A Homebuyer’s Glossary of Real Estate Terms
If you’re a Canadian looking to buy your first home, you may feel a little out of your depth when it comes to speaking the language of real estate, and with your biggest financial investment on the line, now is not the time to “just smile and nod” when you don’t understand what was said!
If all the unfamiliar jargon has you feeling a little nervous, odds are you’re in good company: according to the Canadian Mortgage and Housing Corporation’s most recent consumer survey, 47% of Canadian purchasers in 2019 were first-time homebuyers, as were 56% the previous year1.
Of course, it isn’t only first-time homebuyers who might struggle with real estate terms – most people only buy a few homes in their lifetime, so it’s not language we encounter very often. But before you start scribbling crib notes, read on: we’ve compiled some of the most common real estate terms into this glossary so you can talk about your home purchase with confidence.
Amortization Period: The number of years it will take to pay off your mortgage with regular payments at a certain interest rate. Most Canadian financial institutions offer amortization periods of 15, 20, or 30 years.
Down Payment: The amount of money you pay up front toward the price of the home to secure a mortgage loan. The minimum amount of your down payment can vary depending on the cost of the home, whether you’re a first-time homebuyer, and how much your lender requires2.
Gross Debt Service: The percentage of your monthly household income required to cover housing costs, which, under the new rules passed by the Canada Mortgage and Housing Corporation, shouldn’t exceed 35%3.
High-Ratio Mortgage: A mortgage where the buyer makes a down payment of less than 20% of the purchase price, making the mortgaged amount high compared to the value of the property (the loan-to-value ratio). Lenders typically require mortgage loan insurance on high-ratio mortgages.
Home Appraisal: An unbiased professional assessment of a home’s value based on market data for similar properties, as well as on the characteristics and condition of the home. The appraisal is used to confirm the property value to the mortgage lender.
Mortgage Loan Insurance: Insurance protecting your mortgage lender if you can’t make your payments. Most lenders require that you take out mortgage insurance on high-ratio mortgages.
Mortgage Pre-Approval: A statement from your lender that you qualify for a mortgage loan based on your current finances and credit history, usually specifying the mortgage amount you qualify for, the interest rate, and the term. Pre-approvals don’t guarantee you will get a mortgage, but they give you a clear indication of what you can afford and can speed up the purchasing process. Read more about pre-approvals and other important financial considerations to make before buying a home.
Mortgage Rate: Fixed vs. Variable: A fixed-rate mortgage means your interest rate won’t change over the term of the mortgage, and your contribution to the loan principal will remain the same. A variable-rate mortgage means your interest rate might go up or down with the prime rate, which will impact how much of your payments is going toward the principal. Find out how COVID-19 is affecting low variable rates in Canada.
Mortgage Term: The amount of time you agree to a specific interest rate with your lender, ranging anywhere between 1 and 10 years. After a term expires, you can renew your mortgage loan with a new interest rate or take it to another lender.
Commission: The payment made to the real estate agent(s) for their services after the home sale is complete, which is traditionally a percentage of the purchase price. Typically, the seller pays their agent, who then shares the commission amount with the buyer’s agent so that both parties get paid for their work. Percentage-style commissions are negotiable and can vary from agent to agent, but they often represent thousands of dollars off the selling price of the home, making fixed-fee brokerages such as Purplebricks an attractive alternative for some sellers. Learn more about how our low fixed fee can save sellers thousands in commission!
Dual Agency: Also known as Multiple representation or Dual Representation, this is when one real estate agent or brokerage represents both the buyer and seller on each side of the transaction. In provinces where dual agency is allowed, strict protocols ensure that such transactions are fair, though agents are also expected to conduct themselves ethically and without bias toward either party.
First-Time Homebuyer: According to the Canada Revenue Agency, you are considered a first-time homebuyer if you did not live in another home owned by you, your spouse, or your common-law partner for at least four years prior to your current purchase4.
Homebuyers’ Amount: A $5,000, non-refundable income tax credit on a qualifying home, which can save you up to $750 in federal tax. To qualify for the credit, you must be a first-time homebuyer.
Homebuyers’ Plan: A program allowing first-time homebuyers to withdraw up to $35,000 from their Registered Retirement Savings Plan (RRSPs) to buy or build a qualifying home for themselves or a relative with a disability.
Balanced Market: A real estate market in which there is a balance of supply (houses for sale) and demand (active buyers), which keeps home prices stable.
Buyer’s Market: A real estate market in which there are more homes for sale than buyers, which can lead to lower prices (as sellers compete for buyer interest) and homes taking longer to sell. The scarcity of buyers gives them greater leverage through the negotiations. Learn about how buyer’s markets are measured in Canada.
