Buying your first home can be an exciting and daunting experience. There’s typically a lot of stress that culminates when you are closing your transaction. Questions and doubts such as “are we making the right decision?” or “did we make any mistakes”? are common in the mind of first-time homebuyers.
Closing a real estate transaction in Canada involves several key steps, from title searches to registering the property with the appropriate government agencies. For first-time homebuyers, navigating the closing process can be overwhelming, but with the right information and guidance, it doesn't have to be.
Obtaining Mortgage Financing
Any home search should start with understanding what you can afford to buy. Assuming you will require a mortgage, the prequalification process should always be step one in the home buying process. For most first-time homebuyers, this will likely involve working with a mortgage broker or lender to secure a mortgage loan and/or getting a better understanding of what they can afford. Before applying for a mortgage, it's important to get pre-approved.
This involves submitting an application to the lender, who will review your credit history, income, and other financial information to determine how much you're eligible to borrow. Pre-approval can give you a better idea of how much you can afford to spend on a home, and it can also give you an edge in a competitive market where multiple offers may be on the table.
First-time homebuyer tip: Many buyers forget to account for closing costs and taxes. These costs can vary across provinces, but as a rule of thumb, add another 4-5% to your home purchase price to account for and cover closing costs.
Understand programs and rebates for first-time homebuyers
One of the benefits of being a first-time homebuyer in Canada is that there are several incentives and rebates available to help make the buying process more affordable. Here are some of the most popular programs:
- Home Buyers' Plan: The Home Buyers' Plan is a federal program that allows first-time homebuyers to withdraw up to $35,000 from their registered retirement savings plan (RRSP) to use towards the purchase of a home. The amount must be repaid within 15 years, and there are no taxes or penalties on the withdrawal. To be eligible for the program, you must be a first-time homebuyer or have not owned a home in the past four years, and you must have a written agreement to buy or build a qualifying home.
- Land Transfer Tax Refund for First-Time Home Buyers in Ontario: In Ontario, first-time homebuyers are eligible for a refund of up to $4,000 of the provincial Land Transfer Tax. To be eligible for the refund, you must be a first-time homebuyer, have a purchase price of less than $500,000, and intend to occupy the home as your primary residence within nine months of closing.
- Home Buyer's Amount Tax Credit: The Home Buyer's Amount Tax Credit is a federal tax credit that provides up to $750 in tax relief for first-time homebuyers. The credit can be claimed on your income tax return for the year in which you purchased the home, and it can help reduce the amount of income tax you owe. To be eligible for the credit, you must be a first-time homebuyer, have a qualifying home, and intend to occupy the home as your primary residence within one year of purchase.
Working with a reputable Realtor
Working with a reputable Realtor is essential for first-time homebuyers because they can provide guidance and expertise throughout the complex and often overwhelming process of buying a home. An experienced real estate agent can help homebuyers find properties that meet their specific needs, negotiate offers, and navigate the legal and financial aspects of purchasing a home.Additionally, a good realtor can offer valuable insights into the local market, providing a homebuyer with a competitive advantage. To find an experienced agent, ask for referrals from friends and family, search online reviews, and check an agent's credentials and licensing status. It's also important to interview multiple agents to find someone who is a good fit and has experience in the area and type of property you are interested in and can afford.
Hiring a Real Estate Lawyer
Once you've been pre-approved for a mortgage and worked with a reputable Real Estate Agent to make an offer on a home, it's time to hire a real estate lawyer. A lawyer can help you navigate the legal aspects of the transaction, including preparing and reviewing legal documents, conducting a title search, and registering the property with the appropriate government agencies. It's important to choose a lawyer who specializes in real estate law and who is familiar with the laws and regulations in your province or territory. Your real estate agent or mortgage broker may be able to recommend a lawyer, or you can leverage Deeded to connect you with a friendly and experienced Real Estate Lawyer.
Closing the Deal
The closing process itself can vary depending on the province or territory in which you're buying the property. In most cases, however, the closing date is set in the purchase agreement, and the closing itself involves several key steps:
- Registering the property with the appropriate government agency
- Paying the Land Transfer Tax and other closing costs
- Receiving the keys to the property
Registering the Property
One of the most important steps in the closing process is registering the property with the appropriate government agency. In Canada, this typically involves registering the property with the Land Titles Office or Land Registry Office in the province or territory where the property is located. The purpose of registering the property is to officially transfer ownership from the seller to the buyer. To register the property, your lawyer will prepare a transfer of land document, which outlines the details of the transaction, including the purchase price, the names of the buyer and seller, and any special conditions or agreements. The document is then submitted to the appropriate government agency, along with the registration fee.
Paying the Land Transfer Tax and Other Closing Costs
Another important aspect of the closing process is paying the Land Transfer Tax and other closing costs. The Land Transfer Tax is a fee that is paid to the provincial government when a property changes ownership. The amount of the tax varies depending on the province or territory in which the property is located, as well as the purchase price of the property. In addition to the Land Transfer Tax, there may be other closing costs to consider, such as legal fees, appraisal fees, and home inspection fees. It's important to factor these costs into your budget when determining how much you can afford to spend on a home.
Receiving the Keys to the Property
Finally, once all the necessary documents have been signed and registered, and all of the closing costs have been paid, it's time to receive the keys to the property. This is typically done through the buyer's real estate agent or lawyer, who will arrange for the transfer of keys from the seller.