Real Estate Frequently Asked Questions:

Some real estate questions answered for you to enable you make more informed decisions

• What is a Mortgage Loan Insurance?
• What is a down payment?
• What Costs are associated with the purchase of a Home?
• What are the costs of owning a home following closing?
• What is Title Insurance?
• What is the Ontario New Home Warranty Program?
• Can I use my RRSP as down payment?
• GST/HST- How do they affect New Home buyers?

What is a Mortgage Default Insurance?

A mortgage default insurance enables majority of home buyers to buy their homes when they cannot provide the 20% required for the purchase of the house. Under this program for a "premium" your bank secures an mortgage default insurance to secure their investment (which is the mortgage provided for the purchase) in the event of a default in paying your mortgage. The premium is included in the total amount of the mortgage owed to the bank which increases your monthly payment.

Although this increases your overall borrowing costs, it has its own benefit; in that it lets you buy the home you desire, instead of waiting until you are able to put down 20% of the the purchase price of the house. In mortgage terms, this is called a "high-ratio mortgage".

What is a Down Payment?

A down payment on a house is the purchaser's portion of the money "put down" towards the purchase of a home. The balance of the purchase price is usually provided by way of the mortgage loan given my the bank or the mortgage lender. Not many people can afford to pay cash for the home they buy; therefore a mortgage is need. A lender will not provide a mortgage unless the buyer has a financial stake in the purchase by way of a down payment which represents the equity the home owner owns in the house. The amount of down payment needed is determined by different factors. Down payment can be as small as 5% of the purchase price.

What Costs are associated with the purchase of a Home?

The costs associated with the purchase of a new home are costs incurred in addition to the down payment you are required to provide. So, the first cost to you is the amount of the down payment you need. Regular ("conventional") mortgage require you commit 20% of the house price. If you cannot afford that and otherwise qualify for a lower down payment insured mortgage then your down payment commitment can be as low as 5% of the purchase price.

Secondly, it is advisable to conduct a home inspection just following the signing of the agreement of purchase and sale. Paying the Home Inspector is your responsibility. It is recommended that an inspection is conducted to enable you discover any hidden defect(s) that might need to be repaired or replaced by the sellers before closing. Also, inspection helps to ensure that the house has no structural defects which my prove to be a good ground not to purchase the house.

Actual Closing Costs:

Generally speaking you are advised to set aside at least 2.5% of the purchase price to cover the closing costs associated with the purchase of the house. The following will be your typical closing costs:

You are responsible for paying the Land Transfer Tax. Note that you might be eligible to get a land transfer tax rebate as a first time home buyer in Ontario and also if you are buying in Toronto. You will also bel be responsible for paying the fees and disbursements for the real estate lawyer . The typical disbursements included in the calculation will be; title search fees, title Insurance, registration fees, courier. You can visit our fee quote page to get a fee certificate for your transaction. In that way you will not second guess yourself as to the cost of your transaction.

What are the costs of owning a home following closing?

Following closing, you will assume the responsibility of paying the property taxes assessed on the house by the Municipality (City) where your house is located. The amount payable will be determined my the annual assessed value of this house. Ensure that you get information about the cost of property tax during the time you are hunting for or deciding to buy a house with your real estate agent, as this cost is a major factor in your on-going cost as a home owner.

In addition to this you will be responsible to pay the utilities; including sewer, electricity, water bills etc.

What is Title Insurance?

Title Insurance is a form of Insurance that protects both the home owner and the lender from unseen defects in title of the purchased or mortgaged house. This Insurance guarantees that the home owner and the lender will be compensated ("indemnified") for any cost suffered as a result of undiscovered defects in title during closing. For more information about tile insurance visit our -Title Insurance page.

What is the Ontario New Home Warranty Program?

More Information is provided on our page - Ontario New Home Warranty Program. This is a a program backed by Statute in Ontario that protects buyers of Newly Constructed Homes. The coverage includes the deposits made to the builders by the home buyers and also, warranties against defects in work and material, major structural defects, delayed closings and occupancies. This program has helped many new home buyers to have increased confidence in buying new home that are yet to be constructed.

Can I use my RRSP as down payment?

Yes. As a First Time Home Buyer you can "borrow" money from your RRSP up to $20,000.00 ($40,000.00 if you are a couple) without any penalty and use towards your down payment for the purchase of your house. By so doing, you have 15 years to pay back the amounts borrowed into your RRSP account.

GST/HST- How do they affect New Home buyers?

The Province of Ontario has introduced the HST (Harmonized Sales Tax) which applies to buyers of new homes built in Ontario. Under the the new law however, buyers will receive up to $24,000.00 rebate regardless of the price of the new home. This rebate ensures that buyers of homes priced up to $400,000.00 will on average pay no more than under the PST Tax Regime.

Prior to July 1, 2010 (when the new law takes effect) buyers of new home only paid the GST (with similar rebates). The New HST will be administered by Canada Revenue Agency (CRA)