Helping a first time Canadian home buyer!

December 4, 2009 6:40 AM

Share with me your Canadian mortgage knowledge!

I've been thinking about buying my first house, and an amazing opportunity has presented itself in the past few days. I will be going to see the house and meet the owners this Saturday. As a result, I'm putting myself through a crash course of Canadian homeownership and mortgage knowledge.

I am already becoming aware of the "hidden costs" such as land transfer tax, at the same time I'm becoming aware of the many opportunities to help first time homebuyers such as myself like tax credits.

Some more information: the property (a 70 acre farm) was listed previously at $249,000 but was dropped to $219,000. It is in Ontario, Canada. I know the property tax is $2000/yr. I have already been preapproved for a mortgage that I applied for in the past few days and am waiting on another from a different bank - both are bi-weekly accelerated payment mortgages with the option to further pay down the mortgage each year. I will be getting a full house inspection and a property line evaluation. I have a massive list of questions to ask the current homeowners ranging from when the house was built to what type of pasture has been grown.

So far I have done all of this on my own. I have not consulted with a mortgage broker. Should I be? Also, as far as I can tell, this will be a private sale, as a result I will likely be retaining a real estate lawyer to complete the required paperwork, if you have any recommendations I'd love to hear them.

I would appreciate any knowledge, tips, suggestions, pitfalls, etc that anyone has experienced, whether it's about a mortgage, about buying a home, about owning farm land, about what questions I should be asking them, any information you can offer will be appreciated!

posted by Meagan to Home & Garden (20 answers total)

I know nothing about the Canada-specific issues, but I'm wondering why you want a farm. Are you a farmer? Is there money to be made in farming there? Can you afford other farming-related startup expenses?

Also, the $219k is not necessarily an 'amazing opportunity' just because the asking price used to be $249k. What are other similar properties in the same area selling for?
posted by jon1270 at 6:48 AM on December 4, 2009

You can take money out of an RRSP under the first-time home buyer's program tax-free as long as it's been in there at least 90 days. When I bought a house, I ended up wishing I had put the down payment into an RRSP 90 days earlier, then taken it out and picked up a nice tax credit with 15 years to pay it back. It may be too late for you to do that now, but if not you could save a little that way. I don't know if the program applies to farmland, so check with your lawyer/accountant first.

Also, that home renovation tax credit is good, I believe, until the end of the year, so if you end up closing fast and do some work on the house you could get up to $1350 back. Again, not sure whether that applies to farmland, so double-check.
posted by pocams at 7:34 AM on December 4, 2009

Who works the surrounding acreage? Will you be using it or leasing it out to someone? Mortgage rules and CMHC premiums may be different if the property is generating income for you. Also inquire about how the land is zoned, whether it will be possible to sever the house from the acreage later if desired.
posted by reegmo at 7:44 AM on December 4, 2009

Response by poster: jon1270, it's been my goal to have a hobby farm with acreage for a long time now. I am not intending to make money off of the property at this time. My deeming it an "amazing opportunity" is not solely based on price, but based on location, the size and features of the house, as well as the substantial acreage and barn that comes with it. My research so far has indicated that houses around the area regularly sell for 250-300k, and none of those include any substantial acreage.

pocams, thanks for the information. Sadly I don't think I'll have the time to take advantage of a substantial RRSP "loan", although I do plan on using whatever I have saved in there so far.

reegmo, thanks for the additional questions, I'll add them onto the list! I intend to not lease the land out. I have clarified the hobby farm aspect with my mortgage lender, and he does not think this will pose any problem, although it might require an additional evaluation.
posted by Meagan at 7:55 AM on December 4, 2009

I've gone through 2 rounds of Canadian mortgage. Both times, the unbelievable service went to PC financial. I know what you might be thinking. But their customer service Rocked! It was all done on the phone, fax and some mail, quick, effective, personal. They gave me tons of info that was helpful to compare and make decisions, and both times I took the PC financial info to a "standard" bank, and they said that there was no way they could match it. The loan is backed by CIBC. PC financial gave me really good options on how to manage different types of mortgages etc. (no, I have no personal connection to PC, but it was complex, and I found that they made the other decisions easier).
posted by kch at 8:11 AM on December 4, 2009

Oh, and check for mineral/oil rights (depending on your location).
posted by kch at 8:12 AM on December 4, 2009

You can go with a broker if you like, or you can shop your rate around to other institutions. Don't forget credit unions and more unusual banks like PC Financial.

