Whether you’re new to the real estate world, or an ‘old hat’ you will no doubt come across unfamiliar ‘jargon’ during the process that will puzzle you, or prompt questions to your Realtor®. Here are some of the most frequent terms we get asked about. This piece was written by Debbie Bullock, Sales Representative with the Jen Scholte Team.
Appraisal An appraisal of your home is an unbiased estimate of how much a home is worth. When purchasing a home, a lender will require an appraisal by a third party, (appraiser), to make sure the loan amount requested is sufficient to cover the amount a buyer wishes to borrow on it. If a home’s appraised value is below what a buyer has offered, the lender may request the buyer pay the difference in cost. This can come as quite a shock to buyers less familiar with the process!
Assessed Value An assessor calculates the assessment of a home’s value by looking at comparable homes in the area and reviewing an inspection of the home in question. This is used to determine how much in taxes the owner of a property will have to pay.
Bridge Loan A homeowner may take out a short-term loan, or bridge loan, against their property to finance the purchase of another property. It’s usually taken out for a period of a few weeks to up to three years and interest rates tend to be higher for that short term. This could be a good discussion to have with your financial adviser.
Closing costs Average closing costs in Ontario range between 1.5% - 4% of the purchase price. These are paid on or by the date of closing and include, but are not limited to: Land Transfer Tax for the Province of Ontario (first time home buyers may qualify for a rebate) Lawyer fees and disbursement Title Insurance Your lawyer will advise further on this.
Commission Real estate commission in Ontario is generally 5% of the sale price of the home. This commission is usually split between the buyer’s and seller’s agents and is paid by the seller at the time of closing.
Down Payment The amount of cash a buyer pays at the time of closing is called the down payment. Typical home loans require a 20% down payment. Some conforming loans will accept a 5% down payment, and FHA loans will accept a 3.5% down payment. A financial adviser will be able to provide more details on this.
Easement An easement allows someone else the legal right to use another person’s land or property while leaving the title in the owner's name. Typically, this would include utility companies taking readings, or do maintenance work.
Encroachment When a building or structure, such as a fence or shed, extends onto a neighbour’s property line or land, without their permission, that is an Encroachment.
Equity While you may own your home, if you have a mortgage your lender has interest in the property until it’s paid off. Equity is the part of your property you actually ‘own’. Home equity increases as you pay off your loan, or the market value of your home increases. To do a simple calculation of your home’s equity, subtract your outstanding loan balance from the current market value of your property.
Home Inspection A home inspection is carried out by a third party to establish the condition of a property during a real estate transaction. A home inspector will report on such things as a home’s heating system, the stability of the foundation, and the condition of the roof, and more. The inspection is meant to identify major issues that might affect the value of the home and the stability of your and your lender’s investment and return.
Pre-approval Before submitting an offer on a home (or even engaging with a real estate agent!) you’ll likely be required to get pre-approved. This means a lender has checked your credit, verified your information, and approved you for up to a specific loan amount for a period of up to 90 days. A good tip is to keep in touch with your financial adviser to ensure the information you have is current and accurate.
Right of survivorship This is employed most often when there is joint ownership or tenancy of a property. It ensures that the surviving owner automatically receives the deceased owner’s share of the property becoming the sole owner of the property.
Transfer Tax This is a transaction fee charged upon the transfer of a property's title. Homebuyers in Ontario pay land transfer tax when they purchase a property. Your lawyer will arrange for land transfer taxes to be paid when the deed to the new home is transferred into your name (on closing day).