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Buying a new home? Beware of upfront costs

After making all the necessary calculations, you’re confident about your financial ability to buy a home. You know what you can afford in a mortgage and how much your monthly household expenses will be. But what about hidden, unexpected costs? That’s right – you need to determine what upfront costs you’ll have to pay before closing or moving in. Early planning will help make sure things go smoothly.

What are these upfront costs?

When buying a house, build these costs into your budget before you put an offer on your dream home:

  • Down payment
  • Legal fees
  • Moving expenses

Not all of these costs are directly related to the deal you sign on the dotted line, like moving costs, but it’s an inevitable bill you’ll have to pay in the process.

The down payment

This is the first item you should plan for as a homeowner. It’s not covered by the mortgage loan – it comes out of your own pocket. Down payments range from 5 per cent of the home price if you have mortgage loan insurance from the Canada Mortgage and Housing Corporation, or higher if you don’t. The premium you pay for mortgage loan insurance is also an upfront cost. It’s either payable in full upon closing or added to your mortgage payments.

Associated with the down payment is the deposit you make at the time you put your offer in. If accepted, the deposit forms part of the down payment with the remainder owing at time of closing.

Having cold feet? Make sure you’re comfortable with your decision. A deposit may not be refundable should you back out of the deal without legal protections. Your realtor or lawyer will be able to advise you.

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The legal fees

Buying a house is an exciting experience, but one that requires the help of trusted professionals every step of the way. That includes a lawyer – and the legal fees that come with it. Legal fees and related costs are yet another upfront cost you should know about and be prepared to pay on closing day. You may also have to pay for a survey if it’s needed and unavailable from the seller. And in some provinces and territories, you may have to pay land registration fees, which can be a few thousand dollars.

Anything else?

What we’ve outlined here are significant upfront costs to build into your budget, but don’t be surprised if other issues arise. These costs could also arise during the home-buying process:

  • Property appraisal
  • Home inspection prior to making an offer
  • Property insurance

While you might be frustrated, thinking buying a house is just too costly to begin with without these added expenses, there are good reasons for these upfront costs. An independent property appraisal will tell you what the property is worth and help ensure that you are not paying too much. A home inspection is a good idea since a qualified home inspector can report on the condition of the home (including what, if any, repairs will be needed up front). Property insurance is required by the mortgage lender because your home is security for the mortgage, and must be in place on closing day. Yes, they cost you money, but at the end of the day, these systems are in place to ensure your protection when purchasing what’s likely the biggest purchase of your entire life.

You may also have to budget for other items such as testing the well and septic system, reimbursing the seller for prepaid property taxes or utility bills, and service connection fees. Finally, don’t forget the moving expenses, the cost of appliances, and fun items like window treatments, gardening equipment and basic tools. To help you estimate upfront costs, check out the Canada Mortgage and Housing Corporation website for handy financial tools, including the Home Purchase Cost Estimate form.

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About the Author: Christina Haddad is the vice president of Ontario’s Canada Mortgage and Housing Corporation division.

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