Lots of people who decide to buy a home haven’t got a clear idea about all of the costs involved, beyond the purchase price and, perhaps, the legal fees. We often enter into the biggest purchase of our life without a clear plan, research or budget.
Here are some things that should be considered:
Mortgage Loan Insurance:
If you are putting less than 20 per cent of the house value down, you’re going to need mortgage loan insurance. Depending on the lender, the premium can be added to mortgage payments. Usually, mortgage loan insurance premiums range between 0.5% and 2.75% of the principal plus applicable fees.
Lenders typically loan a percentage of the home’s purchase price or the market appraisal of the property. Cost depends on the size and complexity of the assignment.
The lender may ask for a current survey or certificate of location before signing off on the loan. There can be a substantial cost for having a new survey done on the property.
A deposit normally goes with the formal offer to purchase.
If you have a mortgage, your lender will insist that you have enough home insurance to cover total since the property is their security for the loan. Your lawyer will need confirmation that insurance has been arranged. Should your house be completely destroyed, the insurance company is required to pay the lender first. You will still own the lot but will have to negotiate with a lender to borrow to re-build. Home insurance is priced based on the value of your home and current reconstruction costs.
Title insurance is optional and covers problems that may arise due to encroachment issues (for example, a structure on your property is actually part of your neighbour’s property and needs to be removed), existing liens against the property’s title, title fraud, undischarged mortgages and other issues relating to the property’s previous owners. The cost is relatively low, usually a few hundred dollars.
You can save some of the legal fees usually charged by the lender if your lawyer draws up the mortgage. You’ll also pay for disbursements which are the costs involved in drawing up the title deed, conducting a title search, and preparing and registering the mortgage. Make sure your interests are protected by discussing your Offer to Purchase with your lawyer or notary prior to signing.
Land Transfer Tax:
This is charged whenever a property changes hands and is based on the purchase price. Most provinces in Canada charge a provincial land transfer tax and some cities also charge an additional municipal land transfer tax. In some cases, first time homebuyers may be exempt from a portion of this cost. You can obtain further details about land transfer tax on provincial or municipal websites to help you estimate the cost.
Goods and Services Tax:
Resale (used) homes are exempt from GST but it does apply to newly constructed homes and may qualify for a partial rebate depending on the sales price and if the home is going to be your primary place of residence.
Home Inspection Fee:
An inspection protects the buyer by revealing any problems in the property that you’d want to know before you move in. The home inspector evaluates the structures and systems that make up your home and provides you with a written report. While not mandatory, many people make a professional home inspection a condition of their Offer to Purchase.
Sometimes requested by the lender, a survey is done to verify the property’s boundaries, measurements and structures and identify any easements, rights of way or encroachments on your, or adjacent properties. If the seller does not have one or does not agree to get one, you will have to pay for it yourself.
Mortgage Broker’s Fee:
If you use a mortgage broker, a fee may be charged to arrange a mortgage on your behalf.
Don’t forget general expenses such as moving costs, fees charged by utilities for service hook-ups, property tax and other adjustments (an adjustment takes place when the seller has already paid for something in advance and wants to be credited for the unused portion on the date the house becomes yours), and ongoing maintenance (condo fees, etc.), and utility costs.
What expenses do you consider when you purchase a new home?