What First-Time Home Buyers Need To Know

September 8, 2021

Buying your first home is an exciting milestone in your life. As a homebuyer, there are a number of issues that you should be aware of in order to have the process run smoothly for you. We have listed a number of points below for your consideration.  While the list below is not exhaustive, as each individual circumstance may vary – we have highlighted a number of issues which you should consider as you enter into the home buying process for the first time. For further inquiries, contact one of our London real estate lawyers.

Choosing A Real Estate Representative

 If you choose to use a real estate agent to purchase your home, there are legal requirements your agent must abide by. Your agent must be registered with the Real Estate Council of Ontario (RECO) and follow the rules and regulations outlined in the Real Estate and Business Brokers Act. A real estate agent is a salesperson who works with clients to buy and sell homes. Real estate agents must work with a brokerage and both the agent and his or her brokerage must both be registered with RECO. Real estate agents and their brokerage will have insurance through RECO’s insurance plan to protect against errors and fraud. A real estate broker is a real estate agent who has met RECO’s requirements to start their own brokerage if they wish to but many do often work with an existing brokerage instead. In some cases, with a new home build or a custom home build – a real estate representative may not be involved as a builder can hire a representative who is not a registered agent. We of course urge caution in such cases and recommend that you have your real estate lawyer look at the proposed builder’s contract before you sign the contract.  Often a builder will agree to permit you a few days to have the contract reviewed and approved of by your real estate lawyer.  

Mortgages

Most first time homebuyers need to obtain a mortgage to fund their purchase. Remember that when you take out a mortgage to assist with the purchase, the lender has a number of remedies if you do not honour the terms of the mortgage arrangement, including but not limited to selling the place out from under you if you default on the mortgage terms and do not correct the default on a timely basis.  Remember as well, that when you are purchasing a home, the seller likely will have a mortgage on their home.  It is critically important to ensure that the seller’s prior mortgage is paid out in full as your purchase closes to avoid having the post-closing complications of a prior lender not being fully paid out and having rights to the home ahead of your rights and the rights of your new lender. A real estate lawyer can help you navigate the mortgage issues as well as assist with the full and proper transfer of title to the home to you on closing.   

First-Time Home Buyer Incentive

The Canadian Government offers the First-Time Home Buyer Incentive Plan to new homebuyers. This plan is a shared equity mortgage which decreases the down payment buyers make on the home by between 5-10%. You must repay the loan after either 25 years or on the sale of the home. The government takes back the 5-10% initially loaned at the point of purchase based on the current value of the house. To qualify for this incentive, typically you must be a first time home buyer, your income has to be below $120,000, the amount you borrow cannot be more than 4 times your income, you are a Canadian citizen, permanent resident, or non-permanent resident who can work in Canada, and you can pay otherwise pay the minimum down payment otherwise required. 

Agreement Of Sale And Purchase

An agreement of purchase and sale is a contract between a buyer and seller of a home. This agreement contains the terms and conditions of purchasing your new home, such as the price, date of closing and any conditions required by the buyer where the seller is prepared to accept a conditional offer. This agreement will also include the amount of the good faith deposit being paid to the seller by the buyer. Buyers should note that if they default and do not close that the deposit can be forfeited to the seller.  We understand when paying the purchase deposit to a real estate brokerage, that RECO insurance can help protect your deposit. Sometimes there is need to amend your offer.  You should be aware that the seller is not under any obligation to accept proposed changes but if you can reach agreement on any such change, it is critical to get the amendment in writing and to have it signed by both buyer and seller or it will not be considered binding on the parties. Often amendments are made by the real estate agents and sometimes, your lawyer can assist with such amendments.  

Home Buyers Plan

In addition to the above First-Time Home Buyer Incentive, there is a Home Buyers Plan which is a government initiative that allows first-time homebuyers to use funds from their investments to provide for a down payment on a home. The only investment that funds can be pulled from for this plan is an applicable Registered Retirement Savings Plan (RRSP). The amount that can be withdrawn from the RRSP without generating tax consequences is $35,000. The funds must be returned to your RRSP within the following 15 years. Repayments must begin two years following the commencement of the plan. 

Insurance 

When purchasing a home there are a number of regulations regarding home insurance relating to your mortgage arrangements. If your down payment is less than 20% of the full price of the home, you will likely be required to purchase mortgage loan insurance for your mortgage lender as part of your mortgage arrangements.  The good news is that the lender will increase the basic amount of your mortgage to include this fairly heft insurance amount (so try to avoid having less than 20% down if you can because you will have to pay it back).  The bad news is that the government charges Provincial Sales Tax on the insurance premium which the lender will not lend you.  This amount can be significant so ensure that you get an estimate of that charge from your mortgage lender when negotiating your mortgage amount.

Contact Cohen Highley’s Real Estate Lawyers Today For Legal Advice On Buying Your First Home

If you require legal assistance from a real estate lawyer, contact our law firm to book a consultation with our real estate law team. Our lawyers are proud to represent clients across Southwestern Ontario and have decades of experience handling separation agreements. Our law firm has offices in London, Kitchener, Chatham, Stratford and Strathroy, making it easier for residents of Southwestern Ontario to access our services. Contact us today.

*Disclaimer: Please note the content prescribed in this article is only intended to act as a general overview on a legal topic. For specific legal guidance regarding real estate law, we recommend you consult with a real estate lawyer for legal advice, as each situation is unique.

How to Connect With Us