Personal Finance

Buying a home is the biggest cash outlay. But it's only the beginning.
By Gail Bebee | 17/07/15

Is your growing family testing the space limits of your current abode? Have you landed a new job far from your current home? Are you fed up with renting and crave a home of your own? These are all good reasons to move. If buying a house or condominium figures into your moving plans, budgeting for all the costs involved is vital to your mental health and financial well-being. The purchase price is just the beginning.

About the Author
Gail Bebee is an independent personal finance speaker, teacher and the author of No Hype--The Straight Goods on Investing Your Money. She can be reached at gbebee@gailbebee.com; her website is www.gailbebee.com.

One of the first expenses after a purchase offer is accepted is a home inspection to assess the condition of the structure. Fees start at about $300 to $350 for a condo and could range up to $700 or more for a house, depending on its size and complexity.

For most Canadians, buying a home means borrowing money in the form of a mortgage, a loan secured by the real estate being purchased. Before approving a mortgage, virtually all lenders require a property appraisal, a professional estimate of the value of the home being mortgaged. The cost is typically $300 to $500. For larger mortgages, the lender or mortgage broker should cover this cost, says broker David Larock of Integrated Mortgage Planners Inc.

Borrowers who make a down payment of less than 20% of the purchase price are required to pay mortgage-loan insurance, also called mortgage-default insurance. The one-time premium is a percentage of the loan amount. The rate increases with the loan-to-property-value ratio and ranges from 0.6% to more than 5%.

For a $400,000 home purchase with 10% down -- leaving a $360,000 mortgage to be insured -- the standard insurance premium charged by Canada Mortgage and Housing Corp. is 2.4% of the loan value, or $8,640, plus provincial sales tax. The complete CMHC rate schedule is posted on its website. Other insurers offer very similar rates.

Before releasing mortgage funds, lenders require proof of insurance coverage against fire. For your own protection, you will want homeowner's insurance to cover property damage, however caused, and third-party liability. The premium will depend on the location and nature of the property.

If you buy a house, your lender may require a recent property survey showing the property location, boundaries and other features. If this is not available from the seller, you will need to hire a professional surveyor to prepare an acceptable survey. Costs vary by location, property size and features.

Instead of a survey, some lenders will accept title insurance which covers title defects and fraud. The one-time premium is a few hundred dollars. Title insurance is essential, but it can never replace a property survey that shows exactly what you are buying.

Then, there are the taxes.

Most provinces/territories, and a few municipalities levy some form of tax or fee on real-estate transactions, usually calculated as a percentage of the purchase price or assessed value of the real estate. Some jurisdictions also charge a mortgage- registration fee.

The tax hit varies significantly by jurisdiction. In British Columbia, the land-transfer tax on a home valued at $400,000 is $6,000. The land-transfer tax(es) on a home purchased for that amount in Ontario is $4,475, plus an extra $3,725 if the home is located in Toronto. Saskatchewan's land-title transfer fee for a home with the same price is a relative bargain at $1,200. Alberta has even lower fees for such a home: a land-title registration fee of $130, plus, if applicable, a mortgage-registration fee of up to $130.

Rebates provide at least partial relief from land-transfer taxes for first-time buyers in the provinces of Ontario, British Columbia and Prince Edward Island. The city of Toronto also offers rebates. For all jurisdictions across Canada, a federal First-Time Home Buyers' Tax Credit worth up to $750 is also available.

A buyer normally does not pay for the services of the real-estate agent who helps him find the right home. However, real-estate commissions are payable if your relocation plans include selling a home you already own. Commissions run about 5% of the selling price.

Real-estate lawyer's fees and disbursements such as a title search, registering the land title and office expenses are unavoidable costs of buying a home. Fees vary by location and the amount of legal work required. Expect to spend about $1,000 or more.

Your lawyer's bill will also include various closing adjustments such as property tax or condo fees applicable to your ownership that the seller has already paid, and interest from the closing date to the date of your first mortgage payment.

If you are buying a condominium, you and your lawyer will want to review the condo's status or estoppel certificate, a detailed snapshot of the condominium corporation's financial and legal affairs. Budget $100 to obtain the certificate.

New houses and condos come with an additional set of costs. HST is charged on new homes. Partial rebates may be available, depending on where you live. Development and builder's levies, which could be several thousand dollars, will need to be paid. If there is a new-home warranty, the builder generally includes the cost in the purchase price.

Moving expenses, utility hook-up fees and the cost of new locks are other expenses to include in your relocation budget. In addition, new homes often mean new appliances, window coverings, furniture and maintenance equipment such as lawn mowers, as well as renovation, decorating and landscaping expenses.

When tallied up, the costs of moving could total up to 10% or even more of the purchase price of a home. Prudent buyers will develop a realistic estimate of these costs before signing any offer to buy a home.

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