Purchasing a home represents a significant commitment and ranks among the most substantial financial decisions you'll encounter. If this is your first time diving into the real estate realm, brace yourself for a flood of industry terms and jargon that could easily overwhelm. Your RE/MAX agent serves as your compass in this journey, yet for those eager to dive deep before venturing out, here's a compilation of typical real estate terminology. By acquainting yourself with these fundamental concepts of home buying, you'll empower yourself to make informed choices and secure a prudent investment.
Home Buyer’s Glossary: Real Estate Terms You Should Know
Amortization
The length of time allotted to paying off a loan – in home-buying terms, the mortgage. Most maximum amortization periods in Canada are 25 years.
Assessed Value
The dollar value assigned to a property by a public tax assessor for taxation. This valuation forms the basis for determining property taxes owed by the owner.
Balanced Market
In a balanced market, there is an equal balance of buyers and sellers, which means sellers often accept reasonable offers, homes sell within a good amount of time, and prices remain stable.
Bridge Financing
A short-term loan designed to “bridge” the gap for homebuyers who have purchased their new home before selling their existing home. This type of financing is common in a seller’s market, allowing homebuyers to purchase without having to sell first.
Buyer’s Agent
The buyer’s agent represents the homebuyers and their interests in the transaction. On the other side of the transaction, the listing agent represents the seller and their interests.
Buyer’s Market
In a buyer’s market, there are more homes on the market than there are buyers, giving the limited number of buyers more choice and greater negotiating power. Homes may stay on the market longer, and prices can be stable or dropping.
Closing
This is the last step of the real estate transaction, once all the offer conditions outlined in the Agreement of Purchase and Sale have been met and ownership of the property is transferred to the buyer. Once the closing period has passed, the keys are exchanged on the closing date outlined in the offer.
Closing Costs
The costs associated with “closing” the purchase deal. These costs can include legal and administrative fees related to the home purchase. Closing costs are additional to the purchase price of the home.
Condominium Ownership
A form of ownership whereby you own your unit and are interested in common elements such as the lobby, elevators, halls, parking garage and building exterior. The condominium association is responsible for building and common elements maintenance and collects a monthly condo fee from each owner based on their proportionate share of the building. Condos often have guidelines regarding noise, use of common areas and allowable renovations within the units.
Contingency
A condition or clause in a real estate contract that specifies certain events must occur or certain conditions must be met before the contract is legally binding.
Curb Appeal
The visual attractiveness of a property when viewed from the street or sidewalk. It’s often the first impression potential buyers have of a home and can significantly impact their perception of its value.
Debt-to-Income Ratio (DTI)
A financial metric used by lenders to evaluate a borrower’s ability to manage monthly payments and repay borrowed money. It is calculated by dividing an individual’s total monthly debt payments by their gross monthly income, often expressed as a percentage. A lower DTI suggests that the borrower has a good balance between debt and income, making them a less risky loan candidate.
Deposit
An up-front payment is made by the buyer to the seller at the time the offer is accepted. The deposit shows the seller that the buyer is serious about the purchase. This amount will be held in trust by the agent or lawyer until the deal closes, at which point it is applied to the purchase price.
Down Payment
The down payment is the amount of money paid upfront for a home to secure a mortgage. The minimum down payment in Canada is five percent of the home’s total purchase price. Down payments of less than 20 percent of a home’s purchase price require mortgage loan insurance. The mortgage loan amount is the selling price minus the deposit and down payment.
Dual Agency
Dual agency is when one real estate agent (or real estate brokerage) represents both the homebuyer and the seller in a real estate transaction. There are limitations and requirements around dual agency, which differ by province.
Equity
The difference between a home’s market value and the amount owing on the mortgage. This is the portion of the house that has been paid for and is officially “owned.”
Fixed-Rate Mortgage
A fixed-rate mortgage guarantees your interest rate for a pre-determined amount of time, typically five years. When the term expires, you can stay with the same lender or switch to a different one.
Freehold Ownership
A form of ownership whereby you own the property and assume responsibility for everything inside and outside the home.
Foreclosure
The legal process through which a lender takes control of a property due to the owner’s failure to make mortgage payments. Initiated after a series of missed payments, foreclosure ultimately results in the sale of the property, usually at a public auction, to recoup the lender’s losses.
Gross Debt Service
The percentage of your total monthly income that goes toward housing costs. Canada Mortgage and Housing Corp. recommends your GDS remains at or below 39%. Check out CMHC’s Gross Debt Service calculator.
High-Ratio Mortgage
A high-ratio mortgage is a mortgage where the borrower has less than 20% of the home’s purchase price to make as the down payment. A high-ratio mortgage with a down payment between 5% and 19% of the purchase price requires mortgage loan insurance. In Canada, 5 percent is the minimum amount required for the down payment.
Home Appraisal
A qualified professional provides a market value assessment of a home based on several factors such as property size, location, age of the house, etc. This is used to satisfy mortgage requirements, giving mortgage financing companies confirmation of the mortgaged property’s value.