Right now, if you are looking fixed rate, even a major bank should be able to get you pretty damn close to 4% over five years. What sort of rate is your pre-approval at?
posted by WinnipegDragon at 8:53 AM on December 4, 2009

You know, you're going to need a lawyer later on in the process anyway, so you may as well get one on board now. In many jurisdictions (if not all), lawyers are also licensed to act as realtors, and can help you review the contract of purchase and sale before you sign. Your mortgage will be disbursed through that lawyer's trust account, and they can review the mortgage documents with you before you sign. If you just sign them at the bank, they will likely bring in a lawyer to notarize them but that person won't give you legal advice.
posted by Pomo at 9:10 AM on December 4, 2009

Response by poster: My current preapproval, which is being done through PC Financial (I absolutely LOVE their form of service, I've been banking with them for years now, so I'm glad to have read kch's recommendation for them), is at 4.14 percent. Is it worthwhile negotiating on this? I've also applied at ING Direct but am still waiting to hear back from them.
posted by Meagan at 9:11 AM on December 4, 2009

Here's the last page in the (currently) 557-page thread on mortgages on Red Flag Deals, Canada's bargain hunting community. Ask your question to one of the many fine folks there. That's where I found out about my mortgage. Good luck!
posted by KathyK at 9:23 AM on December 4, 2009

Congrats! that sounds like an amazing opportunity for you. Yes, you should be happy with that rate, you would get a better rate for a one year variable but most first time mortgages are for five years (I like PC too).

Have you lived rural before? Just so that things like snow removal, septic systems and odd smells don't surprise you (I doubt you are the type but I have met many people that moved out to the country and then complained about the manure!)

You might want to contact your local councillor and make sure there are no upcoming plans for development on surrounding land. Contact the local Conservation Authority about your watershed. And clarify in writing if there are existing easements for hydro/neighbours/walking trails etc.

You will probably be doing a bit of renovating (planned and unplanned) in the next little while. have an energy audit done immediately so any changes you make (such as replacing a broken furnace or insulating) can be claimed for the rebate down the road.

Lastly, be sure to have a meetup!
posted by saucysault at 10:16 AM on December 4, 2009

This isn't strictly mortgage advice, but I used to work as a land surveyor's assistant in Ontario, and I would recommend that for a farm property -- in addition to title insurance -- you buy a real, honest-to-goodness boundary survey before you get your mortgage. Some of the rural properties I saw had shocking property line issues: property boundaries running directly through houses, road access that ran across five differently-owned lots with no easement in place, easements that ran through the forest a dozen meters away from the actual road they were supposed to apply to, fences built a quarter-mile inside someone else's property, survey bars (which mark lot corners) that had been dug up and moved by unscrupulous neighbours, etc.

I don't think I could ever have peace of mind buying a rural property without having a full survey in hand. It also helps to have one if the neighbours ever start complaining that your shed/driveway/fence is over the property line.
posted by hayvac at 10:42 AM on December 4, 2009

Most of this isn't mortgage advice, but could be useful to a first-time home buyer:

Definitely talk to the municipal or the county development office (whoever is responsible for zoning and development approval). You want to make sure there isn't a factory pig farm or landfill going through approval nearby...

It may also be worth checking with a local realtor to find out what comparable properties ("comps") have sold for, and make sure this really is a good deal. Just don't sign a Buyer Agency Agreement with them...

Find a good home inspector, and make the property purchase offer conditional on a satisfactory home inspection. (Your Real Estate lawyer can help you draft the offer - don't sign anything without talking to your lawyer first, and find a good, local lawyer)

I'll second hayvac's advice to get a survey done - ideally as a condition of your offer.

You still may be able to funnel your downpayment through an RRSP Home Buyer's Plan (as discussed above) if your closing date is far enough in the future. Your bank should be able to help you with this.
posted by RecalcitrantYouth at 10:52 AM on December 4, 2009

Hey neighbour:

4.14 is pretty good right now. I don't know if you'll get much better, but it's always worth asking around. We were quoted at 0.7 above prime at BNS in August, compared with 1.0 above prime in a few other banks (TD and a credit union). It really depends on who is having a promotion right now. A mortgage broker may not be a bad idea, but I've never used one.

