Buying your first home? Looking for Mortgage Options? Get To Know the hidden costs
Congratulations! You’re ready to make one of the biggest financial decisions of your life. Sound scary? It doesn’t have to be if you do a little research. Start by learning about the hidden costs of the home buying process and planning your spending.
1. It starts with a plan
Buying a home is a huge investment, but the cost of the property is not the only cost you’ll encounter. Map out all the expenses you can think of when buying a home by starting with these questions:
- What are the legal and closing costs likely to be? These include things like the land registration fee, broker fees, title insurance and fees associated with surveys and certificates. Your realtor or your lender can help you figure this out.
- What are the current costs for a home inspection?
- Will I need to budget for renovations?
- Will I need to budget for gardening equipment, tools or window coverings? These items can add up quickly.
- How many of the appliances or major items (furnace, roof, deck) need updating or replacing in the next few years?
- What will I need to have set aside to tackle unexpected home repairs or strata fees?
2. up: The Affordability Budget
List all the bills and monthly expenses you currently have, and then think about the additional items you’ll need to purchase for your new home. Calculate the cost of utilities, property taxes, insurance as well as inflation, and “just in case” expenses.
Book a free session with a personal banker. They can help you navigate the budgeting process, and help you to determine what you can afford, while still achieving your savings goals for the future. It’s important that you don't accidentally financially restrict yourself. They’ll also help you assess the strength of your credit score, which sets the framework for what lenders will be willing to loan you for your mortgage.
Establish how large your down payment will be, and whether or not you’ll need to have your mortgage insured by the Canada Mortgage and Housing Corporation (CMHC) or Genworth based on the property values that you’re looking at and the size of the payment you have to put down.
Consider options like the Home Buyers' Plan (HBP) - a program that allows you to withdraw up to $25,000 in a calendar year from your retirement savings plans (RSP) to buy or build a home for yourself when working this out.
Once you're ready, use a mortgage calculator
3. Find your best mortgage rate
4. Property taxes
5. Home Insurance
6. It’s moving day!
Average moving cost with friends: pizza Average moving cost with movers: $300+
7. Keep saving for the future
If you can dream it, you can do it. Wherever you want to go, we'll help get you there.
EXPENSES YOU SHOULD EXPECT
As part of the down payment, this is paid when you make an Offer to Purchase. Initial deposits are usually around $10k for a $350k home – to assure the seller that you’re serious.
Own your home with as little as a 5% down payment with mortgage loan insurance from CMHC/Genworth.
Mortgage Loan Insurance Premium:
If you have a high-ratio mortgage (less than 20% down payment), you may need mortgage loan insurance. This premium can be added to your mortgage or paid in full upon closing.
Visit www.cmhc-schl.gc.ca for current insurance premiums.
Your mortgage lender may require a property appraisal with 20% down payments. The appraisal is an estimate of the value of the home and can cost anywhere from $300-500.
Home Inspection Fee:
A home inspection is a highly recommended report on the condition of the home and may cost over $500. The peace of mind alone is worth every penny.
Prepaid Property Taxes:
If property taxes are prepaid by the previous owner, they must be paid back.
The lender requires active property insurance by closing day as security for the mortgage. This insurance specifically covers the cost of replacing the structure of your home.
Mortgage Life Insurance:
Special insurance coverage to cover the cost of discharging your mortgage in the event of death or severe illness. It may sometimes be a condition of your
mortgage. Premiums will vary based on factors including mortgage amount, age of insured, etc.
Legal Fees and Disbursements:
Must be paid upon closing and costs around $1500, depending on the price of your property. Your lawyer or notary may bill you direct costs to check on the property’s legal status. While Alberta does not levy a land transfer tax, there are nominal registration fees.
Your lender or lawyer/notary may suggest title insurance to cover loss caused by any unknown defects of title to the property. Title Insurance premiums can range from $350-$400.
If you don’t have previous history with a utility or phone company, they may require a deposit to activate your account. This is credited later on providing your payments are up-to-date.
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.
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 with well water, you need to know if it’s potable by having it tested. These tests will cost around $250.
It’s recommended that you set aside between 3% and 5% of the value of your home for maintenance every year to save for a new furnace, roof or other upkeep fees.
This cost is to cover the pizza for your helpful friends, and/or moving truck rental.