First-Time Buyers: Costs Beyond the Down Payment

I don't like the term 'hidden fees' when it comes to buying real estate because the information is available, but I agree that too often these additional costs are overshadowed by the larger dollar sign of the down payment, skimmed over, or not addressed early enough, or even at all. When this happens, I understand how encountering this information even a few steps down the buying path can feel sneaky or like information is being hidden.

The role of the REALTOR® has changed greatly from being a gatekeeper of information what I like to call an information distillery, extracting the knowledge essence from the voluminous data. However, I never assume that there isn't still a need for me to be a source of information for my clients. Nor do I want my clients to feel I'm not fully transparent or witholding information from them, so although many buyers do come to me incredibly prepared and armed with a significant amount of information, I take the time to learn what they know and where they might have gaps in their knowledge. Knowing the full scope of costs associated with buying a home is one such gap that is fairly common.
You want to move from search to offer to completion with as few bumps as possible. Having enough money to cover not only the down payment, but these additional costs, eliminates what could otherwise be a very unpleasant bump.
Required Fees
  • Down Payment: Have at least 5% of the purchase price available in cash. 
  • Legal Fees: You can hire either a lawyer or a notary public to review the contract and handle the paperwork and conveyancing. Fees are subject to the complexity of your specific transaction, but straightfoward ones generally cost between $750 - $1,400.
  • Property Transfer Tax (PTT): The government wants their cut of the transaction. This is paid on every transaction with only one exception:
    • The rule: PTT is calculated at 1% of the first $200,000 + 2% of the balance of the purchase price. Example: $527,500 purchase price --> (1% x $200,000) + (2% x $327,500) = $2,000 + $6,550 = $8,550
    • The exception: If you are a first-time buyer paying under $475,000, you pay $0.00! Purchases between $475,000 - $500,000 pay a portion of the PTT, but do get partial rebates. Full details here. Partial exemption table here.
Potential Fees
  • Mortgage related - When meeting with your banker or broker, make sure you get full details about what fees to expect from them.
    • Mortgage application fee? This varies and some lenders don't charge it at all.
    • Mortgage default insurance. This is mandatory if you have less than 20% down payment. The cost variest between 0.65% - 2.75% of the mortgage amount.
    • Mortgage life insurance. What will happen to your mortgage if something happens to  you? The lender will generally offer this, but I recommend you speak with an insurance broker as well and consider alternate options.
    • Land survey fees. Some lenders may require this.
    • Appraisal. Some lenders may require this and if so, some will cover the cost and some will charge is back to the buyer. If charged, this is a variable cost, but generally around $300.
  • Home inspection. This is under the 'potential fees' category, but I feel strongly that it should always be done. Though is adds generally $500-$700 to your expenses, I think the peace of mind it provides is well worth the cost.
  • Sales Tax. This only applies to newly built homes. If looking at new homes, always ask if the advertised prices are inclusive or exclusive of the 5% GST (BC). This is separate from the PTT, so when tax gets brought up, remember both - GST + PTT. Should you have to pay GST, keep in mind that you may be eligible for a rebate on your federal income tax.  
  • Seller Pre-Paid Contracts. If the seller has paid ahead for certain services or taxes, you'll have to reimburse them for the pro-rated amount.
  • Moving. While cost related to the physical task varies depending on if this is DIY, paid in the currency of beer and pizza to your friends, or done by hiring a professional crew, what may not be unavoidable are strata move-in/move-out fees. Check with the building as soon as the contract is firm so you're not surprised.
I always hope for a 'happily ever after' ending to my buyers' stories, so let's not leave this post without a happy ending either.
  • BC Home Owner Grant: If you qualify, your property taxes can be reduced by as much as $570. Full program and eligibility details can be found here.
  • For first time buyers only, you can claim $5,000 on your income tax for a $750 first-time buyer's rebate.

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