First-time home buyers know to prepare for a down payment, but that`s not the only cost to consider when buying your first home. These costs can add up quickly, and often startlingly, so it`s important to know and prepare for them before you sign the dotted line.
1. Mortgage Default Insurance
You may have your mortgage sums all stacked up but if you’re putting less than 20 per cent down, you’re required to buy CMHC mortgage default insurance. It will be 0.65-2.75 per cent of your mortgage, which will cost thousands of extra dollars over the term. So if you can manage to put 20 per cent down, it will be worth it.
2. Appraisal Fee
Some mortgage lenders will require an appraisal on the property you wish to purchase – which could be at your expense, depending on the lender and your down payment.
Barry Magee of Sutton West Coast Realty says, “This goes hand in hand with CMHC insurance. If you don’t have 20 per cent to put down, the government will require that the property is appraised. This makes sure you aren't overpaying for the home, and the government isn't insuring a property that has been overvalued.”
3. Land Survey Fee
Similar to the appraisal fee, some lenders might require you to have an up-to-date survey of the property. Again, this will be at your expense.
4. Mortgage Life Insurance
This insurance will pay off the balance of your mortgage in the event of your death or inability to pay, and is highly advisable that you take it out (although not mandatory). Your lender will likely offer you this form of insurance, but you’ll probably get a better deal going to an independent insurance or mortgage broker.
5. Title Insurance and Search
Title insurance is another optional insurance, which some lenders may require. It covers problems that may arise due to boundary encroachment issues, title fraud, undischarged mortgages and other issues relating to the property's previous owners. If you choose to protect yourself against these risks, it will cost about $250.
You may also need to do a title search. Magee points out: “It’s also the buyer’s responsibility to make sure the seller is the actual owner and the property is unencumbered. This can be achieved by searching the title, at the buyer’s expense.”
6. Home Inspection
It's important to pay for a home inspection to check for major issues in the property you’re buying. The inspection usually costs $500 to $700. A home inspector may also recommend specialists if complicated problems are suspected.
7. Legal Representation
You will need to hire a lawyer or notary public to represent your interests as a buyer and make sure the documentation is processed properly and efficiently. For straightforward transactions, you'll be charged between $600 and $1200.
8. Property Transfer Tax
Buyers also have to pay a property transfer tax on their new home – also known as a land transfer tax in many places. It varies by province but here in BC, it is one per cent on the first $200,000 and two per cent on the balance.
BC offers an exemption for first-time buyers paying $475,000 or less for their home, and a proportionate exemption for properties purchased for less than $500,000 but more than $475,000. There is no exemption on properties purchased for more than $500,000.
First-timers can also claim $5,000 on income tax for a $750 first-time homebuyer’s rebate.
9. GST on New Homes
If you’re buying a new home, it will be subject to goods and services tax, which here in BC is five per cent. Homes that have been lived in before are exempt from GST.
For new developments that were at least one-tenth constructed before April 1, 2013, there will also be a two per cent PST transitional tax.
Income tax rebates are available for up to 36 per cent of GST if the buyer is going to use the property as a principal residence.
10. Strata Move-in Costs
If you’re buying a condo, you should know that many strata corporations charge move-in fees through their bylaws.
Neil Mangan says, “Often, when providing transaction documents to lawyers and notaries, the strata corporation will request that the lawyer or notary collect from the purchaser the move-in fee, and even the next month's strata fees.” Move-in fees usually range from $100 to $400.
11. Adjustment Costs
Adjustment costs can include any prepaid monthly living costs already paid by the vendor that are to be reimbursed when the buyer takes possession of the home. These can include property taxes, prepaid water, hydro or gas charges, strata fees, service contracts and so on – so you should set aside several hundred dollars for this.
You may also need to pay anywhere between $100 and $1,000 on interest adjustment costs to cover the interest on any gap between the closing date of the purchase and the first payment date of the mortgage. You may be able to avoid this by ensuring you make your first mortgage payment exactly one payment period after your closing date.
12. Moving Costs
Don’t forget that you’ll have to hire a moving company or rent a truck for your furniture. If you’re using your friends as volunteers, they’ll reasonably expect to have their beer and pizza paid for afterwards too!
Being prepared for both the expected and unexpected costs of home ownership gives you the confidence to buy your first home, with no scary surprises.