Depending on the situation, any number of the following expenses may apply to your purchase. Identifying some of these in the early stages should help you budget accurately or negotiate wisely.
GE Capital or C.M.H.C. Insurance
Mortgage Company Application & Processing Fees
House or Condominium Unit Insurance
Property taxes are an additional expense you will likely encounter as part of the overall cost of purchasing a house. Your lawyer will determine how the property taxes are paid depending on when they are due.
For example, in the City of Regina all property taxes for the entire year are normally due at the end of June, unless the property is enrolled under TIPPS (Tax Installment Payment Plan).
Whenever a house is sold, the seller is responsible for paying property taxes until the possession date. This period covers the days in the year the seller actually owned the house. Conversely, the buyer is responsible for property taxes from the possession date until December 31st.
With these dates in mind, your lawyer will “adjust” the property taxes. This is a two-step process with two possible scenarios:
If the possession date is prior to June 30th – The buyer pays the property taxes for the entire year as they own the house when taxes are due on June 30th. The seller then “pays the buyer back” the amount the seller is actually responsible for by giving a corresponding credit off the purchase price of the house.
If the possession date is after June 30th – The seller pays the property taxes for the entire year as the seller owns the house when taxes are due on June 30th. The buyer then “pays the seller back” for the amount the buyer is responsible by adding a corresponding amount on to the purchase price of the house.
If the seller is on the TIPPS program with the City of Regina then the tax adjustment is treated differently. The TIPPS program allows homeowners the opportunity to pay property taxes in twelve equal, monthly installments. TIPPS payments are made directly from your bank account on the first business day of the month. If you sign up for TIPPS, the property taxes are not due in full on June 30th.
To sign up for TIPPS, the buyer must pay the City of Regina all property taxes owing from January 1st to the end of the month preceding the start of the buyer’s first TIPPS payment. This is done where the seller was not on the TIPPS program. The seller would then reimburse the buyer for the amount of property taxes the seller is responsible through a tax adjustment calculated by your lawyer.
In this scenario, it is important to remember the seller will only reimburse the buyer for the exact number of days the seller owned the house. When the buyer pays the City of Regina the property taxes owing up to that point in the year, it will be done on a monthly basis.
Possession date: March 15th
Buyer’s first TIPPS payment due: April 1st
Buyer pays City of Regina property taxes from January 1st to March 30th.
Seller reimburses buyer for property taxes from January 1st to March 14th.
Buyer is responsible for property taxes from March 15th to March 31st as part of the payment under #1.
If the seller was already on TIPPS and the buyer wanted to continue with the program, then the buyer must purchase the TIPPS account at the City of Regina in full from the seller. The buyer will later be credited with the seller’s portion of taxes between January 1st and the possession date.
By performing the tax adjustment in this way, it ensures the buyer is responsible for the property taxes between the possession date and the next scheduled TIPPS payment. The lawyers will perform these calculations on behalf of the buyer and seller to make sure everyone pays only their share of property taxes.
If the seller was on TIPPS but the buyer does not wish to continue with the program, the City of Regina will require the buyer to immediately pay all property taxes owing from the date of the last TIPPS payment to December 31st. Here, the buyer will pay the seller back for the days between the possession date and the end of the month of the last TIPPS payment the seller made.
The TIPPS program is similar to making principal, interest and tax payments through your mortgage company (also referred to as P.I.T.), as both arrangements allow for payment of the property taxes on a pro-rated monthly basis. Many buyers find the TIPPS program easy to budget when buying a house as it avoids having to pay property taxes in full on June 30th.
With P.I.T. payments, property taxes are collected as scheduled under your mortgage over the course of 12 months. The mortgage company then forwards this amount to the City of Regina on June 30th. Therefore the amount of property taxes collected by your mortgage company by June 30th depends on two things:
how many mortgage payments you make prior to June 30th
the amount of your tax portion under each mortgage payment.
