Are you considering buying a Toronto property as a second home or investment? Perhaps you are looking for a small cottage or apartment where you can escape for vacation, or maybe you want to have another home closer to family. Maybe you want to rent out your second property and make a steady income from your investment. Whatever the reason, a second piece of real estate can be a fantastic investment. However, sometimes getting a mortgage on your second home can be a challenge.

Generally, a mortgage lender will have tougher standards for second home loans than primary home loans. This is because usually when you are buying a second home your finances will be stretched thinner and you will have less money to spare because you are already paying a mortgage on your primary home. This will mean that your second home mortgage can be harder to get and might have a higher interest rate.

Here are some tips to keep in mind that will help you to get the best mortgage on your second property: Build up a decent amount of savings. Your mortgage lender will want to be able to see that you have a large amount of savings so that you will have enough to pay for the mortgage even if you were to lose your job.

Pay off any credit card debt. Many lenders will be hesitant to approve your second home mortgage if they see that you have a lot of debt on your credit card. They will want to see that you have a low debt to income ratio so that you will be able to pay back the loan.

Use the first mortgage as a good reference. If you have always made your payments on time and you are most of the way through paying off your first house, you could ask someone from your current mortgage company to vouch for you. The lender for your second mortgage will be reassured that you are a reliable person to loan money to.

These are just a few tips to keep in mind in order to make getting a mortgage for your second property as easy as possible. To find out more about investing in Toronto property, contact me at [email protected] or phone me at 647-800-5201. Keyword: Toronto Property

Thanks to buildersdirect.ca

What is a statement of adjustments? The Statement of Adjustments often catches many homebuyers off guard. Put simply, the Statement of Adjustments sets out any items that need to be added or subtracted from the purchase price, and shows the total amount of money that the purchaser will have to pay to the builder on closing day. The items that will be adjusted on closing are set out in the Agreement of Purchase and Sale. These items may be negotiable with the builder BEFORE the Agreement of Purchase and Sale is signed. Very rarely is the purchase price set out in the Agreement of Purchase and Sale the same amount that will be transferred on closing, as there are a number of items that need to be adjusted for, including:   

Deposit paid - A deposit on signing is standard practice in any real estate transaction, and can be a set amount ($500 used to be standard in St. John’s, but it is quickly increasing to $1,000) or a percentage of the purchase price. The purchaser gets to deduct this deposit off the purchase price, as it has already been paid.   New construction extras and credits - When the home being bought is a new construction, it’s very common to see changes made to the materials used or the allowances for things such as flooring, light fixtures, cabinets, and so on, or changes to the floor plan and construction methods. These are all adjusted at closing as extras or credits.  

Taxes - Used residential housing isn’t generally subject to GST/HST in Canada, but new homes are. If the Agreement of Purchase and Sale doesn’t deal with this otherwise, the applicable tax will be added to the purchase price. However, it is quite common to see the agreed purchase price include all taxes, with the proviso that the purchaser assigns the GST/HST Rebate to the vendor. The details of how this rebate works are too boring to go into in this post.  

Rebates - In some transactions, the Vendor will rebate money to the purchaser for problems that arise after the agreement is signed. For example, if the sale is subject to a home inspection and the inspection reveals an electrical panel that needs replacing, the vendor and purchaser may negotiate a rebate to reflect the cost of fixing this problem, rather than having the panel actually replaced. Similarly, if damage occurs as the Vendor is moving out, there may be a rebate for repairs.  

Municipal taxes - In many cases, the homeowner has prepaid taxes to the end of the year or, in some cases, end of the month or quarter. The vendor is usually entitled to a credit for the portion of taxes that have been prepaid for the rest of the year. For example, if annual property taxes are $2,000 per year, and the house sale closes on October 1st, the vendor will get a credit of $500. The same goes for water taxes, if these are calculated separately and paid in advance.  

Oil or fuel adjustments - If the home has oil heating or propane tanks, the purchase price will usually be adjusted to reflect the value of fuel remaining in the tank. The tanks will be measured on closing day (or sometimes the day before), and the vendor will get a credit for the amount of fuel that is left. For example, if an oil tank is half full (or half empty!) on closing day, and the value of half a tank of oil is $450, this would be credited to the vendor.  

Rent and damage deposits - If the property is being used as a rental property and has tenants in place, the purchaser usually gets a prorated credit for the rent for the rest of the month. Similarly, if a damage deposit has been paid by the tenants, this whole amount gets transferred to the purchaser, as he or she will ultimately be responsible for returning in when the tenant eventually leaves. The physical deposit usually doesn’t change hands, it is just given as a credit towards the purchase price.   The Statement of Adjustments is generally prepared by vendor’s lawyer well in advance of closing and sent to the purchaser’s lawyer for review. There may be some finagling of the numbers and negotiation between the two sides, but generally it’s pretty straightforward.   The best advice is to review your Statement of Adjustments early and don’t be afraid to ask questions. And then ask them again!

