When purchasing a home, you need to be aware of all the closing costs and other expenses that are involved. This is the basic information you’ll need to consider before placing an offer to purchase your home.
Down Payment - In 2008, the Government amended the Bank Act with regards to down payment. Under the current rules, a minimum 5% down payment of the total purchase price is required. Some lenders will give a ‘cash back’ mortgage where you’ll receive 3-5% of the purchase price back at closing to go towards furnishings or appliances, and Scotia bank offers a zero down mortgage where they will pay your 5% down for you. However, when considering these options you should speak with a lender directly to find about the restrictions and additional obligations. Also, don’t forget when you put less than 20% down, the mortgage needs to be insured. This insurance premium gets higher the less you put down, but often it is added to your mortgage and you aren’t required to pay up front for it.
Home Inspection - After you have placed an offer and had it accepted, it is advisable to hire a competent home inspector to go through the property to find issues that you might not have been able to identify yourself. This typically costs between $350 and $500.
Appraisal – Often times a lender will require an appraisal to verify the value of the home they are lending on. This will typically cost between $250 and $450. Sometimes lenders will even cover this cost, so don’t forget to ask!
Insurance – A lender will want to ensure that you have adequate fire and property insurance so that if the house burns down, they will still receive their money back. Many insurers offer coverage that can be paid monthly, and you will probably be safe planning for approximately $100 per month.
Legal Fees – You need to pay your lawyer or notary to transfer the title to your name, register the mortgage, draft paperwork and other issues. Expect to pay between $1,200 - $1,500 for this service.
Property Transfer Tax – When you buy a property, the Government charges you this lovely fee. It is calculated as 1% of the first $200,000, and then 2% of the remainder of the purchase price. (Ex. – a $300,000 home will cost $4,000) In the case of a 1st time Home Buyer; this tax is waived up to a maximum of $400,000.
Title Insurance – While not mandatory, this insurance will cover defects in title and banks allow this insurance in lieu of a property survey. Expect to pay $250 - $300 for this policy.
GST – Soon to be replaced by the HST, when you are purchasing a newly constructed home there are additional taxes that need to be paid. Currently, a resale home has no GST/HST payable at all. Before placing an offer, it is best to contact a professional to ensure the rulings have not changed.
Realtor Fees – Did you know there are usually no fees involved when purchasing a home with the assistance of a Realtor? You will benefit from your Realtor’s negotiating skill, market knowledge, experience with financing and he/she will take care of the loads of paperwork involved with no cost to you!
One last thing to consider when purchasing a home is creating a ‘reserve fund’. You should have access to at least a couple thousand dollars in the event a hot water tank or furnace needs to be replaced shortly after you’ve purchased your home. Having this money available will help you sleep at night not worrying about repair bills if something happens.
If you’d like to take advantage of Mitch’s unique ‘Home Buyer’s Training Program’ to learn much more about these costs and ways to save as much time and money as possible, call (250) 262-9338 or Instant Message Mitch today!