In 2009, when my husband and I were buying our first home, we were fortunate enough to have a well seasoned advisor at our disposal. Without their direction and often rhetorical questioning, we could have easily overlooked some of the money gobbling factors listed below.
So in an effort to save you countless cups of coffee, sleepless nights and any unexpected surprises, let us share what we have learned....
1. Mortgage Insurance
Effective February 15, 2016 minimum downpayment requirements were changed.
Houses $500,000 or less you are required to have 5% down, houses over $500,000 and up to $999,999 you must have 5% on the first $500,000 and 10% of the balance, homes over a million you must have 20% down. Your premium will depend on the amount you're borrowing and the percentage of the downpayment.
2. Legal Fees
Whatever your personal opinions are on lawyers, do yourself a favour and hire a good one when it comes to the purchase of your home. They are a key element of the home buying process and will insure that the contract is in good order so neither party ends up regretting the deal. Legal fees ain't cheap, so plan on dropping upwards of $2,000.
3. Land Transfer Tax
In Ontario 0.5% is charged on the first $55,000, 1% from $55,000 - $250,000, 1.5% from $250,000 - $400,000, and 2% on $400,000 to $2 million. If you happen to be moving in the Greater Toronto Area, surprise, you get to double that. This can add up to big bucks, so be sure to factor it into your plan. First time home buyers are entitled to partial rebates.
4. Home Inspection
For those who don't bother, good luck! Personally I would never allow a buyer to enter a deal without first obtaining a qualified home inspection. The $500 dollars it's going to cost you up front is peanuts compared to the ugly truths that you may have been distracted from while envisioning yourself in that new clawfoot tub. Bad roofs, knob and tube wiring, insulation that predates television... it's all there lurking behind those walls.
5. Home Insurance
Chances are your lender will already have this as a requirement to cover the amount of the mortgage/value of the building, not to mention everything you have inside it! These costs can vary, depending on the size of your home and the value of your assets. Pricing is competitive, so be sure to get quotes from at least three providers before signing a policy.
With buyers falling into the habit of making absurd offers on houses, some fail to take a moment to ask themselves if the home is really worth their sky high offer. Well even if they don't, the bank will require an official assessment of the property.
What you thought this thing was going to take care of itself?! Personal finance experts recommend that a family set aside 1.5 - 2% of a homes value each year (again this will vary based on the size and age of your home), you don't want to be scrambling for cash when it comes time to replace a leaking roof or new furnace in February.
A survey will ensure that you are buying the ownership of the property that you think you are. It's always best to request one and when it's not available be sure to the proper due diligence has been done.
9. Prepaid Property Tax or Utility Bills
Remember to factor these into your closing costs, usually ends up in the $2500- $3500 range. Your lawyer will provide you a statement.
10. Move-In/Cleaning Costs
So you've got the house, congratulations! Now you've got to get you and all your stuff from A to B. Moving never falls at the top of a favourite activities list, so trust me when I say spring for the movers, and keep your friends. There are a ton of great companies that have affordable services and are insured not to break that antique vase from your aunt.
Word to the wise, cleaning an empty house is far easier than one filled with boxes. Most sellers are not going to leave their home immaculate, with the sweat your saving on moving, get in there early and scrub that palace of yours down. It will motivate you to unpack faster and settle into your new digs.