Home Buyers’ Amount
This is a $5,000 non-refundable federal income tax credit on a qualifying home, providing up to $750 in tax relief to assist first-time buyers with purchase-related costs.
Home Buyers’ Plan
A federal program that allows first-time homebuyers to withdraw up to $35,000 interest-free from their Registered Retirement Savings Plan (RRSP) to help purchase or build a qualifying home. The borrowed amount must be repaid within 15 years to avoid paying a penalty.
Home Inspection
The home inspection is performed to identify any existing or potential underlying problems in a home. This protects the buyer from risk and gives the buyer leverage when negotiating a reduced selling price.
Home Warranty
A warranty that protects the homeowners against future problems with the home for a determined period of time. New home builders are required to offer warranty protection to homebuyers, such as Tarion in Ontario. Home warranty requirements and providers differ by province. Home warranty programs also exist for resale homes.
Land Survey
A land survey will identify the property lines. This is not required to purchase a home, but it is recommended and may be required by the mortgage lender to clarify where the owner has jurisdiction over the property. This is important if issues arise between neighbours or the municipality, should the owner wish to make changes in the future, such as installing a pool, fence or other renovations involving property lines.
Land Transfer Tax
This is the tax payable by the buyer to the province in which the transaction occurred upon transferring land. The amount varies depending on the municipality, land size, and other factors. Most provinces have Land Transfer Tax, though it may have a slightly different name (such as property purchases tax). If you are a first-time homebuyer, you may be eligible to receive a rebate, typically processed at the same time as the land registration, to offset the costs.
Low-Ball Offer
An offer on a home that is significantly below its market value or the asking price set by the seller. In a buyer’s market where supply exceeds demand, you might have more leeway to make a lower offer. When demand exceeds supply in a seller’s market, making a low-ball offer is generally not advisable as sellers have the upper hand.
Multiple Listing Service (MLS)
A database where real estate agents list properties available for sale or rent. It is a centralized platform allowing agents to share comprehensive information about listings, including photos, features, and prices. The MLS is often considered the most accurate and up-to-date source for real estate listings, and it provides the data for many consumer-facing real estate websites.
Mortgage Loan Insurance
If your down payment is less than 20 percent of the home’s purchase price, mortgage loan insurance is required. It protects the lender in case of payment default. Premiums are calculated as a percentage of the down payment, changing at the 5%, 10% and 15% thresholds.
Mortgage Pre-approval
A mortgage pre-approval helps buyers understand how much they can borrow before going through the mortgage application process. It allows you to make an immediate offer when you find a home since you know how much you’ll be approved for that lender and locks in the current interest rate for a period of time, insulating you against near-term rate increases.
Offer
An offer is a legal agreement to purchase a home. An offer can be conditional on several factors, the most common being financing and a home inspection. If the conditions are not met, the buyer can cancel their offer.
Porting
Transferring your mortgage (and the existing interest rate and terms) from one property to another.
Refinancing
Replacing an existing loan with a new one, typically to secure more favourable terms such as a lower interest rate. Homeowners often refinance their mortgage to reduce monthly payments, shorten the loan term, or access equity for home improvements or debt consolidation.
Seller’s Market
In a seller’s market, there are more buyers than there are homes for sale. With fewer homes on the market and more buyers, homes sell quickly in a seller’s market. Prices of homes are likely to increase, and there are more likely to be multiple offers on a home. Multiple offers give the seller negotiating power; conditional offers may be rejected.
Title Insurance
Title insurance is not mandatory in Canada, but it is highly recommended to protect both the buyer and the mortgage lender against losses related to the property title or ownership, such as unknown title defects, existing liens against the property’s title, encroachment issues, title fraud, errors in surveys and public records, and title-related issues that could prevent you from selling, leasing or obtaining a mortgage. Your lawyer can advise you on this.
Underwriting
The process by which financial institutions like banks and insurers assess the risk associated with a loan, insurance policy, or investment. Underwriters evaluate a borrower’s creditworthiness, the property’s value, and other factors to determine loan eligibility and terms. This risk determines whether the loan should be approved, and if so, at what interest rate and down payment requirements.
Variable Rate Mortgage
A variable rate mortgage fluctuates with the prime rate. Your monthly payments remain the same, but the proportion of your payment going toward principal versus interest can change.
Virtual Deals
The home-buying process completed using technology in place of face-to-face contact. Some common technology tools include 360 home tours and video showings, video conference calls, e-documents, e-signatures, and e-transfers.
Gaining proficiency in Canadian real estate language and comprehending its intricacies are pivotal for individuals engaged in property buying, selling, or investing. Whether you're deciphering Bank of Canada's mortgage rates or parsing through property listings, a strong command of these terms equips you to make informed choices and navigate Canada's real estate scene with assurance.
Call me today at 780-906-7866 for Home Buying Guidance. Let’s get you home together!
