13 Extra Costs That You Must Watch Out for When You Buy a Home
Watch Out for These 13 Extra Costs When You Buy a Home
|The last thing you want, just when you’re about to close on your new home, is the surprise of unexpected fees and taxes that you didn’t know you should have included in your budget!
Whether you're buying your first home or trading up to a larger one, there are always costs beyond the actual purchase price. You must be taken into account when you calculate the total cost of the home. If you’re not aware of them in advance, taxes and other costs can turn your closing day into a financial nightmare.
Some costs are one-time fees, while others are ongoing monthly or annual commitments. Not all the costs I'm going to explain here apply to every situation. But it's always better to be aware of them before closing so that you don’t have any last-minute surprises and you can budget properly for them.
Whether you’re buying your first home, or your sixth, it is a major investment and the process is complicated, with many details that have to be addressed. Don’t risk learning about unbudgeted financial obligations just hours before you close on your new home.
Use the following checklist to ensure you’re budgeting adequately for your next home purchase.
(1) Appraisal Fee
Your lender may ask for an appraisal of the property, which you will pay for. Appraisals vary in price and usually cost anywhere from $250 to $600 depending on the type and size of the home.
(2) Property Taxes
Your lender may decide to add the property taxes to your monthly mortgage payments, depending on your down payment. If property taxes are not added to the monthly payments, the lender may require that you submit proof each year that your taxes have been paid.
(3) Survey Fee
When you purchase a resale home (vs. a new home), your lender may request an updated property survey report. The cost of the survey varies depending on the nature and size of the property and could be anywhere between $300 and $1,000. Some lenders will accept a title insurance certificate (which costs around $250) in lieu of a survey certificate.
(4) Property Insurance
Property insurance covers the replacement value of your home, both the structure and the contents. Your lender will ask for proof that you are insured, because it protects their investment on the loan.
(5) Service Charges
Check to find out if there are installation charges for utilities such as telephones or cable service.
(6) Legal Fees
Don’t assume that your home purchase is simple and straight-forward and therefore won’t require the services of a lawyer or notary. Even for the simplest home purchase, a lawyer/notary should review all the paperwork. Shop around for a lawyer/notary. Rates vary, depending on the complexity of the contract and the experience of the lawyer/notary.
(7) Mortgage Default Insurance Premium
Mortgages loans that are more than 80% Loan-to-Value (i.e. down payment less than 20%) are required by Canadian law to be insured. The insurance premium rate depends on the down payment amount and ranges from 0.5%–3.5% of the mortgage amount. It is a onetime premium paid at closing and it is usually added to the mortgage loan.
(8) Mortgage Brokers Fee
Generally mortgage brokers don’t charge any fees to source a lender and organize financing for their clients because the lender pays their commission. However, lenders don’t compensate brokers for some difficult or high risk deals (e.g. bad credit, unverifiable income, etc) and so they will have to charge the borrower a fee.
(9) Moving Costs
If you plan to use a professional moving company, plan on spending $50–$100/hour for a van and 3 movers. If you move during peak demand season like the end of the month, the cost might be 10%–20% higher.
(10) Maintenance Fees
Condos charge monthly fees for common area maintenance such as grounds keeping and cleaning hallway carpets. Costs vary from one building to another.
(11) Water Quality and Quality Certification
If your new home is serviced by a well, definitely consider having your water checked by local experts. Whether or not you’ll be charged a fee for certifying the quantity and quality of the water will depend on the location of your home.
(12) Local Improvements
Find out if the town where your new home is located has made local improvements such as the addition of sewers or sidewalks. Improvements could increase property taxes by thousands of dollars.
(13) Property Transfer Tax
In British Columbia, a land transfer tax applies whenever property changes hands. The amount of the tax is the sum of 3 tiered tax rates on the fair market value of the property as follows
- 1% of the first $200,000; plus
- 2% of the balance up to and including $2,000,000; plus
- 3% of the remainder above $2,000,000;
of the property value and the buyer (or recipient) is responsible to pay the tax.
If the property has residential portion worth over $3,000,000, a further 2% tax will be applied to the residential property value greater than $3,000,000.
For foreign nationals, foreign corporations or taxable trustees, there is an additional property transfer tax on the fair market value of the residential portion of the property if the property is within a specified area of B.C. You can get more details about this additional property transfer tax here.
This article alerts you to extra expenses that may apply when you purchase a home. It’s important to be aware of them in advance so you can budget for them and avoid last minute surprises.The article covers only a few of the most important issues buyers or sellers need to be aware of, but we have many similar reports that are available to you at no cost.
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