How Much Will My Home Really Cost?
Once you know what kind of mortgage you want and the price of the house you can afford, you should add up all of the other costs involved in buying a house so that you know the true cost of buying your home.
When you buy a house, it isn’t only the cost of the house that you need to save for. Don’t forget these other costs:
Figure Out the Up-front Costs
There are many up-front costs when you buy a home. Early planning will help make sure things go smoothly.
A down payment is the part of the home price that does not come from the mortgage loan. The down payment comes from your own money. You can buy your home with a minimum down payment of 5%, if you have mortgage loan insurance from CMHC. You need a down payment of at least 20% for a conventional mortgage.
The deposit is paid when you make an Offer to Purchase to show that you are a serious buyer. The deposit will form part of your down payment with the remainder owing at time of closing. If for some reason you back out of the deal without having covered yourself with purchase conditions, such as financing, home inspection, etc., your deposit may not be refundable and you may be sued for damages. The size of the deposit varies. Your realtor or lawyer/notary can help you decide on the amount.
Your mortgage lender may ask you to pay for a recognized appraisal in order to complete a mortgage loan. An appraisal is an estimate of the value of the home. The cost is usually between $250 and $350 and must be paid when you contract for those services.
Having an independent appraisal done on a property before you make an offer is a good idea. It will tell you what the property is worth and help ensure that you are not paying too much.
The appraisal should include:
- Assessment of the property’s physical and functional characteristics
- Analysis of recent comparable sales
- Assessment of current market conditions affecting the property
Mortgage Loan Insurance Premium
If you make less than a 20% down payment, you have a high-ratio mortgage. With a high-ratio mortgage your lender will need mortgage loan insurance. Mortgage loan insurance lets you buy a home with a minimum down payment of 5%.
Most Canadian lending institutions require mortgage loan insurance because it protects the lender. If the borrower defaults (fails to pay) on the mortgage, the lender is paid back by the insurer. You pay a premium for mortgage loan insurance. Your lender will add the mortgage loan insurance premium to your monthly payments, or ask you to pay it in full upon closing.
Mortgage Broker’s Fee
You may have decided to use a mortgage broker. The job of the mortgage broker is to find you a lender with the terms and rates that will best suit you.
Home Inspection Fee
CMHC recommends that you make a home inspection a condition of your Offer to Purchase. A home inspection is done by a qualified home inspector to provide you with information on the condition of the home. Costs range depending on the age, size and complexity of the house and the condition that it is in. For example, it may be more costly to inspect a large, older, home, or one in relatively poor condition or that has many pre-existing problems or concerns.
Survey or Certificate of Location Cost
The mortgage lender may ask for an up-to-date survey or certificate of location. If the seller has a survey, but it is more than five years old, it will probably need to be updated. You should ask the seller to provide an updated survey, especially if there has been a new addition, deck or fence built close to the property line. If the seller does not have one, or does not agree to get one, you may have to pay for it yourself.
Remember, you must have permission from the property owner before hiring a surveyor to go onto the property. Ask your realtor to help co-ordinate this with the owner. A survey or certificate of location can cost $1,000 to $2,000.
Your lender, lawyer, or notary may suggest that you get title insurance. This will cover loss caused by defects of title to the property.
Prepaid Property Taxes and/or Utility Bills
Property taxes are charged by the municipality where the home is located. They are based on the value of the home. The seller may have already paid property tax or other expenses that apply to the time after the house passes into your hands. You need to pay back the seller for taxes and other costs (including items like filling the oil tank).
The mortgage lender requires you to have property insurance because your home is security for the mortgage. Property insurance covers the cost of replacing your home and its contents in case of loss. Property insurance must be in place on closing day.
Legal fees and related costs must be paid on closing day. The minimum cost is $500 (plus GST/HST). In addition, your lawyer or notary will charge you direct costs to check on the legal status of the property.
Depending on your situation, you may have some other initial expenses to consider:
- Moving expenses Whether you’ll be hiring a moving company or renting a truck and asking friends for help, there are likely to be moving expenses.
- Renovations or repairs Can renovation or repair be delayed, or are some necessary to do immediately?
- Condominium fees Do you have to make the initial payment for these monthly fees?
- Service connection fees Telephone, gas, electricity, cable TV, satellite TV, Internet, and so on, may charge service connection fees. Some utilities may ask you to pay a deposit.
- Appliances Does your new home come with appliances? Do you already have your own?
- Gardening equipment Will you need to buy gardening equipment the first summer in your new home?
- Snow-clearing equipment Will you need to buy snow-clearing equipment the first winter in your new home?
- Window treatments Do blinds or curtains come with the house?
- Decorating materials Do you want to re-paint or apply wallpaper? Do the floors need to be refinished or re-carpeted? Do you have all the tools you need for decorating?
- Hand tools Do you have the basic hand tools you’ll need for your new home?
- Dehumidifier Will you need a dehumidifier to control moisture levels?
For more information, and a free consultation please contact Diana Klejne