Depending on your possession date, you should discuss how best to structure payment of your property taxes. In some cases, the tax adjustment may mean having to unexpectedly come up with a large sum of additional money at the end of June. We suggest putting aside extra money ahead of time for potential tax adjustments.
The payment of property taxes is an important aspect of purchasing a house. There are many ways of paying your property taxes. Your mortgage lender will help you decide your options in this area. How you intend on paying your property taxes will largely determine how the lawyer calculates the tax adjustment.
Interest Paid to a Vendor
If you are not already familiar with this term, an owner selling a house is referred to as a “seller.” Interest may have to be paid by the buyer to the seller if the seller has not received payment of the full purchase price, including all adjustments, by the possession date.
The daily rate of interest calculated on any outstanding balance owing to the seller after the possession date is listed as a term in the Offer to Purchase. The rate of interest paid in these circumstances is a matter of negotiation between the buyer and seller. The buyer usually offers to potentially pay interest to the seller at a rate similar to the going bank rate on mortgages.
Seller’s Interest on Offer to Purchase: 7.0 %
Possession Date: June 10th
Amount Owing to Seller as of June 10th: $78,455.29
Seller receives his sale proceeds in full: June 18th, eight days after the purchaser moved into the house.
In this situation, the purchaser would then pay the seller:
.07 x 8 days x 78,455.29 = $120.37
The calculation works out to approximately $15.05 of interest per day. This amount basically offsets the interest the seller would be paying each day on his or her own mortgage.
As your lawyer, we are responsible for calculating this interest, if any, and collecting it from you directly. We will then forward it to the seller’s lawyer with the balance of funds needed to complete the purchase price.
There is a section on the Offer to Purchase used to detail what items are normally included as standard in the purchase price of the house (blinds, draperies, etc.). If there are additional items you specifically want included as part of the deal, you must ask for them in writing in this section. Any deletions can also be listed in this section or as part of a Counteroffer.
You should avoid making verbal arrangements regarding what items are included in the price. In the event of a dispute, there will obviously be no record of what the ‘real’ deal was.
Verbal arrangements complicate things and make your deal difficult to enforce. The following are just a few of the items that buyers usually request as being included in the price of the house:
up-to-date Real Property Report or Surveyor’s Certificate, if one is available
appliances like a dishwasher, washer, dryer and refrigerator
garage door opener with all remotes
attachments to a power vacuum system
garden or utility shed
certain unique ‘as is’ features of a house like a chandelier or custom landscaping.
It does not matter what was in the listing or highlight sheet if it is not in the offer it is not included in the deal.
Make sure these kinds of items are agreed to in writing to help prevent hard feelings after the deal is done.
Mortgage Company’s Interest as per the Interest Adjustment Date
Our office will determine if you have to pay this and, if so, in what amount.
Once you move into your new home, you will be paying interest to someone – either the seller or the mortgage company. You will not have to pay interest to both the seller and the mortgage company at the same time.
The day your lawyer is actually funded with your mortgage money will be the day you are in a position to fully pay the seller. As soon as the seller is paid the balance owing on the purchase price, interest being paid to them will stop.
Because mortgage money was advanced to pay the seller, interest will then begin to run on your mortgage. This is standard.
Date Mortgage Money is received by lawyer: June 18th
Interest Adjustment Date: July 1st
Mortgage Amount Owing: $77,000
Mortgage Interest Rate: 7.25%
In this situation, interest to the mortgage company will begin from the day the mortgage was funded until July 1st, the interest adjustment date. This is the date the mortgage company has chosen to officially start your mortgage and set your payment schedule.
In this example, July 1st is called the “interest adjustment date” because the mortgage company is collecting daily interest accruing on $77,000 for thirteen days (June 18th to July 1st ). This amount is easily calculated as follows:
.0725 x 13 days x 77,000 = $198.82 or, approximately $15.29 of interest per day.
If you hold a chequing or savings account with the mortgage company you have chosen, then the mortgage company will simply deduct $198.82 directly out of your bank account. If not, our office would then be responsible for collecting this sum from you directly.
