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Navigating the Hidden Costs of Home Buying
When you envision the dream of homeownership, the most apparent expense is often the home’s selling price. However, seasoned homeowners and real estate professionals alike will attest to the myriad of ‘hidden’ costs associated with purchasing a property. For those looking to make an informed decision, here’s an in-depth examination of potential expenses you may come across:
1. Mortgage Loan Insurance: For individuals able to front less than 20% of their property’s value, mortgage loan insurance becomes a requisite. While an added cost, it offers protection to the lenders against defaults. Interestingly, some financial institutions might simply integrate this insurance premium into your monthly mortgage payments. It’s essential to be aware of a notable change that Canada’s OSFI implemented on January 1, 2018. For down payments surpassing 20%, a “stress test” now assesses potential borrowers. The critical metric here? It’s either the Bank of Canada’s five-year benchmark rate or the addition of 2% to your mortgage rate.
2. Appraisal Fee: Before a lender hands over your loan, they’ll want to ascertain the actual worth of your property. This process, known as appraisal, has associated fees that can fluctuate depending on the property’s dimensions, location, and complexity.
3. Land Survey: A crucial step often mandated by lenders, the land survey ensures clarity regarding the property’s boundaries. While sometimes an existing survey suffices, at other times, a new survey, with its heightened cost, becomes indispensable.
4. Initial Deposit: Once you’ve selected your dream abode, an immediate financial gesture typically accompanies your purchase offer: the initial deposit. This deposit showcases your genuine interest in the property.
5. Property Insurance: Before you start your new life in your home, your lender will necessitate evidence of property insurance. This coverage safeguards the replacement value of your property and its contents.
6. Title Insurance: Imagine discovering a lien on your property post-purchase or issues with property boundaries. Title insurance acts as a shield against such potential title discrepancies. Thankfully, its cost is on the lower end, typically not exceeding a few hundred dollars.
7. Loan Application Fee: While processing your mortgage application, some lenders might charge a nominal fee. But here’s a pro-tip: institutions with whom you’ve existing relationships might waive this charge.
8. Brokerage Fee: Should you choose to employ the expertise of a mortgage broker, remember that their invaluable advice might come with an associated fee.
9. Home Inspection Fee: Perhaps one of the most crucial steps before sealing the deal, a home inspection can unearth hidden issues with the property, saving you unforeseen future costs.
10. Legal Expenses: Navigating the legal realm of property purchase can be intricate. By employing a lawyer to draft your mortgage, you might bypass some standard lender legal charges. However, legal fees also encompass the nuanced processes of title documentation and mortgage registry.
11. Land Transfer Tax: Based on where you reside, you’ll have to pay a land transfer tax. Our website boasts a calculator that delineates this for both Ontario and Toronto residents. A silver lining for first-time homeowners exists in the form of available rebates.
12. Harmonized Sales Tax (HST): New properties come bundled with HST, a factor many overlook. Yet, for resale homes, HST is not applicable. Depending on your property’s sale price and your intent to use it as a primary residence, rebate opportunities might emerge.
13. Miscellaneous Expenses: Beyond the aforelisted, several ancillary expenses surface. These encompass relocation charges, fees for utility connections, property tax adjustments (especially pivotal if the seller has prepayments extending beyond their ownership), standard maintenance, and recurring utility expenses.
Embarking on the homeownership voyage is undeniably thrilling. Yet, it’s peppered with multiple hidden costs that can catch one unawares. By equipping yourself with knowledge and preparing a comprehensive budget, you’re not just purchasing a house; you’re investing in a stress-free future in your dream home.
