Purchasing a home can be a very exciting and stressful process. Buyers, particularly first time buyers, need to be aware that there are a number of costs associated with buying a home that go beyond the actual purchase price. Here are some of the costs that are associated with buying a home:
Legal fees & expenses: you’ll want your lawyer to review the terms of the offer. They will also be responsible for assessing your mortgage, conducting a title search; registering a new title and getting the documents you need in order to determine the adjustment costs. Expect your lawyer to charge you between $1,500 and $2,500.
Home inspection: it’s very important to get a home inspection before buying a home. It’s important to find a home inspector that knows what to look for. Home inspectors usually look at the condition of the foundation, heating and cooling systems, electrical services, roof, plumbing and other significant structural issues. The inspector’s report should clearly outline costs of repair or replacement where needed as well as comment on the condition of the property relative to others of the same age, which will indicate how well the home has been maintained. Costs vary depending on the size of the home. Expect to pay between $300-$500.
Adjustment costs: you have to reimburse the vendor for pre-paid costs such as property taxes, filling the oil tank (if required), and utility bills such as gas, hydro and water.
Appraisal fee: how does the lender know you’re not over-paying for your home and trying to borrow way more than you should be relative to the property’s actual value? Simple. They make you pay between $150 and $250 to have the property appraised. If you throw your financial weight around, they may make an exception and wave the fee.
Land transfer tax: unless you live in Alberta, Saskatchewan or Nova Scotia, you’ll have to pay Land Transfer Tax (or property purchase tax). For example, in Ontario, 0.5% is charged on the first $55,000; 1% is charged on $55,000 to $250,000, and 1.5% is charged on $250,000 to $400,000.
GST: if you’re buying a home that has been extensively renovated, you’ll have to pay GST. You may qualify for a partial GST rebate if your home is purchased to be your primary residence and depending on the sale price. For a home valued at $350,000 or less, you’ll qualify for a rebate of 36% of the GST paid, to a maximum of $8,750. For each $1,000 of purchase price above $350,000, the maximum rebate of $8,750 is reduced by 1%. If your new home costs $450,000 or more, there is no rebate.
A property survey: sometimes the lender can request a property survey. An 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. It can cost between $1,000 and $2,000.
Title insurance: real estate title or mortgage fraud is on the rise and if your title comes into question, the costs can be huge. Title insurance is big in the U.S., it is relatively new in Canada. It is often offered as an alternative to a survey, this shouldn’t replace a property survey. A property survey is too important.
Interest adjustment: the calculation of interest from the closing date to the date of the first mortgage payment is calculated from. Let’s say you close on March 16th, 2016, the interest adjustment date would be from March 16th to April 1st, the day when your first mortgage payment is due.
Water quality inspection: if you’re moving to a property that gets its water from a well, you need to know if that water is potable. The only way to know is to have the water tested on three separate dates, including after a heavy rainfall. Check with neighbours if you can to see how reliable the water table is in the area. You can negotiate these costs with the vendor and list them in your Offer to Purchase.
Hook-up fees: service charges are applied to hook up utilities such as electricity, gas, and telephone service. Make sure you have a couple hundred dollars set aside for this.
Moving costs: lost of people don’t think of this cost until they’re taking possession of their new home. Moving costs will depend on the distance of the move and the amount of stuff you have to be transported. Get at least two estimates as costs may vary. One way to minimize your moving costs is to try and move at off peak periods. If you move on the 10th of the month or on the 22nd of the month, the movers won’t be as busy and you may get a better deal.
Home insurance: if you have a mortgage, your lender will insist that you have enough home insurance to cover the 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 if you need to rebuild. Home insurance is based on the value of your home and current reconstruction costs.
Appliances, window coverings, and new furniture/supplies: if the appliances don't come with the home you're buying, you'll have to buy used or new. If the window coverings (and/or certain lighting fixtures) have been excluded in the offer, you'll have to spring for those too. And then there's all the new furniture you'll need for the extra space you have now that you're an owner. If you buy a home with a grass, you'll need a mower. If you buy a home with a pool, you'll need pool cleaning equipment and supplies. You may even need to buy things like garbage cans if you're moving from an apartment and are used to shoving your gunk down a shoot. You'll need light bulbs to replace the ones the old owners unscrewed as they left. You may need new mirrors for the bathrooms. Have some money set aside for the unexpected. And don't forget you'll need to arrange to have your locks re-keyed or changed completely so you don't have to worry about how many the people the old owners handed keys out to.
Condo or strata fees: if you are buying a townhouse, condominium or a home in a gated community, you may be charged a monthly fee to cover the costs of common area maintenance.
Maintenance: you should have at least $2,000 set aside for the first couple of things that go wrong in your new home. It's inevitable. Something will leak. Something will break. Something will fall off. If you're buying a brand new home, stuff may not break, but money will still have to be spent… to build a fence, to landscape or lay down sod, to finish the basement. Set aside between 3% and 5% of the value of your home (land excluded in really expensive areas) for maintenance every year. The 3% applies to newer homes. So if you've just bought a home worth $300,000, expect to spend $9,000 a year for upkeep. It may not happen every year, but there will come a day when the furnace must be replaced, the roof re-shingled, the drive-way repaved, the appliances replaced, the walls repainted, the hardwood floors refinished, the pool relined. If you're not prepared to deal with the on-going maintenance that comes with home ownership, save yourself the aggravation and keep renting.
CENTURY 21 Miller Real Estate Ltd.
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By Production CENTURY 21 Canada 2013
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