If you combine the two examples, you can see how interest is paid after the possession date; first to the seller and then second, to the mortgage company.
In short, the various dates involved with any transaction always determine whether interest is payable by a purchaser to either the seller or the mortgage company at different stages of the transaction.
These calculations are performed on behalf of every buyer purchasing a house and are a routine aspect of the service your lawyer provides. Our office will always take the time to explain these interest expenses, if any, with you in detail and personally answer any questions you may have about them.
G.E. Capital or C.M.H.C. Insurance
If you are able to put down 25% or more toward the purchase price of a house, you will avoid having to pay an insurance fee through GE Capital or the Canada Mortgage and Housing Corporation. This can potentially save you thousands of dollars in such fees. Unfortunately the vast majority of home buyers cannot afford to do this.
When the amount of your own money down is between 5% and 25%, you must pay GE Capital or C.M.H.C. a fee for mortgage insurance. As you put down more of your own money, your insurance fee will be less because you are essentially assuming more of the risk in purchasing the house. Your mortgage lender will calculate this fee and submit your application for a mortgage to the insurer for its approval.
Depending on the house, GE Capital or C.M.H.C. may inform the mortgage company it wants to see an appraisal report. On the rare occasion the house does not appraise to its liking, it will decline your application for insurance and the mortgage company will suggest you try locating a different house.
If the house is approved by the insurer, your mortgage company will ask how you wish to pay the mortgage insurance fee. You either pay this amount up front or add it on to the amount of your mortgage. If at all possible, pay the mortgage insurance fee (or at least a part of it) with your own funds as opposed to adding this sum on to your mortgage as you will benefit from saved interest expenses.
The mortgage insurance fee will purchase an insurance policy designed to protect the mortgage company. If you do not pay the mortgage back, the mortgage company will not lose the money it gave you. If this happens, the insurance coverage will pay the mortgage company any remaining sum still owing on the mortgage. The insurer will then attempt to sell the house to another buyer.
Mortgage Company Application & Processing Fees
These vary from one mortgage company to another. Inquire what fees are associated with taking out a mortgage with your mortgage lender as they can potentially add up. For example, you may have to pay a separate fee which usually ranges between $165 and $235 to apply for the GE Capital or C.M.H.C. mortgage insurance approval.
The Surveyor’s Certificate, also known as a Real Property Report, shows a drawing of the property and the precise location of all buildings constructed upon the lot. This is not to be confused with a “plot plan” or “lot sketch” although occasionally these too will be acceptable to your mortgage company, depending on the circumstances.
On each Surveyor’s Certificate there will be distances indicating the length and width of the lot, dimensions of the house and any other buildings or additions constructed on the lot as of the date the property was surveyed. The document also notes specific reference as to the distance each is from the edge of the property lines.
Real Property Reports now typically indicate where an underground right-of-way or “easement” exists in favor of SaskTel, SaskEnergy or the City of Regina. Once a certified land surveyor licensed to practice in Saskatchewan completes the document, it is signed and stamped with the surveyor’s seal. It is an official document upon which you can rely as being accurate.
A quick look of the drawing will tell you and the mortgage company whether the house was constructed entirely within the property lines and whether you are allowed to dig up or construct in certain areas on the property. This information is useful to any homeowner, especially if you are planning on making changes to the property.
Your mortgage company wants this kind of information before it gives you the mortgage money because it does not want potential legal problems with a neighbor or public utility in the event it eventually owns the property.
Producing a Surveyor’s Certificate or Real Property Report may be a potential expense when buying a house. In almost every case, your mortgage company will insist that you produce either one of these documents in acceptable form before it will agree to give you funding.
It is recommended that the offer be written subject to your review of the Surveyor’s Certificate or Real Property Report to ensure that all structures are on your property and not encroaching on basements.
If the vendor does not have one or it is not up to date, you may wish to purchase a new one or order Title Insurance.
If you are going to obtain a new one, it should be reviewed before you remove your conditions. Otherwise you may have bought a property that has encroachments problems.
