What are the costs associated with buying a home?
Buying a home? There are many expenses to consider when purchasing a home. Below is a list of the most common home purchase expenses:
Downpayment – First and foremost you have to have enough money for a down payment. This is the first step. First time home buyers can put down as little as 5% of the purchase price, (this will not apply to all).
Closing Costs – You will require money for closing costs. Closing costs include, but are not limited to, legal fees, title insurance, land transfer tax, other fees and disbursements. A general rule of thumb is 1.5% of the purchase price to account for this. More details below.
TItle Costs – If you are selling your property a lawyer or notary will clear your name off title. For the purchaser your legal representative will register the mortgage on title, prepare statement of adjustments and any other conveyance fees. Fees for lawyers and notaries vary, so shop around before making your decision on who you are going to use.
Title Insurance – Title insurance is in place to protect the lenders interest in the mortgaged property in the event there is a discrepancy on title that would create a legal problem. Title insurance is often less expensive and an acceptable alternative to getting a property survey. There are different tiltle insurance companies available at different rates. Check with your solicitor to see which one they use.
Property Transfer Tax – Property transfer tax is a provincial tax charged every time a property changes hands. For first time home buyers, many provinces have a program to provide full or partial relief on properties. (Certain conditions apply).
Property Taxes – Property taxes are generally paid at the beginning of July for the calendar year. If you purchase before July 1st, you would be responsible for any days after completion day. If you purchase after July 1st, you would owe the seller from completion day to Dec 31st. For high ratio deals it is common for the lender to collect a portion every month that is placed in a tax account in order for the lender to pay property taxes when due. Depending on when you purchase, you may be charged a tax holdback so that there is not a deficiency on July 1st.
Appraisal – If you have more than 20% as a down payment or under certain circumstances with less than that, you may be required to pay for an appraisal. Appraisal fees vary by area.
Home Inspection – For a purchase, it is highly recommended that you obtain a professional home inspector to evaluate the condition of the home. A detailed report can highlight areas that may require maintenance or repair.
Mortgage Insurance – Mortgage insurance can be understood to be life/disability insurance or default insurance. Life/disability insurance is often optional, but is designed to ensure that you are able to make your mortgage payments should you become disabled or die during the term of your mortgage. Rates and coverage vary widely as well as when the policy takes affect should something happen to you.
Default Insurance – This is usually required on loans where the loan to value is greater than 80%. Genworth, CMHC and Canada Guaranty provide this insurance. The cost varies dependent on the amount borrowed and the insurance product program.
Interest Adjustments – This is interest that you will pay for receiving mortgage funds outside of your regular payment periods. For example, if you closed your mortgage on a Wednesday and you would like your accelerated bi-weekly payments on Fridays, you owe 3 days of interest.
Property Insurance – This is required before your loan will be disbursed. The lender will want to make sure that the property is adequately insured for the loss should a fire or flood occur. The insurance must be for the full property value rather than the mortgage amount. In the event of a loss, generally the financial intuition is listed as the payee. What is referred to as a ‘binder’ is the confirmation of the insurance company confirming coverage.
Moving Costs and Incidentals – You will also have moving costs and any other little extras you’ll have to purchase early on – appliances, garden tools, cleaning materials etc. So factor these expenses into your initial costs.