A word to the wise if you’re shopping for a new home: the list price is only a baseline. You’ll want to have a substantial buffer in your budget for a host of additional unseen fees.
This article will help you understand all the associated costs of buying a house so you’re prepared.
Purchase Fees
Appraisal – Before a lender will approve your mortgage you may be asked to undertake an independent assessment of the property’s value. This helps your lender determine the mortgage amount, calculated as a percentage of the appraised market value. It also lowers the lender’s risk of loss; an appraisal helps confirm that if you default on your payments, the loan could be repaid by selling the property.
Home Inspection – This additional expense is in your best interest. If major problems are uncovered, you can ask the seller to fix them as a condition of sale – or walk away if they refuse and the cost of repairs exceeds what you’re willing to invest. Some home buyers choose to opt out of an inspection, but many lenders won’t approve a mortgage unless one has been done.
Legal Fees – You’ll need to retain the services of a property lawyer to protect your interests. A legal professional will complete title searches on your behalf, prepare the documents for property purchase as well as mortgage documents, manage the transfer of funds, and register your name on title when the sale is complete.
Insurances
Title Insurance – There’s a growing demand from property investors, mortgage lenders, and auditors for additional protections that lower risk. Title insurance protects you from unforeseen issues that could lead to major trouble including:
- Errors and defects (i.e. in existing surveys or the public registry)
- Omissions
- Restitution for unresolved issues with a previous owner
- Undisclosed property heirs
Mortgage Insurance – Also known as a mortgage indemnity guarantee, this insurance protects the lender if you are unable to make your mortgage payments and/or if the lender has to repossess your home. Mortgage insurance is often a requirement for buyers applying for a high-ratio mortgage.
Home Insurance – Also known as property, home owner’s, or house insurance, home insurance protects you from damage or loss to the building as well as your home’s contents. Proof of home insurance is often a condition for mortgage approval and, depending on your agreement, would protect you from loss due to earthquake, fire, flood, and theft.
Property Taxes
Property taxes cover infrastructure costs in your community (e.g. road construction and maintenance, traffic lights, sidewalks), recreation, public transportation, and the salaries of your local government employees including police, fire fighters, and city workers. Your portion is based on a property value assessment – so the higher the value of your home, the higher your taxes.
Utilities
As a home owner you’ll need to pay for your electricity, water and gas usage (and possibly waste collection and recycling). Don’t forget to include internet, phone, and TV hook up – as well as monthly service fees – in your monthly budget.
Moving Day (and beyond)
In addition to hiring a rental truck or moving company, other potential costs could include:
- New appliances
- Renovations or repairs
- Home furnishings
- Strata fees (for condominium owners) and
- Landscaping equipment
Final thoughts
If you’re looking for a way to soften the financial blow of buying a home, talk to your lender.
You may be able to roll your mortgage insurance costs in with your mortgage payments – or qualify for a home equity line of credit to help cover your moving expenses and any required renovations.
