So you've finally found that perfect home that matches your pocketbook. Whether you are a first-time buyer or a seasoned one, it is important to remember that there are hidden costs related to most home purchases.
By far the largest cost is the purchase price of the home; there are, however, numerous direct and indirect expenses related to the purchase and the home that need to be paid. These additional costs can vary from one purchase to another. Here's just a sampling.
Goods and Services Tax
A five per cent federal Goods and Services Tax (GST) is collected on the sale price of goods and services. That being said, there are real estate transactions and services that do not require payment of the tax.
As a general rule, purchasers of homes that have been lived in or used do not pay the tax. If the home is new and it will be your primary place of residence, you may have to pay GST. You may also qualify for a partial rebate, depending on the sale price, but often this rebate is signed over to the builder. I will be able to direct you to more information about the GST.
GST also applies to many other services in the real estate transaction, including fees for appraisals, referrals, surveys and legal assistance. The tax is charged on these services whether or not the home you have purchased is exempt from the tax.
Land Transfer Tax
This tax is payable by anyone who purchases property in Manitoba and is calculated on the property's purchase price.
Click here to calculate your land transfer tax
Mortgage application fee
Some lenders may charge a fee to process your mortgage application. However, with the highly competitive nature of the mortgage industry, many will waive the fee entirely, especially if you have other accounts with them.
Before lending you any money, most financing companies will require a property appraisal at your expense.
Mortgage broker's fee
If you use a mortgage broker to find you a lender, you may be charged a fee which is payable at the time of closing when the mortgage transaction is complete. In many cases brokers are paid directly by the lenders, so you should ask the mortgage broker about who pays the fee.
Be prepared for bulkier mortgage payments if your lender requires you to have your property tax installments added to your payments. This is usually a condition of high-ratio mortgages, where you are borrowing more than the usual 75 per cent of the purchase price.
If you have a high-ratio mortgage, the government requires that it be insured against default and that you pay the cost of insurance. The cost to you ranges from .51 to 2.90 per cent of the mortgage amount and is added to the mortgage principal.
Land survey fee
Many lenders require an up-to-date survey of the property you intend to purchase. The survey confirms the property's boundaries and ensures there are no structures like fences in the wrong place. If the property is located in a subdivision in an urban area, some lenders will accept a survey that was done within the past five to 10 years. Survey costs vary. You may want to ask the vendor to provide one as a condition of your offer to purchase.
Before issuing a mortgage, some lenders may require a professional inspection of your home; you may want the home inspected anyway. As a condition in the offer, and for a few hundred dollars, you can find out -before the house is actually yours -whether there are any major repairs that will be required in the first few years you own the property. This inspection may help you decide to buy -or not buy -the home, or give you some leverage to have the vendor pay the costs of the repairs or adjust the purchase price.
Mortgage life insurance
This is a form of term life insurance that pays off the balance of the mortgage if you or your co-borrower dies (similar policies cover disability). Many lenders offer you the option of buying the insurance and adding it on to your monthly payments. You may prefer to protect yourself by taking out your own policy instead. Talk to your insurance agent.
Fire and liability insurance
Most lenders require that you carry fire and extended coverage insurance that well exceeds the outstanding balance on the value of the home. Discuss this with your insurance agent.
Even the most straightforward home purchase requires a lawyer to review the offer, search title, draw up mortgage documents and oversee the closing. You can expect to pay all the legal fees required to arrange the mortgage, as well as "disbursements" -the costs involved in conducting a title search, drawing up the title deed and preparing and registering the mortgage. Lawyer's fees can vary widely, so shop around before deciding on a lawyer.
These include the cost of adjustment to property taxes, utility bills, heating oil and so on, which the vendor has pre-paid beyond the closing date and wants to be reimbursed for. To avoid any surprises, I will explain each cost you are likely to incur.
Maintenance and utility costs
In addition to budgeting for your monthly mortgage and property tax payments, you will have to budget for the monthly cost of heating, electricity and other expenses related to your home.
If you have purchased a condominium, you will also have to pay your proportionate share of owning and maintaining the common areas. This is normally paid in the form of a monthly maintenance fee.
Most new buyers will either have to hire a professional mover or rent a truck and do the move themselves. Fees for movers and truck rentals can vary, and be even higher at the end of the month or in summer, when demand for movers and trucks increases.