first mortgage financing in excess of 80% of the purchase price or lending value of a house unless the mortgage is insured. Lenders feel confident about making loans for amounts in excess of 80% of the value of the property when borrowers buy mortgage loan insurance. An insurer of mortgage loans, such as CMHC takes on the risk of lending money to homebuyers.
Many Canadians own homes today, because they were able to insure their mortgage loans with CMHC and present themselves to lenders as low-risk investments. Homebuyers who require mortgage loan insurance obtain it through their lender as part of the process of taking out a mortgage.
Types of Home Ownership
Single Person Ownership
Freehold or Fee Simple
This is the most common type of home ownership. Almost all the houses in the Greater Vancouver Area are Freehold fee simple. Under this type of ownership, the owner has the title to and full use of the land and buildings on it over an indefinite period of time.
A person has use of the property for a limited time. This person can rent the building or own the building and rent the land on which the building sits.
In some cases you might purchase the right to use a residential property for a long, but limited, period of time. The owner of this right of use has a type of ownership called a leasehold interest. This type of ownership is used most often for townhouses or apartments built on city-owned land. It is also used occasionally for single detached houses on farmlands or Native Indian reserves.
Leasehold interests are frequently set for periods of 99 years, but regardless of the length of the original term, you will only be able to purchase the remaining portion. Of course, the shorter the remaining portion, the less you, or the person who eventually purchases from you, will be willing to pay for the leasehold interest.
The condominium form of ownership (more formally called strata title ownership) is designed to provide exclusive use and ownership of a specific housing unity (the strata lot) which is contained in a larger property (The strata project,) plus shared use and ownership of the common areas such as halls, grounds, garages, elevators, etc.
This type of ownership is used for condominium buildings, duplexes, townhouse complexes, warehouses and many other types of buildings. Because ownership of the common space is shared, the owners also share financial responsibility for its maintenance.
In the cooperative form of ownership, each owner owns a share in a company or cooperative venture, which in turn, owns a property containing a number of housing units. Each shareholder is assigned one particular unit in which to reside. It is often difficult to get bank financing (often minimum40% down payment) for this type of ownership because you do not own land or buildings. You simply own shares in a company.
Multi person Ownership
If you buy a home with another person or with several other people, one of the following types of ownership agreements will be in force:
This is the most common form of property ownership, particularly with a husband and wife. Each owner holds an equal share in the property regardless of his or her individual financial contribution. An owner can assign his or her share to a non-owner while living or in a will, thereby ending the joint tenancy. If an owner dies without any specific arrangements having been made, his or her share is automatically transferred to the other owner(s).
Tenancy in Common or Undivided Ownership
This form of ownership is most common when investors with different amounts of money buy a commercial or industrial property. Each owner holds a specified portion of the property but the portions do not have to be equal. Each individual owner can sell or assign his or her share to any other person, subject to any restrictions that were originally stated in the deed.
Co-Ownership occurs when the ownership of the whole property is divided (not necessarily on a pro rated basis) between two or more individuals. Usually there is a written agreement between different co-owners in which the rights of each co-owner is described. Each co-owner may sell his or her right of ownership or dispose of it as he or she wishes. This type of ownership is common on recreational property (i.e. Gulf Islands) where several people might join together to buy one large parcel of land.
Writing an Offer on a Property
Once you have selected the property that you would like to buy, the next step is to write an offer. The purpose of the offer is to negotiate with the seller an acceptable price and move-in date.
Almost all REALTORS® use standard contracts to write offers to purchase. Almost all offers will contain the following:
Your name and Present Address
Address and Legal Description of the Property you would like to buy
Deposit Amount (if your offer is accepted)
Date that the money will exchange hands (Completion Date)
Date you would like to receive the keys (Possession date)
Date you assume responsibility for your property taxes (Adjustment Date)
Included items in the sale (i.e. Fridge, Stove, etc.)
Let me Comment on a Few of the Above Items
Most times the asking price is negotiable while at other times the price is firm. Most brand new properties (i.e. condominium or townhouse projects) have a fixed price list and there is no flexibility in the asking price unless you are buying one of the last remaining unsold units. If the price is negotiable, it is best to have your REALTOR® give you some computer printouts of comparable sales in the neighborhood. This should give you a general idea of what an independent professional appraiser would value the property at. As a general rule, I tell my customers the following guidelines when negotiating a price:
Property Priced Less Than: The Seller Expects to Reduce the price By:
$1,000,000+ $50,000 +
If the seller agrees to sell at a lower price, you are doing well and your REALTOR® has probably done a very good job for you.
This is an amount paid into a trust account at your REALTOR’S office. This money is paid to demonstrate good faith that you intend to go through with the purchase. The deposit is payable either; once you and the seller agree on all the terms and price or once you have removed all the subjects from your offer. The deposit should be 5% of the purchase price, but sometimes the seller agrees to a lower deposit amount.
Most buyers make offers to purchase with certain subjects or conditions attached to their offer. Common subjects in an offer to buy a home include:
Subject to finalizing mortgage approval
Subject to a building inspection
Subject to reading the title search
For strata purchases, several additional clauses are commonly used. They are:
Subject to bylaws and Financial Statement Approval
Subject to approval of last 24 months of Strata Council Meeting Minutes and the last two Annual General Meeting Minutes
Subject to approval of Form B - This document is completed by the management company for the strata corporation and contains detailed information on the Strata Corporation, its budget, expenses and special assessments, plus rules and regulations of the strata and the depreciation report.
There is also a clause added explaining that any additional charges made by the Strata Corporation (i.e. special assessments) between the date of the offer and the Completion date will be the responsibility of the seller.
Once you and the seller have agreed on a price and all the terms of the contract, you have what is called an Accepted Offer. This Accepted Offer is now a legally binding contract between you and the seller provided certain conditions are met.
It then becomes your responsibility to do the necessary inquiries so that all the subjects can be removed from the offer by the Subject Removal Date. In most cases, 7 days are given to the buyer to remove all conditions from the contract. Once you have signed all the necessary papers to remove the subjects from your offer, the contract is now subject free and the contract is now legally binding between you and the seller. Neither party can back out of the deal. The next step is to select a lawyer or notary public to do the necessary paperwork and then sit back and wait for your big moving day.
Contact Glenn directly 604-250-6868