Some points:

The bank will insist on having fire insurance on the property as a condition of the mortgage. If the house has a wood stove or fireplace, this may require an on-site inspection (by you or a fire tech). Be sure to include this as part of the conditions of sale. You usually must maintain insurance for the mortgage to be valid. Be certain to include that in your on going costs.

Also, you lender might require you to have life insurance to cover the cost of the mortgage; it's always been a condition for me. Not really a problem to get, but costs around $150/yr and may require a nurse's visit.

You definitely want a border line survey---we've done some rural land transfers and a survey is very important, particularly if you're thinking of severing, joining or asking for zoning changes down the road.

You will also want your house inspector to look for potential contaminated soil issues. Farms, in particular, may have old buried fuel tanks. This can be very very expensive to clean up (multiple times your purchase price). A geo-magnetic survey may not be out of line, nor a few spot soil tests either.

Good luck!
posted by bonehead at 11:16 AM on December 4, 2009

I went with PC Financial a few months ago and was happy with their service. If you're already preapproved and you're happy with the rate, you don't need a mortgage broker. I did all my mortgage stuff via email, then just went down to the lawyers office on the closing day to finish up the paperwork. The only issue that had to be dealt with separately was a property adjustment, because if the seller has paid the taxes for the year already, you will have to pay them the amount pro-rated for the rest of the year.
posted by blue_beetle at 11:36 AM on December 4, 2009

If you haven't already closed, it's a common condition of sale to include the property tax adjustment in the sale price, usually meaning you add the adjustment amount, the tax the seller has prepaid, to the sale price.

Banks can also act to combine property tax with the mortgage payment in Ontario. the advantage is that you only have to pay one bill rather than two. It doesn't usually save or cost anything to do this, it's just a convenience feature. If you're in the Ottawa municipal boundary, Ottawa can do property tax as an automatic debit though, so it's really a matter of personal preference.
posted by bonehead at 11:47 AM on December 4, 2009

First off, you mentioned the land transfer tax but you are a first time buyer so you should be exempt (as of May 2008). Secondly, I am a huge fan of a variable mortgage because the rates are fantastic. There is a little more risk but the savings can really make a difference. Finally, check to see who maintains your road access. Some are may be plowed, oiled (gravel) etc but some have not been assumed by any agency leaving you to deal with its condition and snow removal. Oh, and really do get a land survey done right away.

What is the nearest city to your dream farm?
posted by saradarlin at 1:17 PM on December 4, 2009

Response by poster: To answer some more questions, I haven't closed on the deal (I haven't even made an offer yet), and the closest city to the property is the one I currently live in, Ottawa. The property is located 40 minutes away and is outside of the Ottawa municipal boundary.

Thanks to everyone who has contributed so far. My question list continues to grow, I appreciate all of the nuggets of advice you all have to offer :)
posted by Meagan at 2:37 PM on December 4, 2009

You don't say how much of a down payment you have. If it is less than 20-25% of the final price, your lender will require CMHC (or similar) insurance (more expensive as the down payment percentage decreases) which will increase your costs slightly.

It doesn't sound like you need a mortgage broker. Check this page for current posted rates, though most of the big banks will offer lower than these posted rates.

You definitely want a real estate lawyer, since it sound like there is no realtor involved. You will want to have the lawyer draft your offer, since simply having the offer accepted can create potential for loss (mostly limited to the deposit, but not always).
posted by birdsquared at 1:01 AM on December 5, 2009

Posted rates in the market Meagan is in don't mean much, in my (limited) experience. The banks and other lenders will offer deals based on credit history, where your RRSP is housed and other factors. They do not advertise their best rates---the only way to find out what a bank is willing to give you is to have a chat with them. I've had offers substantially less than the advertised rate when talking to the mortgage officer directly. It's amazing what a lower rate offer from an second lender can do to a bank officer's ability to change an "unchangeable" rate.
posted by bonehead at 6:52 AM on December 5, 2009