First Time Home Buyer Checklist
Written by: Tracy Knight, Associate
The process for purchasing property can be complicated, but do not panic. This post is for you as the purchaser to give you an overview of what you will need to do. First, the disclaimer: There are hundreds of parts to a real estate transaction. This means there are hundreds of ways your purchase could go sideways or fall under one of many applicable rules and regulations. So, use this checklist for reference, but do not forget to call us – usually the earlier the better – so we can keep the transaction on track.
It is as easy as 1-2-3… (sort of).
- Contract. This is a crucial document for your purchase. If you are working with a realtor, they will help you with this contract. If you have sketched out an offer and are planning to do this on your own, please call us. It is imperative that this piece of paperwork be correct, as it is the road map for the whole transaction. The devil is in the details. Your contract should clearly set out who is doing what and who is getting what, when, where, and how. Conditions are an important element of a real estate contract. The contract is not a document that should be signed without a review.
- Due Diligence. This means checking into what you are buying to make sure (a) that you are purchasing what you mean to be purchasing; and (b) that you are able to fulfill your obligations (i.e. to pay the money) under the contract. If your contract is correctly prepared, it will allow for you to carry out a number of due diligence steps, including, for example:
Title Review. Check the title of the property to see what is registered and make sure there are no surprises. There may be an easement granted to your neighbour allowing your neighbour to walk across a certain portion of your property at any time in order to access something on the other side. There could be a restrictive covenant that gives a laundry list of all the things not allowed on your property. There may be bylaw infraction notices on title. There may be builder’s liens (someone was not paid). The potential issues are too extensive to list. Call us for this step. We can obtain a copy of the registrations on your title, let you know what is there (in plain English) and you can decide whether you are comfortable with restrictions on title or if it warrants getting out of the purchase.
Zoning/Bylaws. Check the zoning and bylaws that may apply to the property and your intended use of the property. For example, if you are purchasing a home with a carriage house for short-term vacation rentals, check into the rules and regulations about the vacation rentals. Kelowna is in the process of developing regulations. Other cities and towns considering similar steps. You should start by asking questions about the property at City Hall. If you require further direction or questions arise, talk to your lawyer.
Inspection. Get a home inspection. The inspection report will alert you to visible deficiencies or areas of concern within the home. Home inspections have limitations on what is disclosed and so it is important to speak candidly to the inspector about those limitations. If you suspect structural defects in the home, for example, you will likely want to have a qualified industry professional give you their opinion. Ask questions and obtain the information you need to ensure you know the state of the property you are purchasing.
Other Possibilities. Have special amenities, tanks, and appliances checked. For example, if your home-to-be uses a well for water, have the water and water levels tested. If the home uses a septic tank, make sure it is functioning and find out if it needs to be emptied. You may also want to ask about heating, hydro, and other utility bills.
Insurance. Make sure you can get insurance on the property. Call an insurance broker and make the inquiry. Keep in mind that your mortgage lender will not approve the financing if there are issues with obtaining home insurance.
Financing. Be certain you will have the funds required to complete the purchase. This means you need your financing approved or you need the cash in hand.
b. Have the down payment in an accessible form so that it can, at the right time, be transferred to your lawyer. Your lawyer typically requires a bank draft.
c. Understand the closing costs. When you buy a home, there are a number of extra expenses that often are left out of the calculation and can result is shortfalls:
1. GST. If you are buying new, there will be 5% added to the purchase price for GST. There are other circumstances when GST is payable, so it is an expense to watch for and find out about. It may seem nominal, but remember that a $500,000 new home would have GST payable in the amount of $25,000.00
2. Property Transfer Tax. If you do not qualify for an exemption, you will pay Property Transfer Tax, which we commonly refer to as PTT. Very generally, PTT is 1% on the first $200,000, 2% on the portion of value between $200,000 and $2.0 million, and 3% on any amount higher than $2.0 million. There are certain classes of exemptions or partial exemptions, including one for first time home buyers if you meet certain conditions.
3. Adjustments. Your purchase price will take into account expenses that flow with the property. An example of a common adjustment is property taxes (not to be confused with PTT) that are paid every year. The property taxes are paid in July but they are for the whole year, from January to December. So, if you move in after July, the seller will have paid the property taxes for the whole year even though you might own the home for almost half of that same year. To address this unfairness, your lawyer will calculate an adjustment. Your portion of the property taxes (from possession date onward) will be added to the amount you have to pay the seller. *Keep in mind that the reverse is also true – if you move in prior to July, you will have to pay the property taxes for the whole year but you will have received a credit from your purchase price for the amount the seller ought to have paid. Other adjustments may be a city utility account, strata fees, or rents if there are tenants in any portion of the property.
4. Legal Fees. Talk to your lawyer or notary about the fees to complete the property purchase.
All of the previously noted due diligence is contained within your (properly drafted) contract as “conditions” or “subjects”. There is a deadline to either satisfy the conditions or waive them. If you do nothing prior to the condition removal date, the contract simply dies. If you are satisfied with the conditions, or not quite satisfied but going to “live with it”, then you have to remove the conditions in writing by the deadline, at which point you have a binding contract. Sometimes, there is some negotiation or tweaking of the terms of the contract in order to satisfy the conditions. This part of the contract is technical and you should consult with your realtor or a lawyer. Use your real estate professionals to ensure your contract becomes binding after the due diligence is complete.
- Pay the Purchase Price and Complete. For the lawyer, this is the most complicated part of your transaction. For the client, it is usually as simple as confirming home insurance, bringing in funds, and signing documents. Your lawyer will work with your lender, your realtor and you in order to obtain the financing terms from your lender, calculate all of the closing costs, obtain strata documents, prepare land transfer documents, and prepare mortgage registration documents. When acting for the purchaser, the purchaser’s lawyer also prepares the documents for the seller to sign with the seller’s lawyer.
The legal documents to transfer the property into your name have to be signed with a lawyer or notary and so it is generally not a good time to leave the country. To prepare for your signing meeting with the lawyer (likely to be a few days before closing):
a. You will need two pieces of identification. One must be government issued with a photo. The other should be government issued or a credit card.
b. You will need to have spoken to your lawyer’s office in advance so that you know the amount of money to bring in a bank draft (it is the amount after we calculate the down payment and adjustments needed to pay to the seller)
c. Be prepared to spend 30 – 60 minutes with your lawyer for signing.
Finally, we reach the closing day. The legal steps on closing day are complex. The purchaser receives the funds from a lender. Lenders require their mortgage be registered on the property title and want the purchaser to pay the price when the land is transferred. The seller, however, needs the payment to remove the seller’s mortgage from the land before transferring. The exchange of funds, documents, registrations, and releases occurs hurriedly on the closing day in a particular way to address the standoff that would otherwise occur. Usually by mid-afternoon on the closing day, your lawyer’s office or the realtor will call you to confirm that the purchase is complete. Congratulations, you are a homeowner!
