Additional Costs You Need to Consider in Buying Your Home
First of all, make sure you have enough money in your account for the down payment. Unless you are pre-approved for a no-money down purchase, the downpayment will include your initial deposit when your offer is accepted, any additional deposit you may need to pay once the offer becomes unconditional or you remove conditions, and the remaining balance which is usually required near or on the day of closing. If purchasing for no money down, deposits may still be required depending on the seller's conditions you agreed to. The downpayment will be at least 20% if you are pr-approved for a conventional mortgage, and at least 5% for hi-ratio insured mortgages.
Second, you need to set aside 2 to 3 per cent of the purchase price to cover costs such as:
- Home Inspection - Paid prior to closing; A written report is prepared by a qualified inspector who assesses the property for any defects or poor maintenance. It helps to let you know what repairs and maintenance are required, and if the property is structurally sound.
- Appraisal - Paid prior to closing or typically covered by the insurer if the mortgage is insured; A written appraisal is prepared by an appraiser usually chosen by the lender, or the insurer (CMHC/Genworth) who insures the mortgage. It is required to make sure the property is acceptable as a security for the mortgage, to determine what the property is worth based on sales of comparable properties, and if what you paid for is close to the appraised value of the property.
- Estoppel Certificate Fee - applies if you are buying a condominium or strata unit. It usually costs up to $100.
- Condominium or Strata Fee - adjustments will be made to reimburse the vendor for any pre-paid condominium or strata fee.
- Water Quality Inspection - If the home has a well, having a Water Quality Inspection conducted ensures the water is potable and its supply is adequate.
- Legal Fees and Disbursements - The lawyer/notary public will prepare mortgage documents for you to sign and register your name on the title as the owner of the property once the deal closes. Ask your lawyer or notary public for a quote on his/her fees to close the deal and mortgage, including disbursements (courier costs, registration fee, photocopying, etc.). You may shop around to see what other lawyers charge and choose whoever you are comfortable dealing with.
- Title Insurance or Survey fees - ensures the property is acceptable as security for the mortgage. Survey fees can usually be avoided if you can get an acceptable copy of survey from the previous owner.
- Interest Adjustments - the amount of interest that accrues up to the Interest Adjustment date; can usually be avoided by closing on a day that is exactly one payment period (i.e. one month if your payment is monthly) before your first mortgage payment.
- Interest on Interim Financing - interest paid should you decide to get financing from private lenders, Vendor-Take-Back or other sources before you get your funds to pay for the place and have your mortgage in place at the same time. Typically, it is used when you're moving and you're selling your home, at the same time buying another one. If you happen to close on your "new" home before you sell your old one, you will need short-term financing to "bridge" the gap between the time you have to pay the balance owing on the "new" house, and the time you actually get the funds for selling your present home. If you need this type of financing, talk to us first by calling 1-888-853-8372.
- Land transfer Tax - for certain provinces; usually based on the percentage of the purchase value.
- Prepaid expenses - can include utilities, water, sewage, property tax, and oil in tank prepaid by the seller beyond your closing date.
- Property Tax Adjustments And/Or Holdback - Adjustments will be made to reimburse the seller for any pre-paid property taxes. Holdback is required by the lender if the lender is the one collecting and paying for the property tax in order for them to have sufficient funds available to pay the next installment due.
- Fire Insurance - usually required by the lender to be in place (as confirmed by the lawyer) by the time you go and sign the mortgage papers with your lawyer; ensures the borrower has adequate coverage to pay off the mortgage for the property in the event of fire or other damages stipulated in the policy signed up for.
- Mortgage Protection Insurance Premiums - optional; paid monthly and covers the mortgage amount in case of death, disability, loss of employment or critical illness depending on the policy you choose.
- Mortgage Loan Insurance Premium - typically incurred if your mortgage amount exceeds 80% of loan-to-value; paid to the insurer as a one-time fee that could usually be added to the mortgage amount. In some provinces, the premium is subject to Provincial Sales Tax (PST) which must be paid on closing.
- Mortgage Loan Insurance Application Fee (if applicable)
- Mortgage Processing Fee - In unique situations, this is a fee brokers/lenders charge to process applications and is disclosed before an applicant signs the mortgage commitment. This usually applies when the deal proves extremely challenging to meet most lenders' guidelines.
- Mortgage Application Fee - if applicable
- GST (Goods and Services Tax) or HST (Harmonized Sales Tax) - applicable for new homes
- Service and Utility Connection Charges and Payments
- Moving Costs
- Renovations and repairs - if applicable
Additionally, once you have purchased your home, you will incur regular expenses on a monthly, quarterly or yearly basis. Some of these costs include:
- Mortgage Payment
- Property or Condominium Insurance
- Homeowner's Insurance
- Property Taxes
- Strata or Condo Fees (if applicable)
- Cable, Telephone and Internet Services
- Electricity and Gas Services
- Water and/or Sewer Payments
- Repair/Maintenance Expenses
