Buying a new home is exciting and expensive. If you are a first-time home buyer you might not be aware of the additional costs and find them shocking as they keep adding on to your estimate. We will outline all the extra costs incurred when you buy a new home so you can prepare yourself and plan your finances without compromising on the excitement of purchasing a new home. Plus, you can better negotiate with a real estate agent, broker or lender, and, with the help of a real estate lawyer, potentially get some fees waived.
Explaining the Hidden Costs of Buying a Home
Keep reading to find a detailed list of the additional costs that can catch you off guard when buying a home.
Home Inspection Fee
Some buyers skip their home inspection, thinking it to be expensive. However, getting it done gives you an idea about the condition of the property and how much you need to spend on any kind of repair or replacement. Home inspection experts who know the ins and outs of a house and can analyze structural issues quickly. They help you purchase a property with a good foundation and systems in good working order. This inspection depends on the size of your potential home, and usually ranges from $350 to $600.
When you borrow money to buy a home, the lender does not give you that capital for free. Instead, there will be terms and conditions associated with your mortgage, and that is where the appraisal fee comes into the picture. The amount they lend will either be a percentage of the appraised market value or a percentage of your home’s purchase price. The cost of this service generally ranges between $300 and $350, but some lenders will waive this and instead charge a financing fee based on your credit score. In addition, these fees vary from one lender to another.
If you make a down payment between 5% and 19.99% of your total, mortgage insurance is mandatory to protect the lender if you can’t make your mortgage payments. For high ratio mortgages, the lender usually pays the premiums and adds that fee to your mortgage.
Many lenders require a thorough land survey outlining your boundaries in order to prevent confusion between neighbouring properties later. They may accept the last survey done, depending on the date of inspection. Otherwise, a fresh study should be conducted. This usually costs $1,000 to $2,000.
Land Transfer Tax
Land Transfer Tax (LTT) is a marginal tax paid to the provincial government when purchasing an apartment or house. It is paid within 30 days after closing the transaction. Every province has its own land transfer tax except Saskatchewan and Alberta. (Homebuyers there incur a small transfer fee.) Some municipalities, like Toronto, have an additional municipal land transfer tax.
Purchasing a property without the intervention of real estate lawyers is impossible as it involves a lot of legal paperwork. After you have bought a property, they will draft your mortgage and assess the house or condo to ensure there are no claims on it. Here is a list of what your lawyer fee includes:
- Calculation of property and land taxes
- File storage
- Verification of cheques
- Document posting
- Execution certificates
- Drafting all legal documents
- Title searches to make sure there are no liabilities associated with the property
Every lawyer has a separate fee that usually ranges between $500 and $1,000.
Though it is not mandatory, title insurance is a smart way to protect your property against any liabilities that may later arise. Also called ownership title insurance, it safeguards you against fraud, title defects, undisclosed heirs and survey errors. The average cost of this insurance is $300.
Home insurance is a major step to insure your property against fire and accidents. For instance, if you lose all your valuables in a house fire, insurance money will help you recover from the loss. The cost of home insurance depends on the size of your property and its overall value.
Moving to a new house requires a lot of packing and moving. You could do it all yourself, but most people need to hire a mover or at least rent a truck. Fees vary depending on the mover and distance you need to travel.
Home Maintenance Costs
Homes need to be maintained, and that costs money. From leaky roofs to malfunctioning water pumps, checking for and making repairs needs to be done as soon as possible to avoid stress. Either call professional home inspection services regularly or do it yourself.
Tips for First-Time Home Buyers
If you are a first-time home buyer, apart from finding out the unexpected costs, it is wise to consider the following.
- You can opt for Home Buyer’s Plan (HBP) that makes you eligible to withdraw up to $25,000 from your Registered Retirement Savings Plan (RRSP), thus helping you with the down payment.
- You may also qualify for the Home Buyer’s Tax Credit (HBTC) and Land Transfer Tax Rebate.
Buying a house only gets easier and more affordable if you are aware of the hidden costs usually charged when the deal is closed. To find out everything in detail, hire a real estate lawyer who will not only help you with all the legal technicalities but ensure your hassle-free home ownership.