Carola Vyhnak
April 18, 2020
Experts suggest getting finances in order for when the housing market picks back up
Looking to buy your first home? Some are hoping that the recent slowdown in Toronto's real estate market may provide an opportunity.
With sales starting to wind down - open houses have been cancelled and in-person showings are discouraged - this is the right time to get your financial ducks in a row so you're ready to jump in when the market picks up again, says Rafey Aleem of Trimaxx Realty Ltd., who focuses on educating first-time buyers.
The key is to be prepared, with the money you'll need on hand and a keen understanding of how the process works, so you can move quickly if you spot a bargain. Sales are still possible during the crisis, as COVID-19 doesn't affect real estate agreements, according to Mark Weisleder, senior partner of Real Estate Lawyers.ca LLP.
"The land registry office, financial institutions and real estate lawyers have all been deemed essential services and therefore transactions are able to close," he told the Star, noting that buyers can be sued if a real estate settlement isn't reached.
His own firm is able to complete all aspects of a closing remotely, without having to meet a client, Weisleder adds.
Aleem says step one is to understand what the closing costs will be and to budget accordingly.
Closing costs are all the fees, taxes, adjustments and other one-time expenses that have to be paid on top of the down payment when you take legal possession of your new home.
Financial expert Jared Ksenica promotes a prudent approach to home-buying, keeping a sharp eye on closing costs, which vary depending on what you buy, where you buy and whether it's a new build or resale.
Ksenica, regional vice-president of mortgage sales at BMO, recommends setting aside between two and five per cent of the purchase price. On a $500,000 home, that would range from $10,000 to $25,000.
Aleem, who suggests allowing between 1.5 and four per cent, provides the following breakdown of the most common closing costs, and the approximate amounts due on a $500,000 townhouse, house or condo:
Legal fees: $1,500
Title insurance: $250 to $300
Ontario land transfer tax: $6,475. First-time buyers may be eligible for a rebate of up to $4,000.
Toronto land transfer tax: $6,475. Applies to homes in the City of Toronto. First-time buyers may be eligible for a rebate of up to $4,475.
Property tax adjustment: Varies, depending on property taxes already paid by the seller.
Adjustments for utilities, condo maintenance fees: Varies, depending on amounts prepaid by the seller.
Buying a resale home may also involve pre-closing costs, such as $300 to $400 for a property appraisal if the bank doesn't cover it, and $300 to $400 for a home inspection, Aleem adds.
Buying a pre-construction or new home from the developer involves additional costs, such as Tarion warranty fees (about $1,100 on a $500,000 house) and development charges, which the developer pays to help fund infrastructure. The developer passes a portion on to the buyer so it's crucial to cap the amount during purchase negotiations or risk "getting dinged" for many thousands, Aleem emphasizes.
The realtor, who covers the entire GTA, urges home hunters to talk money with their agent and lawyer well in advance to ensure they have sufficient funds ready, particularly if they're using an RRSP or loan/gift from an individual.
That advice came in handy when Muneeb Azeem, a 28-year-old IT analyst, recently bought a two-bedroom condo in Scarborough using Aleem as his agent. When he closed the deal, he had to pay thousands more than the $370,000 purchase price.
But thanks to Aleem's advice, he was well-prepared for the additional costs. He had not only stashed away $40,000 for a down payment, but also the estimated $7,000 for land transfer tax, lawyer fees, title insurance, and other closing expenses.
Without his realtor's guidance, "I'd be super overwhelmed, for sure," Azeem says. "He helped a lot, keeping me in a cool mind frame."
Would-be buyers looking for a complete rundown on costs and affordability issues can tap into the expertise of mortgage specialists and advisers at their financial institution, Ksenica says. "A good rule of thumb ... is beginning the process 30 days in advance of the closing day," he says. "This should provide adequate time to make sure everything goes smoothly."
Purchasers "shouldn't be afraid to ask questions," he adds.
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This article was written by Carola Vyhnak from The Toronto Star and was legally licensed by AdvisorStream through the NewsCred publisher network.
