Hidden costs you should know about before buying a home

When buying a house or condominium, purchase price is only the beginning. There are other costs to consider, and knowing them in advance is the best way to avoid surprises later on. Use the Housing Costs Worksheet to keep track of these costs.

Here’s the list of potential hidden costs with descriptions below:

  • Appraisal Fee
  • Loan Insurance Premium
  • Home Inspection Fee
  • Title Insurance
  • Land Registration
  • Water Test
  • Septic Test
  • Estoppel Certificate Fee
  • Prepaid Property Taxes and/or Utility Bills
  • Property Insurance
  • Legal Fees

Appraisal Fee

Your mortgage lender may ask you to pay for a recognized appraisal in order to complete a mortgage loan. An appraisal is an estimate of the value of the home. The cost is usually between $250 and $350 and must be paid when you contract for those services.

Having an independent appraisal done on a property before you make an offer is a good idea. It will tell you what the property is worth and help ensure that you are not paying too much. The appraisal should include: n Assessment of the property’s physical and functional characteristics n Analysis of recent comparable sales n Assessment of current market conditions affecting the property Ask your realtor or other member of your team to help you find an appraiser.

Mortgage Loan Insurance Premium

If you make less than a 20% down payment, you have a high-ratio mortgage. With a high-ratio mortgage your lender will need mortgage loan insurance. Mortgage loan insurance lets you buy a home with a minimum down payment starting at 5%*. Most Canadian lending institutions require mortgage loan insurance because it protects the lender. If the borrower defaults (fails to pay) on the mortgage, the lender is paid back by the insurer. You pay a premium for mortgage loan insurance. Your lender will add the mortgage loan insurance premium to your monthly payments, or ask you to pay it in full upon closing.

Home Inspection Fee

CMHC recommends that you make a home inspection a condition of your Offer to Purchase. A home inspection is done by a qualified home inspector to provide you with information on the condition of the home. Costs range depending on the age, size and complexity of the house and the condition that it is in. For example, it may be more costly to inspect a large, older, home, or one in relatively poor condition or that has many pre-existing problems or concerns.

Survey or Certificate of Location Cost

The mortgage lender may ask for an up-to-date survey or certificate of location. If the seller has a survey, but it is more than five years old, it will probably need to be updated. You should ask the seller to provide an updated survey, especially if there has been a new addition, deck or fence built close to the property line. If the seller does not have one, or does not agree to get one, you may have to pay for it yourself. Remember, you must have permission from the property owner before hiring a surveyor to go onto the property. Ask your realtor to help co-ordinate this with the owner. A survey or certificate of location can cost $1,000 to $2,000.

Title Insurance

Your lender, lawyer, or notary may suggest that you get title insurance. This will cover loss caused by defects of title to the property.

Land Registration Fees

Land Registration fees are sometimes called Land Transfer Tax, Deed Registration Fee, Tariff or Property Purchases Tax. In some provinces and territories, you may have to pay this provincial or municipal charge when you close the sale. The cost is a percentage of the property’s purchase price. Check on the internet or with your lawyer (or notary) or other team member to find out about the current rates. These fees can cost a few thousand dollars.

Water Tests

If the home has a well, you will want to have the quality of the water tested to ensure that the water supply is adequate and the water is drinkable. You can negotiate these costs with the vendor and list them in your Offer to Purchase.

Septic Tank

If the house has a septic tank, it should be professionally checked to make sure it is in good working order. You can negotiate the cost with the vendor and list it in your Offer to Purchase. Estoppel Certificate Fee (does not apply in Quebec) This applies if you are buying a condominium, or strata unit, and could cost up to $100. Also called a Status Certificate it outlines a condominium corporation’s financial and legal state. Prepaid Property Taxes and/or Utility Bills Property taxes are charged by the municipality where the home is located. They are based on the value of the home. The seller may have already paid property tax or other expenses that apply to the time after the house passes into your hands. You need to pay back the seller for taxes and other costs (including items like filling the oil tank). Property Insurance The mortgage lender requires you to have property insurance because your home is security for the mortgage. Property insurance covers the cost of replacing your home and its contents in case of loss. Property insurance must be in place on closing day. Legal Fees Legal fees and related costs must be paid on closing day. The minimum cost is $500 (plus GST/HST). In addition, your lawyer or notary will charge you direct costs to check on the legal status of the property.

Estoppel Certificate Fee

This applies if you are buying a condominium, or strata unit, and could cost up to $100. Also called a Status Certificate it outlines a condominium corporation’s financial and legal state.

Prepaid Property Taxes and/or Utility Bills

Property taxes are charged by the municipality where the home is located. They are based on the value of the home. The seller may have already paid property tax or other expenses that apply to the time after the house passes into your hands. You need to pay back the seller for taxes and other costs (including items like filling the oil tank).

Property Insurance

The mortgage lender requires you to have property insurance because your home is security for the mortgage. Property insurance covers the cost of replacing your home and its contents in case of loss. Property insurance must be in place on closing day.

Legal Fees

Legal fees and related costs must be paid on closing day. The minimum cost is $500 (plus GST/HST). In addition, your lawyer or notary will charge you direct costs to check on the legal status of the property.

Other Costs

Depending on your situation, you may have some other initial expenses to consider:

  • Moving expenses
  • Renovations or repairs
  • Decorating materials (paint, flooring, carpet)
  • Gardening equipment
  • Snow-clearing equipment
  • Window treatments (blinds or curtains)
  • Hand tools
  • Dehumidifier
  • Service connection fees (gas, electricity, cable/satellite TV, Internet)

Calculate Your Debt

Although home financing is a form of debt, it is considered one of the ‘good debts’ because it is used to purchase real estate which over time appreciates in value, it is a good investment. Many lending institutions must, however, understand your complete debt picture and you should as well.

How much should you borrow?

For many first time home buyers their first home may not be their dream home or a home where they will reside long term. Understanding how much you can comfortably afford to borrow will help you focus on the right home in the right price range. You need to fully understand your financing picture: how much money comes in each month and how much money do you spend.

What are some potential cash flow sources?

To balance out these costs, you can take advantage of a number of things to free up your cash flow and reduce financial pressure: • Get extra money with your mortgage to use for home improvements. For example, CMHC Mortgage Purchase with Improvements Mortgage Insurance Program and Genworth’s Program, Purchase Plus Improvements Mortgage Insurance Program are popular options.

• Use “windfall” money like a tax refund or a bonus from work, so you’re not dipping into money reserved for regular expenses.

• When refinancing, roll your high-interest debt into your new mortgage to reduce your monthly debt payments.

• Go over your monthly expenses using the worksheet on the next pages and see what you can reduce – every little bit helps!