First-Time Home Buyers: Legal Tips for Purchase in Ontario

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Definition of First-Time Home Buyer

In Ontario, being classified as a "first-time home buyer" comes with specific criteria that must be met to qualify for certain government programs and rebates.

To be eligible, you must:

• Be at least 18 years old
• Be a Canadian citizen or permanent resident
• Have never owned a home or interest in a home anywhere in the world
• If you have a spouse, they must also not have owned a home during the time they’ve been your spouse

It's also important to note that individuals who have previously owned a home but went through a divorce or separation may still qualify under certain programs, depending on their partner, the timing and ownership structure.

Importance of Legal Representation

Working with a real estate lawyer isn't just a formality—it's a necessity. A lawyer's role is to review contracts, conduct due diligence, and protect your legal interests from the time you sign an Agreement of Purchase and Sale to the day you get your keys.

Engaging a lawyer early means you can get advice before signing binding documents, understand your obligations, and avoid common missteps. It's about ensuring your legal position is secure from the outset.

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The Home Buying Process

Reviewing the Agreement of Purchase and Sale

This agreement outlines the terms of your purchase—from purchase price and deposit to conditions and timelines. Common clauses include financing conditions, home inspection rights, and inclusion of appliances or fixtures.

A lawyer can identify vague or risky language, ensure deadlines are manageable, and negotiate amendments if needed. It's your roadmap to closing, and it needs to be legally sound.

Conducting a Title Search and Obtaining Title Insurance

Your lawyer will conduct a title search to verify ownership, uncover any liens, easements, or encroachments, and ensure the seller has the legal right to transfer the property.

Title insurance adds another layer of protection, covering unforeseen issues such as fraud, title defects, or zoning non-compliance that could impact your ownership.

Understanding Mortgage Commitments and Obligations

Most first-time buyers finance their purchase through a mortgage. Your lawyer reviews the mortgage commitment to ensure the terms align with what was promised, and that the legal documents accurately reflect your financial agreement.

This includes confirming the interest rate, prepayment options, penalties, and ensuring lender requirements are met prior to closing. Comparing mortgage rates and working with a mortgage broker can help you secure a mortgage product that suits your financial situation.

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Financial Considerations

Navigating Down Payments and Gifted Funds

If your down payment is coming as a gift from a family member, lenders often require a signed gift letter confirming that the money is not a loan.

Your lawyer ensures this documentation is properly drafted and submitted, preventing issues with mortgage approval or closing delays. For those struggling with the financial burden of a down payment, the First-Time Home Buyer Incentive from the federal government may offer assistance by sharing in the cost of your home.

Budgeting for Closing Costs

In addition to the down payment, you’ll need to budget for:

• Legal Fees: Your lawyer’s fee for managing the transaction
• Disbursements: Costs your lawyer pays on your behalf (e.g., title search, software charges, registration fees)
• Land Transfer Taxes: Both provincial and, if buying in Toronto, municipal
• Title Insurance: One-time cost to protect against title-related issues
• Adjustments: Reimbursements for property taxes or condo fees prepaid by the seller

Your lawyer will prepare a final statement of adjustments to show exactly what you owe on closing.

Programs and Incentives

Note: The Definition of First-Time Home Buyer will differ for each program and incentive. Confirming eligibility with a qualified professional is necessary.

Federal Programs for First-Time Buyers

Home Buyers’ Plan (HBP): Allows you to withdraw up to $60,000 (as of 2024) from your RRSP to buy your first home. Funds must be repaid over 15 years.

First Home Savings Account (FHSA): A new registered account combining features of an RRSP and TFSA, allowing tax-deductible contributions and tax-free withdrawals for qualifying home purchases.

Provincial and Municipal Incentives

Ontario Land Transfer Tax Refund: First-time buyers may qualify for a rebate of up to $4,000 on the provincial land transfer tax. This can significantly offset your upfront costs.

Toronto Municipal Land Transfer Tax Rebate: If you're buying within Toronto, you may also receive a rebate of up to $4,475 on the municipal portion, effectively doubling your relief.

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Summary

Purchasing your first home in Ontario is a significant milestone that comes with a complex legal landscape. From understanding eligibility requirements for various programs to navigating the intricacies of purchase agreements, mortgage pre-approval, and monthly mortgage payments, being well-informed is crucial.

Engaging a real estate lawyer early in the process can provide invaluable guidance, ensuring that all legal aspects are thoroughly reviewed and your interests are protected. By leveraging available government incentives and working closely with your mortgage broker, real estate agent, and legal team, first-time buyers can confidently navigate the closing process and secure their primary residence.

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If you have questions about First-Time Home Buyers or any other real estate legal matter, we're here to help. As real estate law specialists, our mission is to provide the clarity and direction you need to protect your property rights.

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