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One of the most frustrating things for first time homebuyers is the unexpected costs, especially if you are not aware of them and you do not budget for them. Many fees and costs are associated with a purchase of a home, some are unavoidable and others are optional. Also some only apply in certain provinces. Check with your real estate agent as to what “hidden costs” are going to come up.
Here is a list of the most common costs, with an estimated price, not all will apply to every situation or province, check with your real estate agent as to which costs will affect you.
Appraisal $150-$330
These are fast becoming extinct, especially if you are purchasing a home and using CMHC, or GE Capital. They no longer require an appraisal in most cases. If you are buying a “for sale by owner” home or if you are putting more than 25% down you may still want an appraisal done so that you can be sure that the home is being sold at a fair market price. Sometimes lenders will pay for an appraisal; speak to one of our Mortgage Planning Specialists today.
Home Inspection $250-$300
It is a very good idea to make any offer subject to a home inspection, especially if your are buying a “for sale by owner” home. Like buying a used car you want to ensure that all major components of the home are in good working order, and that the structure is sound. If there are problem areas found then you have good standing to renegotiate the purchase price or walk away from the deal.
Home Insurance $450
Admittedly most people have tenant insurance and simply need to convert to a homeowner’s policy when they buy a home, which may reduce this cost. However there will be some form of increased insurance cost because fire insurance is absolutely mandatory and your lawyer will not be permitted to give you possession of your home until you have it.
Interest Adjustment (varies but can be as high as one monthly payment)
This is a common up front expense. If your possession date does not match up with the date your payments were to start you will pay interest from the time the money is advanced until your payments start. For example if your monthly payments are on the first of every month, but your possession date is on the 15th. You will pay approx. 15 days interest.
Surveyors Certificate $450
All lenders require at least a copy of the most recent property survey completed on your new home. Most often these surveys are handed down from owner to owner. A potential snag can come up if a copy is lost or if there are improvements to the lot (example a garage) and no new survey is completed. As a home owner you also want the satisfaction of knowing that everything on your lot is actually located within your lot, if not you may have some potential liability down the road.
Title Insurance $250
In lieu of a new property survey most lenders will accept title insurance. Essentially the insurer guarantees that if any encroachments become a problem in the future that they will pay the associated costs, this protects you and your lender.
Default Insurance (CMHC or GE Capital) fees up to 3.75% of the mortgage
If you are taking out a high ratio mortgage (less than 25% down payment) then you will need to pay the default insurance premium. This is levied on a sliding scale from a low of .5% of the loan amount to 3.75%. It is important to know that this does not have to an out of pocket expense, you are permitted to add this to your mortgage, and in fact most people do.
Prepaid Property Tax and Utility Adjustments
If the previous owners have prepaid there property taxes or utilities you will need to reimburse them for the months of the current year that you will be occupying the home. Also if your city does not have a tax payment installment plan where you can pay monthly property taxes to the city, then you will need to give up to 6 months of the taxes in total to your lender to hold in escrow until you taxes are due. It is usually best to always use a city installment plan whenever possible.
Land Transfer Tax
Land Transfer Tax is a tax that is levied by some provinces whenever property changes hands. Check with your Real Estate agent or Lawyer if this applies to you.
Legal Fees $500 plus
There are many components of the all encompassing term legal fees”. There is the actual fee the lawyer is charging, government land titles fees, and misc. incidentals such as courier charges, photocopying, or file administration fee. The best advice here is to shop lawyers much the same as you shopped mortgage companies, real estate agents, and insurance agents. Quite often people just go to whoever their realtor recommends without shopping around.
Land Title Registration Fees
These are percentage of the purchase price to register your ownership interest and a percentage of the mortgage amount to register your mortgage. A rule of thumb is $20 for the first thousand and $2 for every thousand after that for both the purchase price and the mortgage amount.
Moving Expenses
These costs obviously depend on whether you get you hockey team with a few pickups, rent your own truck, or hire professional movers. Just keep in mind all avenues have a cost and you should budget accordingly.
GST for New Homes Only
Five percent GST is always charged on newly built homes. The tax is often paid by the builder, but it’s a good idea to ask before you buy.
Utility Hook-Ups
Most if not all utility companies charge a hook-up fee or administration charge to hook up their service, these fees range so you should call ahead to each company and ask them so that you can include them in your budget.
This list pretty much covers all of the “hidden costs” in purchasing a home. We recommend making a budget of all of these items prior to making a purchase so that you are prepared for them and that you hold back some money to cover them all.
