How to Win the Fight for the Home You Want

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And still come out of it with your financing intact? $50,000, $100,000, or even $215,000 - no, that's not the price of the home in question, that's the amount many clients today are being forced to pay above the asking price, caught up in genuine bidding wars over a home they love. And we're not talking about newspaper stories or pricey neighbourhoods here - this is happening to real people in Toronto, people just like the ones around you. Today, we want to talk through one very important question: will the financial institution issuing your mortgage actually agree with the price you're about to pay for the property you're buying?

Lately, a property's appraised value sometimes comes in below the contract price. In the most extreme cases, this can cause a deal to fall apart entirely and cost the buyer their deposit, but more often, the buyer simply has to scramble to find additional funds to cover the shortfall. Borrowers end up spending more than they originally planned, which means having access to some kind of financial reserve to fall back on.

It's worth understanding that if your down payment is more than 20% of the home's total price, whether a professional appraisal is required depends on your lender's own requirements, though it's increasingly becoming standard practice at most banks these days. For insured mortgages, the insurer takes on the risk itself and runs an internal electronic valuation of the property. That said, if there's a significant gap in price, the insurer may disagree with the price you've offered on the home and require an appraisal from an independent appraisal company as well.

Problems like this tend to crop up when a buyer, driven by heightened competition in the market, offers a seller a price substantially above the average for that neighbourhood. For example, you might buy a home for $700,000, but your bank, insurer, or appraiser may consider that price significantly inflated and value the home's actual worth at only $650,000. With a 95% loan-to-value ratio, the bank would then only lend you $617,500. That means that instead of the $35,000 down payment you'd planned on, you'd suddenly need to come up with $82,500!

Keith Lancastle, CEO of the Appraisal Institute of Canada, confirms this trend as well. There genuinely are cases where this happens in various markets, such as certain neighbourhoods in Toronto or Vancouver, he says. It's a predictable pattern. When demand in a market surges and it becomes a seller's market, property values start climbing sharply as multiple buyers compete over the same home at the same time.

And here's one more important thing worth always keeping in mind: a mortgage pre-approval is based on your credit history and income, while the loan itself is also based on the property. Be very careful about offering a price above asking on a home you love, especially if you're not the only one who loves it. If you don't have extra funds set aside in case the bank later appraises the home for less than you paid for it, be sure to include a financing condition in your purchase agreement. Sometimes you can negotiate with the sellers to get at least 2 business days to secure full mortgage approval, instead of the standard 5 - that should be enough time for an experienced mortgage broker, and it'll help protect both you and your deposit.

Let's say the purchase goes through smoothly and the bank approves you for a sufficient mortgage - what other costs, beyond the down payment, should you be prepared for? Below is a list of expenses you may run into when buying a property.

It's never a bad idea to start saving for your down payment well in advance, rather than only once you're actively searching for a home. The minimum down payment is 5% of the total purchase price.

More budget-conscious buyers sometimes try to skip a home inspection. But the fee for one is quite small compared to what you may end up paying later if you skip this step and something goes wrong. Inspection costs typically range from $350 to $600.

As we mentioned earlier, an appraisal is sometimes required, and in that case, the $300-$500 appraisal fee is often the buyer's responsibility. Some lenders may also charge a lender fee, most commonly in cases involving a less-than-perfect credit history. The size of this fee varies by lender.

Property insurance, which takes effect on closing day, typically costs around $700-$900 a year. Some lenders may require a new land survey before issuing a mortgage. This costs roughly $1,000-$2,000, though it's rarely needed for standard financing.

If you're applying for a high-ratio mortgage (a down payment under 20%), you'll need to pay for mortgage default insurance. In most cases, you can roll this amount (3.15% of the mortgage amount at a minimum 5% down payment) into your overall mortgage, but you'll need to pay the 8% tax on the insurance premium out of pocket.

Title insurance protects you against any errors, omissions, or defects in title. It also protects you from claims on the property from previously unknown heirs, or from fraud, and typically costs around $300.

A new home warranty, which helps protect your investment against construction defects, is mandatory in Ontario, British Columbia, and Quebec. This is a one-time fee ranging from a few hundred to a few thousand dollars, depending on the price of the property. This warranty only applies to new construction.

Don't forget about land transfer tax either, which is charged whenever ownership changes hands. Unfortunately, this is also the buyer's responsibility. The amount ranges from 0.5% to 2% of the total purchase price - you'll find an exact calculator on our website.

Your lawyer plays a critical role in the home-buying process. Your lawyer handles the title search, registration and preparation of the mortgage, and drafting the transfer of title document. Legal fees typically run around $500-$1,000, plus disbursements paid by your lawyer on your behalf (registration fees, wire transfers, courier costs, and so on).

You may also need to reimburse the previous owner for utility payments or taxes (adjustments) if they were paid in advance, meaning for the period after the closing date on the sale agreement. This includes electricity, water, and property taxes.

Moving costs will depend on your preferences: whether you'd like your belongings packed for you, or simply transported.