Buying a Home: What Expenses to Expect
Posted on March 6, 2015 by Kristy Just
Budgeting for a new home can be tricky. Not only are there mortgage installments and the down payment to consider, there are a host of other—sometimes unexpected— expenses to add to the equation. The last thing you want is to be caught financially unprepared, blindsided by taxes and other hidden costs on closing day.
As a general rule it is recommended to have approximately 2-5% of the purchase price set aside for home buying costs, in addition to your downpayment/deposit amount. If you are a first time home buyer there are some exemptions that you may qualify for to help alleviate this cost. Use the following list to determine which costs will apply to your situation prior to structuring your budget.
1. Purchase offer deposit
This is usually about 5% of the purchase amount and needs to be paid within 7-10 days of making an offer to purchase a home. So if you are buying a $500,000 home, you need to have $25,000 ready, via bank draft, once you sign to remove all your subject clauses on your offer to purchase. This 5% can consititue part of your larger downpayment for a home. At closing you can contribute the remainder of your downpayment to the sale. To buy a home you need a minimum of 5% downpayment, although 20% is recommended in order to save on CMHC insurance costs.
Please keep in mind that this 5% deposit amount is not part of the 2-5% that should be budgeted for closing costs. You will need to pay the minimun 5% deposit amount ON TOP of all your 2-5% closing costs, plus any additional down payment amount that you would like to put on the mortgage. See all seperate closing costs below:
2. Inspection by certified building inspector
Never buy without hiring a home inspector for an inspection! Depending on the size and type of the home, this can cost anywhere between $300 to $600.
3. Appraisal fee
Your lending institution may request an appraisal of the property. This is where your lender sends in a professional property appraiser to justify the amount of the mortgage loan that you are asking for. This appraisal cost is your responsibility. This can cost you anywhere from $150 to $250.
4. Survey certificate
If the home you’re purchasing is a resale (as opposed to a newly built home), your lending institution may request an updated property survey. A survey accurately depicts the location of the house and outer buildings in relation to the property lines. Your lender will require an up-to-date survey and if the Seller does not have one, you will have to pay to have one done. This can be approximately $150-$350. This does not apply to condominiums or townhomes.
5. 5% GST
This fee applies to newly built homes only, or existing homes that have recently undergone extensive renovations. If you are buying a previously owned home, this tax is not applicable to you.
6. Legal fees
A lawyer should be involved in every real estate transaction to review all paperwork. Experience and rates offered by lawyers range quite a bit, so shop around before you hire. Lawyers review the Offer to Purchase, search the title, draw up mortgage documents and tend to the closing details. The fee will be approximately $800-$1500. This amount varies between Provinces depending on the complexity of the sale and the type of property.
7. Homeowner’s insurance
Your home will serve as security against your loan for your financial institution. You will be required to buy insurance in an amount equal to or greater than the mortgage loan for detatched homes. If you are buying a condominium or townhouse, part of your strata fees goes towards building insurance. In this case you may just want to purhase content insurance to protect the contents of your home.
8. Property Tax Adjustment
9. Mortgage Insurance
Mortgage loan insurance is typically required by lenders when homebuyers make a down payment of less than 20% of the purchase price. Mortgage loan insurance helps protect lenders against mortgage default, and enables consumers to purchase homes with a minimum down payment of 5% — with interest rates comparable to those with a 20% down payment.
To obtain mortgage loan insurance, lenders pay an insurance premium. Typically, your lender will pass this cost on to you. The premium payable is based on a percentage of the home’s purchase price that is financed by a mortgage. The premium can be paid in a single lump sum or it can be added to your mortgage and included in your monthly payments.
Mortgage loan insurance is not to be confused with mortgage life insurance which guarantees that your remaining mortgage at the time of your death will not be a burden to your estate.
10. Property Transfer Tax
The difference between Property Tax and Property Transfer Tax is that PTT is a one-time provincial tax which comes into effect upon transfer of property and Property Tax is paid annually to the local taxation authorities. The amount of the Property Transfer Tax is 1% on the first $200,000.00 of the property’s fair market value and 2% on the remaining fair market value.
If you are a first time home buyer you may qualify for a full or partial exemption from this tax. Click here to view the exemption criteria: PTT Exemption Criteria
March 2015 Market Update
Posted on March 4, 2015 by Kristy Just
Home buyer and seller activity outpaces historical averages in February
Conditions within the Metro Vancouver* housing market continued to strengthen in February as home sale and listing totals came in well above the region’s ten-year average for the month.
Categories: Cloverdale BC, Cloverdale Real Estate