Top 5 Mistakes Made by First-Time Homebuyers
As an experienced real estate lawyer, Taylor J. Deveau has seen her share of home-buying mishaps that can happen when buying for the first time, if you aren’t careful and diligent.
Here are the TOP FIVE MISTAKES I have seen first-time homebuyers make. I bring these to you in the hope that you can avoid these traps and ensure a smooth buying experience.
5. Failing to Consider Land Transfer Tax
Land Transfer Tax is a tax paid by the buyer in a real estate transaction at the time of closing to the Ministry of Finance. Land Transfer Tax is calculated based on the purchase price for the transaction or the fair market value of the consideration exchanging hands as part of the transaction.
It’s important for buyers in Toronto to consider the Municipal Land Transfer Tax, which essentially doubles the provincial Land Transfer Tax that is otherwise payable by the buyer upon closing of the purchase transaction.
As a first-time homebuyer in Ontario, in most cases, you will be entitled to receive a rebate of Land Transfer Tax up to $4,000. The rebate can be automatically applied on closing to reduce the amount of Land Transfer Tax owing. Once the rebate is applied, you may still have a balance owing if there is a portion of Land Transfer Tax owing over and above the rebate entitlement amount of $4,000. Your real estate agent, mortgage broker and real estate lawyer should all be able to discuss basic details of Land Transfer Tax and your first-time homebuyers’ rebate entitlement with you.
You should consult a real estate lawyer about whether Land Transfer Tax is payable on your purchase. DEVEAU LAW is experienced in all areas of real estate law and is happy to assist you with this. You can calculate your Land Transfer Tax and rebate entitlement online HERE.
4. Arranging Movers First Thing on Closing Day
Real estate transactions very rarely close first thing in the morning. The Land Registry Office, where real estate conveyancing documents are registered, is open for business between 9:00 a.m. and 5:00 p.m. Lawyers in Ontario can register Transfers, Mortgages and other conveyancing documents during those hours.
In my experience, most real estate transactions tend to close sometime in afternoon between 1:30 p.m. and 4:30 p.m. However, it could be as late as 5:00 or 6:00 p.m. before I am finally able to provide my clients with confirmation that the transaction is closed and that they may take possession and pickup the key.
When you’re paying movers by the hour, no one wants to have their movers sitting around with the delivery van all day, waiting for the transaction to close. Plan for your closing to occur at 5:00 p.m. and consider any earlier closing to be an added bonus.
Make your moving day less stressful by assuming that you will not be moving in early.
3. Forgetting to Set Up Utility & Tax Accounts
As the purchaser, it is your responsibility to set up your utility accounts with local service providers. You can ask your lawyer or the local municipal authority for more information about which service providers are servicing the property that you are purchasing. You should let the utility providers know that you will be the new buyer effective as of the closing date.
On closing, your lawyer will typically ensure that there is an adjustment to the purchase price to reflect the respective share of annual property taxes for the property to be paid by the seller and the buyer, based on the length of time that each party will have owned the property in the calendar year.
After the date of the closing, the buyer is responsible for payment of property taxes (unless your mortgage company collects and remits payment for property taxes on your behalf) to the local taxing authority. Your lawyer should notify the local taxing authority that you are the new owner of the property on closing and then it will be your responsibility to arrange for payment of the next tax bill.
DEVEAU LAW PRO TIP: local taxing authorities send out property tax bills in different frequencies throughout the year. If you prefer to pay the entire bill when it arrives, then you typically will not need to take any further action until you receive your next tax bill in the mail. However, if you prefer to budget monthly, you can contact your local taxing authority after closing to arrange for a monthly pre-authorized payment plan for your property taxes.
2. Waiting Too Long to Liquidate Purchase Funds
If you are using money from your Registered Savings Plan or other registered investment account towards the purchase of the property, make sure that you liquidate and transfer the funds from your registered investment accounts to your checking account for easy access at least 72 hours prior to closing.
Sometimes there can be a delay in liquidating and transferring these types of funds; so, in order to avoid any delay on closing day, you should make sure that all of the funds for your down payment are easily accessible at least three days’ prior to closing for a safe bet and smooth experience.
1. Not Completing a Final Walkthrough on Closing
Your real estate agent will typically negotiate a term in your Agreement of Purchase and Sale that allows you to complete a final preview or walkthrough of the property immediately prior to closing. This is a golden opportunity that you should definitely take advantage of for a number of reasons.
The final walkthrough is a chance for you to go through the property before closing and to ensure that it is in relatively the same or similar condition to when you put in the offer to purchase. If the chattels and fixtures to be left behind are supposed to be in good and working order, then it is also your chance to check those items for any defects. For example, I always suggest that my clients check appliances such as microwaves, stoves, refrigerator, washer, dryer, smoke alarms, etc. during the final walkthrough to ensure that all items are in good working order because there is a much greater likelihood of addressing any deficiencies with the seller before the purchase funds have exchanged hands and the transaction has been completed. It’s not impossible to address these issues after closing but it can be more difficult.
Now that you are speed on the common errors made by first-time homebuyers and how to avoid them, you can focus on packing and making the move. If you have any additional questions or would like to retain DEVEAU LAW to act for you on your real estate transaction, feel free to contact me by e-mail at taylor@deveaulaw.ca.
Safe and happy moving!