Taking a Closer Look at Home Purchase Costs

Spring is just around the corner, and that means that home and cottage sales will be ramping up. If you’ve been saving and budgeting for your upcoming purchase, you’ll need to know about the many additional costs associated with buying a home, above and beyond your mortgage, property taxes, and utility payments. Most of these costs are due on or near the closing date, and can put you in quite the pinch if you aren’t financially prepared. As they say, the devil is in the details. Here is a list of the additional costs involved in a real estate transaction, so you are well-informed and can budget accordingly.

Additional home purchase expenses

1. Property valuation fee. This is the fee you pay to determine the value of your home – for lending purposes. This value may or may not be the same as the purchase price of the house or property, but it’s usually close. This is not the same as your municipal assessment, which determines how much property tax you will pay to your municipality.
2. Home inspection fees. These are not mandatory (especially for new homes) but frankly, inspection fees are a must for re-sale homes and older homes. A home inspection is often a condition in the Agreement of Purchase and Sale, and can give you peace of mind that you aren’t buying a home with serious and costly problems.
3. Property survey. A survey is done to outline the exact boundaries and measurements of the property and outbuildings. It also includes things like the driveways, fences, and sheds so you know if there are any encroachment issues.
4. Land transfer tax. In Ontario, you are charged this tax each time a property changes hands, and it is based on the purchase price. You can expect to pay between 1% and 2% of the selling price towards land transfer taxes. If you are a first-time homebuyer, you may be eligible for a refund for all or part of this amount.
5. HST/GST. This one can be a whopper if you aren’t properly notified about it. It usually applies to new homes or cottages and can be quite complicated, as it involves various formulae, exemptions and rebates depending on your particular situation. Sometimes it’s included in the purchase price (and your mortgage), or it can be a cost you pay on top of the purchase price. It’s important to always ask about this and other fees before signing any offers.
6. Mortgage loan insurance. If your down payment is less than 20% of the purchase price, your lender will require you to pay for insurance on your mortgage amount (usually through CMHC). This can be added to the principal amount of your mortgage, which means you will pay interest on it, or you can pay for it up front. If you have a down payment of 20% or more, you don’t need mortgage loan insurance.
7. Interest adjustments. Although this isn’t often a very costly expense, it definitely adds up. This fee is to cover the interest for the gap in time between your closing date and your first mortgage payment date. You can avoid this interest adjustment altogether if you arrange to make your first mortgage payment within one payment period of your closing date. Be sure to talk to your lender, real estate lawyer, or other qualified professional about this issue.
8. Prepaid property tax and utility adjustments. It’s quite common for homeowners to pay in advance for property taxes and utilities. When a home sells, this all gets sorted out so that you, the buyer, reimburse the seller only for amounts they would have paid for after your closing date. It wouldn’t be fair for them to pay these costs on a home they no longer own.
9. Home insurance. You’ll need to pay for insurance protection for your home and contents, as well as liability if anyone is injured while on your property. Coverage can vary widely, so be sure to shop around, research carefully, and know exactly what you are covered for.
10. Mortgage life insurance. This is not a mandatory item, and it’s not the same as mortgage loan insurance (see above). What this insurance does is cover the cost of your mortgage (or a portion of it) in the event that you or your spouse dies unexpectedly.
11. Title insurance. This is also an optional item, but can be useful in cases where you would want to have coverage for problems such as existing liens against the title of your property, title fraud, encroachment (such as your shed that’s actually on your neighbour’s property and needs to be removed), and so on. However, a thorough title search, survey, and the work of a good real estate law team would likely make this an unnecessary expense.
12. Legal fees. Your real estate lawyer does so much to protect you and your investment, and always has your best interests in mind. Working with a real estate lawyer will help you understand all aspects of your home purchase or sale and ensure that there are no surprises when it comes to the various costs involved.
13. Miscellaneous fees. These are likely the costs you’ve anticipated, such as moving costs, home décor purchases, and general upgrades or renovations for your new home.

Now that you know…

Although you may be a little overwhelmed with the additional costs of buying a home or cottage, you are now armed with lots of information so that you can prepare, save, and budget appropriately. When you work with qualified professionals such as your realtor, lender, and real estate lawyer, it helps make the process of buying or selling your next home run much more smoothly.

As lawyers specializing in real estate law in Bracebridge and Muskoka, our understanding of the complexities that come with buying home or cottage allow us to help our clients enjoy an informed, hassle-free experience. We can also talk to you about any refunds or rebates you may be eligible for, as well as walk you through every step of the process. If you’re looking to buy or sell, call on us at Ares Law at 705-645-8743 to book an appointment. We look forward to working with you.