Dealing with Financing

As the events of the last few years in the real estate industry show, people forget about the tremendous financial responsibility of purchasing a home at their peril. Here are a few tips for dealing with the dollar signs so that you can take down that “for sale” sign on your new home.

Get pre-approved

Sub-primes may be history, but you’ll probably still be shown homes you can’t actually afford. By getting pre-approved as a buyer, you can save yourself the grief of looking at houses you can’t afford. You can also put yourself in a better position to make a serious offer when you do find the right house. Unlike pre-qualification, which is based on a cursory review of your finances, pre-approval from a lender is based on your actual income, debt and credit history. By doing a thorough analysis of your actual spending power, you’ll be less likely to get in over your head.

Choose your mortgage carefully

Used to be the emphasis when it came to mortgages was on paying them off as soon as possible. Today, the debt the average person will accumulate due to credit cards, student loans, etc. means it’s better to opt for the 30-year mortgage instead of the 15-year. This way, you have a lower monthly payment, with the option of paying an additional principal when money is good. Additionally, when picking a mortgage, you usually have the option of paying additional points (a portion of the interest that you pay at closing) in exchange for a lower interest rate. If you plan to stay in the house for a long time—and given the current real estate market, you should—taking the points will save you money.

Do your homework before bidding

Before you make an offer on a home, do some research on the sales trends of similar homes in the neighborhood with sites like Zillow. Consider especially sales of similar homes in the last three months. For instance, if homes have recently sold for 5 percent less than the asking price, your opening bid should probably be about 8 to 10 percent lower than what the seller is asking.

Get a survey even if your agent says no

Only a survey prepared by an Ontario land surveyor can confirm that a property is situated inside the appropriate land boundaries.

lf a building is sitting on land owned by the Crown, or a local municipality, or a neighbour, the otherwise proud owner is going to be extremely unhappy and will soon be seeing a litigation lawyer.

For example, it is dangerous to assume that any cottage is built exactly where it should be located. Only a survey prepared by an Ontario land surveyor can confirm that the cottage is situated inside the appropriate land boundaries, that the land it sits on is where it should be and is the correct size, and, if appropriate, the lot has private lake frontage.

Barry Lebow, a veteran realtor, wrote a post about a Toronto buyer who paid $2 million for a house in Toronto. His agent (not Lebow) told him that a survey was a waste of money. It turned out that the driveway was actually a wide city sidewalk and it was illegal to park there. He sued and settled with the title insurer, but still has nowhere to park his Mercedes.

On his Facebook post, Lebow wrote, “A survey is one of the single most important documents a homeowner can have – period. Title insurance does not replace a survey. It may pay for a mistake but it will not give you a driveway you thought you had, or move fence lines.”

A sobering 1989 court decision about a cottage and its property remains one of the best reminders: Dorothy Holmes paid $170,000 for a cottage on Georgian Bay. There was no survey. The cottage was built in the 1930s, but unfortunately more than 95 per cent of the building was sitting on the 66-foot shoreline road allowance owned by the township. She had no title to the land underneath most of the building and was unable to purchase it. She sued and lost at trial and at the Court of Appeal.

There are many court cases involving a swimming pool or septic bed built on the land next door; where the new house was constructed on the wrong lot; where a buyer had to pay $12,000 to get a right-of-way to the property; and where fences and retaining walls were built some distance from the actual lot boundary.

The moral of the story: if your real estate agent says you don’t need a survey – get one anyway. Or get another agent.

If you buy without a survey, make sure you understand the huge risks you are taking.

Bob Aaron is a Toronto real estate lawyer