Saving for a down payment while renting can be tough for most of us! In addition to your down payment, you’ll also want to save for closing costs. Here’s my top 10 expenses you should prepare for:
1. Down Payment – you will need at least 5% of the purchase price. Check out my blogs on down payment options and tips to save. After the new federal budget was released in March 2019, there could be some new first time home buyer incentives to assist with down payment from CMHC.
2. Deposit – once buyer and seller have come to an agreement, the seller expects a deposit to be paid, which demonstrates good faith of the agreement. This is typically $1000-$10,000 (or more) depending on the purchase price, region and state of the real estate market. This deposit will be deducted from the end amount owed at closing to the lawyer (which includes your down payment and other closing costs).
3. Home Inspection – You will likely want your new investment to be inspected by a qualified home inspector to educate you on any current or potential concerns with the house. On average, you can expect an inspection to cost $500+.
4. Appraisal – Occasionally, mortgage lenders require an appraisal to be done on the property. The cost of this is on average $500 and can be needed because:
-Internal valuation system does not have enough information about the house (it may not have sold in a long period of time)
-It’s a private sale
-It’s an exclusive listing
-It’s a conventional mortgage (20% or more down payment)
-You would like an appraisal to confirm the value
5. Legal Fees & Disbursements – A real estate lawyer is needed to purchase a house to protect you legally and to register the house purchase/mortgage. You will be charged for various disbursements that the lawyer will incur during the course of their work, as well as a flat rate for their services. Depending on the region and lawyer, on average this will cost $1000+.
6. Title Insurance – Some lenders require title insurance and this is a cost to the buyer. There is also a home owner title insurance policy. The lawyer will explain this option and typically cost approximately $200 per policy.
7. Interest Adjustment – If your first payment date differs from the regularly scheduled first payment date as determined from your closing date, you will have an adjustment of interest for that period of time. Your regular mortgage payments will include interest for that period of time between payments, therefore if the first payment date needs to be adjusted expect this charge. The amount depends on your interest rate, mortgage principle and length of time between closing and first payment.
8. Land (Deed) Transfer Tax – This is a fee that is charged to you by the municipality for transferring the deed into your name. Across Canada it differs by location but on average would be 1.5% of the purchase price.
9. Utilities – If the home has utilities that need to be topped up prior to closing, such as oil or propane, the seller will incur this cost and you will reimburse them at closing which provides you with full utilities in the home when you move in. Expect the cost of a full tank of oil/propane, etc.
10. Property Tax Adjustment – The current homeowners have likely prepaid the property tax. Now that you will be the homeowner, you will reimburse them for any time that you’ll be living in the home that they have prepaid the property tax. Depending on the time of year, you can expect up to 6 months of property tax reimbursement.
In addition to the down payment, as a general rule of thumb, it’s wise to save an additional 2.5% of the purchase price to cover the closing costs.
Other Costs
Home Insurance, Utility Hookups and Moving Costs – While these costs are not paid on closing, they are paid at the time of taking possession of the home and are costs that should be factored into home ownership.
I’d love to hear your questions! Get in touch anytime!
Sarah Nixon-Miller, Mortgage Broker
Nixon-Miller Mortgages Inc.
TMG The Mortgage Group
902-225-7077
Toll-free 1-844-315-6609
sarahnm@mortgagegroup.com