Seller’s Market: A real estate market in which there are more buyers than homes for sale, which generally leads to higher prices, multiple offers, and faster sales as buyers compete for properties. High buyer demand gives sellers more leverage through the negotiations. Discover how seller’s markets are measured in Canada.
Freehold Ownership: A form of ownership whereby you are the exclusive owner of the land and house, and you are solely responsible for the maintenance of the property and payment of property taxes.
Condominium Ownership: A form of ownership whereby you own and are solely responsible for the unit you live in, while common spaces, like corridors and recreation rooms, are jointly owned by you and the owners of other units. Owners pay a “condo fee” for the maintenance of common spaces and manage them through a homeowners association.
Making an Offer
Deposit: An amount paid by the buyer to the seller at the time of the offer being accepted, which shows that the buyer is serious about the purchase and financially secure. The deposit is held in trust by the listing brokerage or lawyer until the closing date, at which point it is put toward the purchase price.
Financing Condition: A condition in the offer to purchase allowing the buyer enough time to arrange financing (i.e., a mortgage), and/or allowing the lender time to perform an appraisal on the home, should they require one. If the buyer fails to secure financing in the allotted time, the offer is deemed “null and void”; otherwise, the condition can be deemed “fulfilled” and the purchase can move forward.
Home Inspection: A visual assessment of the condition of a house and its major systems, which aims to identify any existing or potential problems. Often included in the conditions of sale, home inspections protect buyers by allowing them some insight on the overall condition of the home. If significant problems affecting the value of the home are found, the buyer can request that the seller make the necessary repairs, negotiate a lower price, or walk away from the deal.
Offer to Purchase: Commonly called “the offer,” this is a written statement of the buyer’s desire to purchase the property and to negotiate the terms of the sale. The offer is submitted using an official form called an Agreement of Purchase and Sale, a Purchase Contract, or some variation of that title, depending on the province – this is why you may hear these terms being used interchangeably with the Offer to Purchase. In the offer, the buyer outlines what they wish to pay for the property, the deposit amount, the conditions, any requested inclusions (e.g., appliances), as well as the proposed closing date. Once accepted and signed by all parties, the Offer to Purchase becomes a contract between the buyer and seller.
REALTOR®: A licensed or registered real estate salesperson or broker who is a member of the Canadian Real Estate Association (CREA). Put more simply, a REALTOR® is an accredited professional who can help you buy or sell a property, who is governed by the regulations and standards of CREA, and who has access to the real estate boards’ MLS® System. Read about how to choose a REALTOR® when you’re buying or selling a home.
Bridge Financing: A short-term financial arrangement that allows homeowners to buy a new home before the sale of their current house has closed, meaning they will need to carry two mortgages for a short time. Upon closing on the current home, the proceeds will be applied to the newly purchased home, and the homeowner will be left with only one mortgage.
Closing: The final step of the purchase, The closing date is specified in the offer and occurs after all conditions have been fulfilled or waived.
Closing Costs: The costs associated with closing a property sale, such as land transfer taxes and lawyer’s fees, which can range from about 1.5% to 4% of your purchase price and are not included in the cost of the home. Learn more about preparing for closing costs.
Land Transfer Tax: A one-time tax paid by the buyer to the province at the close of the transaction. Land transfer taxes may or may not be charged depending on the province in which the home is sold, and some municipalities levy additional taxes. Where they are imposed, these taxes generally range from about 0.5% to 3% of the amount paid for the property, or, in certain cases, the tax is based on the fair market value of the property. First-time homebuyers may also qualify for a refund of all or part of the land transfer tax.
Porting: The process of transferring the mortgage terms and rates from your current home to the one you want to buy. If your mortgage is portable (not all mortgages are), you may be able to avoid stiff penalties from your lender for breaking the mortgage agreement before the term is up.
Title Insurance: An optional insurance policy that protects property owners and their lenders against losses related to the property title or ownership. Such losses could result from unforeseen issues like title defects (which could prevent you from having clear ownership of the property), existing liens, encroachment issues, errors in surveys and public records, title fraud, or other title-related issues that could interfere with your ability to sell, lease, or mortgage the property5.
If you need to sell your home or buy a home, rest assured that a Purplebricks REALTOR® can help you navigate the market.
Purplebricks is here to support Canadians by providing them with a full-service real estate experience while saving them thousands in commission when selling their home. As for homebuyers, we share the commission by giving buyers $2,000 in cash back* when they buy a home with us. Call 1-855-999-9740 for more information.