Jan 18, 2017 / Buying
Hidden Costs Of Home Buying
The selling price is only one of the real estate related costs you’ll encounter when purchasing a new home. Getting your real estate agent involved in helping you prepare a budget will ensure that nothing is overlooked.
Along with a wide network of suppliers, experienced real estate agents have an idea as to approximate fees and costs.
Budgeting for expected expenses and allowing a slush fund for unexpected costs will go a long way towards a smooth real estate transaction.
THE COST OF BUYING A HOME
MORTGAGE RELATED FEES:
Your mortgage is the largest part of a real estate transaction and there are a number of pre-qualifying expenses that are part of obtaining a mortgage.
- Application Fees: Some lenders will add a cost to process your application. These fees vary and some lenders have been known to waive them entirely, depending on the level of other business you have with them. It’s worth asking a mortgage broker, if there is a fee to arrange for a mortgage on your behalf.
- Interest adjustments: If there is a gap between the closing date of the real estate transaction and the first payment towards the mortgage, there will be subsequent interest adjustments. Discuss with your lender ways to avoid any additional interest payments.
- Mortgage Loan Insurance: If the down payment on your real estate transaction is less than 20%, there is a one-time insurance premium on the mortgaged amount. It can either be paid before closing or added to the principle and part of the regular mortgage payment. Insurance included in the principle will be subject to interest charges.
- Mortgage Default Insurance: Optional type of insurance that protects your financial security. In the event of premature death, mortgage life insurance will pay off all or a portion of your mortgage.
- Appraisal Fee: Many home sellers opt to have a home appraisal completed. It is not an inspection, rather protects the buyer by ensuring they are not paying beyond market value. If there isn’t one of record, a buyer can always opt for one and could be useful but not necessary in obtaining a mortgage.
- Land Survey: There are times when a lender may require a current survey before signing off on the loan. A survey indicates the boundaries and measurements of the land and positions of major structures, and any registered or visible easements (such as a driveway) or encroachments (such as a neighbour’s fence) on the property. If there isn’t one in the seller’s file, it might be beneficial for the buyer to have one completed. Again, an experienced real estate agent would be help weigh the odds in having land survey completed.
LAND TRANSFER TAX:
All real estate transactions in Ontario for condos and homes are subject to Land Transfer Tax on closing date.
Levied by the province, the LLT is a marginal tax where each portion of your home’s value is taxed at a different rate. For example the first $55,000 is taxed at .5%, while any amount over $2,000,000 is taxed at 2.5%.
Since it’s a complicated formula, there are a number of online calculators that can automate it and allow for any municipality transfer tax – such as in Toronto.
First-time Ontario home buyers can apply for a rebate that covers up to $4,000 of the land transfer tax.
The lawyer’s fees can only be finalized on closing date. However, most lawyers charge a standard ‘real estate fee’ that includes a variety of tasks from reviewing legal documents to drawing up the mortgage.
All real estate lawyers will calculate the various disbursements/costs involved such as: drawing up the title deed, conducting a title search, preparing and registering the mortgage and preparing your tax certificate.
There will also be adjustments to the seller for any payments they made extending beyond the closing date such as property taxes or condo maintenance fees.
HOME INSPECTION FEE:
A home inspection protects the buyer by revealing any current or potential problems in any real estate transaction. Most home inspections also provide instructions on how to use various appliances such as the home’s HVAC system. An offer to purchase can be conditional based on a successful home inspection.
There are times when a seller may elect to have a pre-listing home inspection completed for a quick sale or to speed real estate negotiations. A home inspector may attend open houses to address any concerns by the buyer.
Title insurance is optional and covers problems that may arise due to encroachment issues (for example, a structure on your property is actually part of your neighbour’s property and needs to be removed), existing liens against the property’s title, title fraud, undischarged mortgages and other issues relating to the property’s previous owners.
Learn more about title insurance from Dave Larock in this blog post on the value and role of Title Insurance.
You will be required to obtain and provide proof of property insurance for the mortgage lender. It needs to cover the replacement value of the house and its contents from the day of taking ownership.
Moving costs can add up quickly. Beyond the moving van, there are the additional utility fees charged for service hook-ups, off-site storage and pet boarding if necessary. And there are always a few things that need to be done to the new home – from purchasing some new furniture to smaller renovations and repairs like painting.
Thinking of buying a new home? Our team would be happy to get your started on finding a new home and discuss any incidental buying costs.
Our team of real estate sales professionals is committed to finding you, your dream home. Whether you’re looking to buy or sell, the Karen Paul team is here to help with any questions.
Karen Paul & Associates | Real Estate
905-333-6234 | karenpaul.com | [email protected]
Burlington • Oakville • Hamilton • Milton • Niagara
Credit to posts by Style At Home, Rate Hub, CIBC & Treb
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