Many purchasers choose Title Insurance instead of purchasing a new Real Property Report (Surveyor’s Certificate) because Title Insurance is less costly. However if they ever go through refinancing, they will be required to purchase Title Insurance a second time.
For residential property, the cost of Title Insurance is approximately $200. This special type of insurance is accepted by most mortgage companies in lieu of ordering a new Real Property Report or if the Surveyor’s Certificate is deemed unacceptable.
Title Insurance is beneficial because it covers the costs of fixing any problems discovered later on with the property that would have otherwise been discovered had a new survey been conducted. If you purchase Title Insurance, you must do so before you take possession of the property. As with any insurance, you cannot discover a problem first and attempt to insure against it later.
There is no annual premium under a policy of Title Insurance as there is with fire, theft and house insurance. Your Title Insurance coverage will remain in effect for as long as you own the property. It cannot be transferred to the next purchaser, or mortgage company.
You may want to check with your financial institution as to whether they have any age restrictions on Surveyor’s Certificates and whether they will accept one with new improvements drawn on it in red ink.
If you purchase a house without a mortgage, then the decision to obtain a Surveyor’s Certificate or Real Property Report is entirely up to you. Give this decision some thought, even though it may mean an extra expense. Having an up-to-date Real Property Report might help you avoid future pitfalls.
Water Heater Rental
If the seller has pre-paid for the rental of a water heater past the possession date, the seller has essentially paid to rent an appliance they will no longer be using after the seller moves out. The purchaser will usually agree to refund the seller that portion of the contract that the seller overpaid if your lawyer is provided a copy of the invoice so a proper adjustment can be made.
This item is typically dealt with once the seller arrives at the lawyer’s office to sign the Transfer and other legal documentation, and to review the file in full.
This document is obtained from the City of Regina upon request for a fee of about $54.
When a Building Siting or (Zoning) Certificate is ordered, you require an up to date Surveyor’s Certificate and the City of Regina will issue a certificate as to whether your property complies with all the zoning by-laws in your particular neighbourhood.
Whether or not one is obtained may depend on what area of the province you live in. This document is quite often not available in the small centres of Saskatchewan. For some unknown reason in Regina it is very seldom obtained and in Saskatoon it’s usually obtained.
If you want a Building Siting Certificate it should be obtained prior to removing all conditions and should be a condition of your offer to purchase.
House or Condominium Unit Insurance
We recommend purchasing house or condominium unit insurance to protect your financial net worth. For many people, the most important investment they own is their home – purchasing this kind of insurance is essential.
When you purchase a house with a mortgage, you must purchase a homeowner’s policy of insurance that covers the property for losses sustained as a result of fire, theft, vandalism or any number of other unfortunate occurrences. The amount of insurance you need depends on a number of factors that are best discussed with an insurance agent. Generally, the cost of house or condominium unit insurance is very reasonable.
Different insurance companies offer various kinds of packages covering a number of potential losses at a range of prices. Your insurance agent will likely discuss the kinds of problems you might experience as a homeowner in different areas of Regina and advise you of the cost to insure against them.
At minimum, you should insure the property in an amount equal to the replacement value of your house and all contents. If you do not, and if the house is completely destroyed, there may not be enough insurance money to fully cover the costs of rebuilding and re-furnishing your home.
Prior to funding, your mortgage company needs proof that you bought house insurance sufficient to first repay the outstanding mortgage balance in the event of a loss. Therefore, all insured parties, including the mortgage company, must be named in the correct order.
If you are purchasing a condominium unit with a mortgage, your mortgage company needs proof that the condominium complex is properly insured under a specific type of policy coverage that your lawyer will review with you in detail. Your insurance agent will advise you of the special kind of insurance coverage you will need to cover losses pertaining to your own individual unit.
Our office will request from your insurance agent a “binder letter” indicating you have purchased a proper house insurance policy, effective the date you are scheduled to take possession. If you have purchased a condominium unit, we will request written proof from the appropriate condominium corporation that the condominium complex is properly insured as required by law.