Step one for prudent homebuyers: consult with a lawyer
By Rob Lamberti, AdvocateDaily.com Contributor
First-time homebuyers are poised to make costly mistakes if they jump into the market without having deals vetted by a lawyer, Mississauga real estate and immigration lawyer Jia Junaid tells AdvocateDaily.com.
"The majority of clients come to us after they have signed offers," and discover the pitfalls they've fallen into, says Junaid, principal of Atlas Law. Indeed, she's heard about people purchasing their fifth house who still sign contracts without having their counsel look it over first.
"As a first-time buyer, you may not have a relationship with a lawyer, so you might not know where to go but that doesn't mean you should skip this critical step," she says.
Buyers often make the mistake of “deal shopping” for lawyers, but Junaid suggests legal fees should be the least of their worries.
"In this chain, the lawyer is making the smallest amount, but we are carrying the greatest liability and are obligated by the nature of the solicitor-client relationship to act in your best interest,” she says. “It’s far more important to find out the fees associated with getting a mortgage, inspection, land transfer taxes and closing costs.
"Many people get hung up on lawyers' fees, but don't turn their eye to the real numbers of the transaction," Junaid says.
Before signing a contract
Before they sign on the dotted line, she suggests buyers focus on three key areas.
The first is crucial, not waiving any conditions without having a lawyer review the deal, Junaid says.
"Always make sure a purchase agreement is vetted by a lawyer before you waive any conditions. I’ve been seeing the fallout from deals with all conditions, inspections and survey requirements waived.”
In such cases, she says people were anxious to get into the market but then discovered problems with the house, such as a leaky basement or cracked pipes. But remedying such issues is extremely difficult when buyers waive all conditions in a signed contract, Junaid says.
Purchasers often face ‘buy now or never’ scenarios that leave them feeling powerless in the market, she adds.
"First-time homebuyers are generally intimidated, excited and nervous. They want to find their dream home, but they may have a nightmare on their hands in they don't act prudently,” she says.
Do your homework
Junaid advises newbie homebuyers to plan their entry into the housing market months before making a purchase, starting with acquiring a pre-approved mortgage from a financial institution.
“If a bank refuses to mortgage a buyer, they can turn to reputable mortgage agents, but they should clearly understand the associated fees. Mortgage brokers are legally allowed to charge up to 10 per cent of the principal mortgage amount they secure with “B Lenders.” Even one per cent of $300,000 can be a heavy hit for some buyers. Bottom line: know what the agent's fee will be for arranging the mortgage.
"Stay connected to your mortgage agent and keep your lawyer in the loop because, as professionals, we all want to get you from Point A to Point B," she says.
Be wary of lenders who claim there's no problem if a buyer has no job or credit.
"It simply doesn't work that way," Junaid says. "There’s always a catch and these lenders and agents may be engaging in mortgage fraud, compromising the integrity of your transaction.
Land transfer tax
New buyers are only eligible to receive the rebate once, but there are exceptions, especially in purchases by non-couples, such as siblings or a parent and a child, Junaid says.
"If a brother and sister — both first-time homebuyers — are making a purchase together, it is crucial they inform their lawyer as to any beneficiary and trustee relationship vis a vis the property in question," she explains. "I make it a point to ask ‘who is the beneficial owner?’ If it turns out that one of the parties is owning in name only, perhaps to help the other party obtain a mortgage, it is necessary to make a trust agreement to avoid paying a second land transfer tax when the trustee is removed from the property title."
Buyers should budget between 2 and 2.5 per cent of the house's value for closing costs, even though banks often suggest about 1.5 per cent.
“They forget about title insurance fees, government registration fees, property appraisals and interest adjustment,” she says.
Buyers should exercise caution when presented with new builder contracts, which are often focused on protecting the developer rather than the buyer, Junaid says.
"Be cognizant that you have very low negotiating power in a pre-construction deal drafted by law firms representing builders," she says. "When you sign a deal you have a 10-day grace period and should have it reviewed by a lawyer.
"In these deals, we will often speak to the builder's lawyers and negotiate some of the fees," she says, including possibly capping development charges and including free assignment clauses or limiting the feds a builder will charge for assigning an interest to a new buyer in a pre-construction deal.
The process of purchasing a house for the first time is a complicated maze of hidden fees, and guidance from counsel is key to protect buyers from surprises.
"There's a great deal of confusion in terms of what realtors tell prospective buyers, what they’ve heard about mortgage rules and what they see in the media. When they come to their lawyer's office, there's sometimes a huge disconnect with reality," she says.