Hidden Costs When Buying a Home
Don't know who is hiding them and why, but I do know that loads of people who decide to buy a home haven't got Clue One about the costs involved, beyond the purchase price and, perhaps, the legal fees. We often enter into the single biggest purchase of our without a clear plan, research or budget. Yah, you need a budget. Here are some things that should be on it:
Legal fees and expenses: You'll want your lawyer to review the terms of the offer. (S)he will also deal with the mortgage, do a title search, register a new title, and get the documents needed to figure out the adjustment costs. Figure between $1,500 and $2,500.
Home inspection: I've never bought a house without doing a home inspection. Sometimes I've been disappointed because the inspector wasn't the best and I had problems later. And I've worked with people who had HUGE problems after a home inspection - bugs, crappy wiring, leaking skylights. But I would still NEVER buy a home without doing a home inspection first. They can't see everything (they don't look inside walls, for example), but here's what they usually look at:
- the condition of the foundation
- heating and cooling systems
- electrical service
- significant structural factors
The inspector's report should outline costs of repair or replacement where needed as well as comment on the condition of the property relative to others of the same age, which will speak to how well the home has been maintained. Costs vary depending on the size of the home. Expect to pay $300 - $500.
Adjustment costs: You have to reimburse the vendor for pre-paid costs such as property taxes, filling the oil tank, and utility bills such as gas, hydro and water.
Appraisal fee: How does the lender know you're not over-paying for your home and, as a result, trying to borrow way more than you should be relative to the property's actual value? Simple. They make you pay between $150 and $250 to have the property appraised. If you throw your financial weight around - assuming you have any financial weight -- they may waive this fee.
Land Transfer Tax: Unless you live in Alberta, Saskatchewan, or rural Nova Scotia, you'll have to pay Land Transfer Tax (or property purchase tax). Provinces have complicated, multi-tiered taxation systems. In Ontario, for example, 0.5% is charged on the first $55,000; 1% is charged on $55,000 to $250,000, and 1.5% is charged on $250,000 to $400,000. Royal Lepage has a thorough list of these taxes and a calculator you may find useful.
GST: if you're buying a new home or a home that's been extensively renovated, you'll have to pay GST. However, you may qualify for a partial GST rebate if your home is purchased to be your primary residence and depending on the sale price.
For homes valued at $350,000 or less, you'll qualify for a rebate of 36 % of the GST paid, to a maximum of $8750.00. For each $1000 of purchase price above $350,000, the maximum rebate of $8750 is reduced by 1%. If your new home costs $450,000 or more, there is no rebate.
A property survey: Sometimes requested by the lender, a survey is done to verify the property's boundaries, measurements and structures and identify any easements, rights of way or encroachments on your, or adjacent properties. If the seller does not have one or does not agree to get one, you will have to pay for it yourself. It can cost between $1,000 and $2,000.
I have personally had some experience where the existing survey wasn't accurate. And my girlfriend, Victoria, has had more than one experience where the survey and the listing for the property didn't match - once in a really BIG way. (She ended up not closing when she discovered the rural property acres short of the size the listing said it was.) Spending $2,000 on a survey when you're trying to scrape together all the money you can just to come up with a decent downpayment may "feel" like a waste of money. But it's not. If you're going to spend hundreds of thousands of dollars, don't you want to know EXACTLY what you're buying?
Title insurance: Real estate title or mortgage fraud is on the rise and if your title comes into question, the costs can be huge. Enter Title Insurance. Very big in the U.S., it is a relatively new product in Canada and is often offered as an alternative to a survey. It shouldn't be. The survey is too important.
Interest adjustment: The calculation of interest from the closing date to the date the first mortgage payment is calculated from. Let's say you close on July 17, the interest adjustment date would be from July 17 to August 1, the day when your first full mortgage payment is due.
Water quality inspection: If you're moving to a property that gets its water from a well, you need to know if that water is potable. The only way to know is to have the water tested (best on three separate dates, including after a heavy rainfall). Check with neighbours if you can to see how reliable the watertable is in the area. You can negotiate these costs with the vendor and list them in your Offer to Purchase.
Hook-up fees: Service charges are applied to hook up utilities such as electricity, gas, and telephone service. Make sure you have a couple hundred bucks set aside for this.
Moving costs: Sounds obvious, right? Lots of people don't think about this cost until they're taking possession of their new home. Then they panic. Moving costs will depend on the distance of the move and the amount of stuff you have to be transported. Get at least two estimates since costs vary.
One way to minimize your moving costs is to try and move off the peak periods. If you move on the 10th of the month or on the 22nd of the month, the movers won't be as busy and you may get a better deal.
Home insurance: If you have a mortgage, your lender will insist that you have enough home insurance to cover total since the property is their security for the loan. Your lawyer will need confirmation that insurance has been arranged. Should your house be completely destroyed, the insurance company is required to pay the lender first. You will still own the lot but will have to negotiate with a lender to borrow to re-build. Home insurance is priced based on the value of your home and current reconstruction costs.
Appliances, window coverings, and new furniture/supplies: If the appliances don't come with the home you're buying, you'll have to buy used or new. If the window coverings (and/or certain lighting fixtures) have been excluded in the offer, you'll have to spring for those too. And then there's all the new furniture you'll need for the extra space you have now that you're an owner. If you buy a home with a grass, you'll need a mower. If you buy a home with a pool, you'll need pool cleaning equipment and supplies. You may even need to buy things like garbage cans if you're moving from an apartment and are used to shoving your gunk down a shoot. You'll need light bulbs to replace the ones the old owners unscrewed as they left. You may need new mirrors for the bathrooms. I've even seen ex-owners take the toilet seat. They're not supposed to, but they do anyway. And are you going to get into a legal battle over a toilet seat or a set of light bulbs? I hope not. So have some money set aside for the unexpected. And don't forget you'll need to arrange to have your locks re-keyed or changed completely so you don't have to worry about how many the people the old owners handed keys out to.
Condo or Strata fees: If you are buying a townhouse, condominium, or gated community, you may be charged a monthly fee to cover the costs of common area maintenance.
Maintenance: You should have at least $2,000 set aside for the first couple of things that go wrong in your new home. It's inevitable. Something will leak. Something will break. Something will fall off.
If you're buying a brand new home, stuff may not break, but money will still have to be spent… to build a fence, to landscape or lay down sod, to finish the basement.
Set aside between 3% and 5% of the value of your home (land excluded in really expensive areas) for maintenance every year. The 3% applies to newer homes. So if you've just bought a home worth $300,000, expect to spend $9,000 a year for upkeep. It may not happen every year, but there will come a day when the furnace must be replaced, the roof re-shingled, the drive-way repaved, the appliances replaced, the walls repainted, the hardwood floors refinished, the pool relined. If you're not prepared to deal with the on-going maintenance that comes with home ownership, save yourself the aggravation and keep renting.