Closing Costs-thanks to RateHub
 
Closing costs, ranging from 1.5 to 4%1 of selling price, are the legal and administrative costs you will need to pay when your house closes. In addition to closing costs, there are other expenses and/or events that may require a cash outlay before, on or after your house closes. We will outline these in detail to ensure these often unexpected costs do not sneak up on you.

Cash outlays required before your mortgage closes

• Home Inspection Fee. It is highly recommended that you contract a home inspection as a condition of your Offer to Purchase. A home inspector will assemble a report on the condition of the home for a fee of around $500, depending on the complexities of the inspection. 
• Deposit. A deposit that counts towards your down payment is required when you make an Offer to Purchase. The deposit may amount to 5% of the purchase price, which is the minimum down payment percentage in Canada.

Costs financed in your mortgage Mortgage default insurance, or CMHC insurance, is not normally considered a traditional closing cost as it is added to the total mortgage you require and amortized over the life of your mortgage. We have chosen to include it here to point out the major difference between it and traditional closing costs: it does not require a cash outlay upon closing.

• Mortgage default insurance. If you purchase a house with less than a 20% down payment, you will be required to buy mortgage default insurance, commonly referred to as CMHC insurance. This protects the lender in the case the borrower, defaults on the loan.
  
  

Mandatory closing costs covered by the home buyer The following is a list of closing costs that are incurred by the home buyer

• Land Transfer Tax. Calculated as a percentage of the purchase price of your home, all provinces have a Land Transfer Tax (LTT) payable on closing, with the amount varying in each province. Some cities, such as Toronto, also have a municipal LTT.
  
  
• Legal Fees and Disbursements. You can expect to incur a minimum of $500 (plus GST/HST) on legal fees, which account for the preparation and recording of official documents. Find a residential real estate lawyer with MyLawBid.com. 
  
  
• Title Insurance. Today, most lenders require title insurance to protect against losses in the event of a property ownership dispute. This is purchased through your lawyer/notary and costs $100 - $300.
  
  
• PST on CMHC insurance. Though CMHC insurance itself is financed through the mortgage, PST on the insurance must be paid in cash at the time of close.

The following is a list of closing costs that are incurred by some home buyers as they are only applicable to certain properties

• Septic tank. If the house has a septic tank, it should also be tested to ensure it is in good working order. Once again, you can negotiate the cost with the previous owner and list it in your Offer to Purchase.
• Water Tests. If the home has a well, you will want to test the quality of the water and ensure there is an adequate supply, as well if the water is potable. You can negotiate these costs with the previous owner and list them in your Offer to Purchase.
• Estoppel Certificate Fee (does not apply in Quebec). A certificate fee may be payable if you are buying a condominium or strata unit, and could cost up to $100

Mandatory closing costs often covered by the lender

• Appraisal Fee. An appraisal, which is an estimate on the value of your home, is often covered by your mortgage lender. An appraisal is performed to certify the lender of the resale value of the home in the case you default on the mortgage. The cost is usually between $250 and $350.
  
  

Other costs to consider

• Property Insurance. Property insurance, which covers the cost of replacing your home and its contents, must be in place on closing day. This insurance is often paid in monthly or annual premiums.
  
• Prepaid Utility Bills. You may need to reimburse the previous owner of your property for prepaid costs such as property taxes, utilities and so forth.
• Property taxes. Property tax is calculated as a percentage of your home value, varies by municipality and must be paid each year. The residential property tax rate in Toronto for example is 0.83%, and on a $400,000 home, would be equal to $3,320 per year. You may need to reimburse the previous property owner if he/she has already paid property taxes for the full year. You are also given the option to set-up an automatic payment plan with you lender. Your lender will set up an account for you, collect an additional $277 per month  ($3,320 / 12 months) and then pay property taxes on your behalf. Though by no means necessary, some homeowners find this service extremely valuable for budgeting purposes.

Closing Day Closing Day is the day you finally take legal possession of your home. It's important the the bulk of your administration is completed by this point including transferring your down payment to your lawyer. Transferring down payment funds, especially from your RRSP can take time, and should be done several days before close.

On closing date, the following events will take place:

• Your lender will provide the mortgage funds to your lawyer/notary.
  
  
• You must provide, your down payment less the deposit, to your lawyer/notary along with the closing costs.
  
  
• Your lawyer/notary pays the previous owner, registers the home in your name, and gives you the deed and keys to your new home.
  
  

Congratulations! You are now ready to move in.

[1] Canada Mortgage and Housing Corporation (CMHC)