Step #5: Completing Your Due Diligence
AKA "Working through your conditions"
Congratulations, you have an accepted offer between the Seller and yourself. In order to move forward and finalize the purchase, you must complete your due diligence to satisfy yourself, and remove the conditions which were laid out in the contract.
Typically, conditions that are most commonly added to a Contract of Purchase are:
Financing approval, title review, property disclosure statement review, insurance quote, building inspection, wood-stove inspection, septic inspection, well and water inspection, strata document review, and any other condition you may negotiate depending on the property style, type, and location. The following is a brief description of the most common conditions and contacts you will have while completing your due diligence:
Financing and Finalizing the Mortgage
If you are already have a pre-approved mortgage in place, it's a simple matter of finalizing a few details and providing your mortgage specialist with some documents which may include:
- The real estate listing of the property. If the home is still to be built, the mortgage lender will need to see the architect's or builder's plans and details on lot size and location.
- A copy of the offer to purchase.
- Documents to confirm employment, income and source of down payment (if not provided at pre-approval).
In short, a lender is anyone who will give you money. There are private lenders and institutional lenders, like banks and credit unions. Even your brother-in-law can be your lender. Of course, when you're looking for a lender, you're looking for a long-term relationship and terms and rates which are beneficial to you. You really have a few options. You should go to a mortgage specialist who will search the mortgage market for the best rates and conditions based on your circumstances. Usually the mortgage specialist is paid by the lender without cost to you.
However, the cloudier your credit history, the more likely there will be a fee! A good mortgage specialist will be connected to all major lenders through the mortgage market.
Title Review - Lawyers/Notaries
A lawyer is there to represent your interests, and to process the documentation required. The first order of business you may have with your lawyer will be to review and discuss the properties title. Your lawyer will search the title of the property to ensure that you can purchase the home without any legal problems. Your lawyer will also make sure that all tax payments have been made and that there are no liens on the home or the personal property the vendor has agreed to sell you as part of the deal. A lawyer helps ensure you are protected!
Have the home inspected. Whether you make it a condition of purchase or not, having the property pre-inspected by a qualified home inspector will give you the added confidence that you've made the right decision. Be very careful to verify the qualifications of your home inspector because there are no government standards or licenses for home inspectors. Some home inspectors in Canada do not have any form of accreditation. For your protection make sure your home inspector is a member of CAHPI. This is your assurance that they have met their education requirements, have the experience, and carry E&O Insurance.
The inspection should cover the structural elements of the home - foundation, basement, floors, insulation, walls, windows, doors, ceilings - and the systems - heating, air conditioning, plumbing, and electrical. When this procedure is complete you should receive a full written report.
You'll want to make sure your property and valuables can and will be covered. A broker offers independent advice and can save you time, trouble and money. Plus, the bank will insist that you carry full insurance since your property is used as collateral against your mortgage. Taking the time to obtain an insurance quote is recommended so you know what to expect.
If you are purchasing a property that uses a septic system, having it properly inspected by a registered Waste Water Practitioner is recommended. The inspection should cover location, code adherence, condition, functionality, and life expectancy of the system. When this procedure is complete you should receive a full written report.
Well and Water Inspection
If you are purchasing a property that utilizes a water source from a well, cistern, or something other than a municipal water system, having it properly inspected and the water tested is recommended.
The survey is a diagram of the location of the home on the lot, as prepared by a certified land surveyor. You must ensure that the vendor has an accurate, up-to-date survey so that your lawyer can make the proper municipal zoning inquiries. If no survey exists, or the survey is not accurate and up-to-date, you may require title insurance. Title insurance protects the title to your property against losses incurred as a result of undetected or unknown tit le issues. Whether it's a single family home condominium, or cottage - you can get title insurance policy at the time of purchase; your lawyer can instruct you further.
Once you've completed your due diligence and you've removed your conditions, in writing, you have officially bought a new home - congratulations.
In brief, here's what takes place before the actual closing day:
- A copy of the offer will have been forwarded to the office of your lawyer. Your lawyer will have reviewed t he conditions of the sale. You will have made your lawyer aware of how you, and any co-buyers, will be registered on the title of the property.
- Your lawyer will search the title of the property to ensure that you can purchase the home without any legal problems. Your lawyer will also make sure that tax payments have all been made and there are no liens on the home or the personal property the vendor has agreed to sell you as part of the deal.
- All of the terms and conditions in the offer to purchase must be satisfied and removed.
- All of your financing details will have been finalized and ready to fall into place on the closing date.
- You'll want to make sure that you've contacted all of the utility, cable, and phone companies to ensure an easy transition of service and billing.
- Your lawyer will prepare a statement of adjustment. This confirms the selling price, adjustments, and the balance (less the deposit you provided with the offer). Your lending institution will draw up a certified cheque for your lawyer to hold in trust.
- Additional settlement charges will have to be paid:
- Your lawyer's fee and disbursements
- Condo and co-op fees if applicable
- Tax and utility adjustments; if they have been pre-paid, you'll have to pay the vendor for the portion of the service you assume
- Land transfer tax; based on the price of the home
- You'll want to make sure your homeowner's insurance policy will be in place to cover your new home and property once the deal is closed. Your lawyer will need a copy of the policy before closing.