The Costs of Buying A Home
One common mistake that buyers make is overlooking the closing costs that need to be paid during the home inspection phase or at the end of the buying process when you meet with your lawyer to sign the purchase documents. While for your home purchase, you’ll want to start setting aside funds for the additional costs that you’ll need to pay. Some of these costs may include title insurance, property appraiser fees, and legal fees.
Closing Costs That You Need to Plan For
1. Initial Deposit
An initial deposit is required when you make an Offer to Purchase on a home and will make part of your total down payment. A typical amount for an initial down payment is $5,000 - $15,000, the higher the amount the more you show the sellers that you are a serious buyer.
The minimum down payment to buy a home in Canada is 5% of the purchase price. It’s important to remember, that if for some reason you back out of the home purchase without having covered yourself with conditions for your Offer to Purchase such as financing, home inspections, condo document review, your deposit may not be refunded back to you and you may be sued for damages.
3. Mortgage Default Insurance
If you purchase a home with less than a 20% down payment, it is considered a high ratio mortgage and you will be required to buy mortgage default insurance more commonly called CMHC insurance. This insurance is provided by the Canadian Mortgage and Housing Company (CMHC) or Genworth Financial, and it protects the lender in case the borrower defaults on the mortgage loan.
CMHC insurance is not normally considered a traditional closing cost, because it is added to the total mortgage you need and will be amortized over the life of your mortgage.
4. Legal Fees and Disbursements
You can expect to pay a minimum of $500 (plus GST) on legal fees, which include the preparation and recording of legal documents, plus the courier costs to ship the documents to and from the lender and the other lawyer.
5. Appraisal Fee
An appraisal, which is an estimate on the value of your home, is usually covered by the mortgage lender. An appraisal is performed to certify the lender of the resale value of the home in case you default on the mortgage. The cost usually runs between $250 - $350.
6. Home Inspection Fee
It is highly recommended that you perform a home inspection as a condition of your Offer to Purchase. A certified home inspector will assemble a report on the condition of the home for a fee between $400 - $600, depending on the complexities of the inspection as well as the size of the home.
7. Title Insurance
Today, most lenders require title insurance to protect themselves against losses in the event of a property ownership dispute. This is purchased through your lawyer/notary and usually costs $100 - $300.
8. Pre-Paid Property Taxes
Property tax is calculated as a percentage of your home’s value, and it is charged by the municipality where the home is located. You may need to reimburse the seller if they had already paid the property taxes for the full year. You are also given the option to set-up an automatic payment plan with your bank who then pays your property tax when it’s due, most home owners find this extremely valuable for budgeting purposes.
9. Property Insurance
The mortgage lender requires you to have property insurance because your home is security for your mortgage. Property insurance covers the cost of replacing your home and the contents in case of loss and must be in place before keys can be released to you on closing day.
10. Other Costs
Depending on the type of home or the condition of the home, you may have a few more expenses to consider. These costs may include movers / moving supplies or truck rentals, utilities (gas, electricity, telephone, cable TV, Internet), renovations (paint, new carpets, new flooring, new kitchen), Condominium fees.
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What Buyers Really Need to Know
- Questions That Are a Must Before Hiring a REALTOR®
- The Different Types Real Estate Relationships
- Mortgage Calculator
Tips for First Time Home Buyers
- Are You Ready for Home Ownership?
- Ten Big Mistakes First Time Home Buyer Should Avoid
Resources for Buyers
- Axiom Mortgage Solutions Easy Application
- Canada Mortgage Direct Easy Mortgage Application
- CMHC Home Buying Calculator Tools
- Energy Efficiency Alberta's Home Improvement Rebate Program
- Mortgage Calculator