I love surprises.
Well, no, that’s not entirely true. I love nice surprises, ideally the ones wrapped in an Amazon gift box with my name on the card and a smiley face on top.
What about those not-so-nice surprises? In todays post, I am going to share with you Three hidden costs that catches most first-time buyers off guard.
Hidden Cost #1: Mortgage Default Insurance
If your downpayment is under twenty percent, and you’re obtaining the mortgage loan from a federally regulated financial institution, default insurance is required by law.
So what exactly is it? It’s essentially an insurance policy designed to protect lenders in the event you default on your monthly mortgage commitment.
At the time of this writing, costs range from 2.8 to 5% of the purchase price, plus HST, and is only available on purchases under one million dollars. Thankfully, you you don’t have to pay this entire amount upfront. The total figure could be rolled into your mortgage and paid monthly through your financial institution.
Currently, there are three providers of mortgage default insurance throughout Canada. The first is the Canada Mortgage and Housing Corporation (CMHC), a crown corporation under the federal government. Canada Guaranty and Genworth Financial are the remaining two. There is no material difference in cost among the three.
Hidden Cost #2: Land Transfer Tax
Don’t let the name fool you, this is not a tax on land but on just about every type of real estate purchase imaginable, including houses and condos. In Ontario, the range is between 0.5-2.5% of the purchase price.
Unlike mortgage default insurance though, this amount must be paid in full, prior to the title of the property changing hands. If you’re a first-time buyer, there are some subsidized programs that reduce the overall cost, up to a maximum purchase price.
These figures change from time to time, so check in with the provincial government’s ministry of finance website for the most up to date figures.
Hidden Cost #3: Legal Fees
Yep, you do have to pay your lawyer to sift through the details of a real estate transaction. Lawyer fees do vary. I’ve seen amounts range from $700 to $1,500.
Fees will also depend on the level of complexity involved in the transaction, so be sure to obtain this figure upfront and find out what is included. Payment is usually due on the completion date of your purchase.
These are my top 3, but there are also a few honorary mentions.
If you’ve placed an offer that was accepted, a deposit cheque is usually due within 24 hours of that offer date and time. The typical amount ranges between 3-5% of the purchase price, but could be higher. Personal cheques are rarely accepted so be sure to request a draft or certified cheque from your financial institution.
This should be obvious, I know. But, because moving is the last step on the ladder, it’s often overlooked as a cost that will somehow take care of itself. I recommend you take the opposite approach.
Put aside these funds right from the beginning. There’s nothing as unpleasant and mildly-shocking as discovering that after your budget has been divvied up, you don’t have enough to cover the actual move.
Depending on the scale, distance and whether you’re doing it yourself, I would recommend minimum budget of around 0.5% of the purchase price. Contact several moving companies for quotes, asking your Realtor, colleagues or friends for referrals is also a prudent approach.
Appraisal & Title insurance
Lenders may request an appraisal on the home you’re buying, as a condition of issuing a mortgage. Their goal is to determine if your offer price is in line with the market value of the property.
A certified appraiser, approved by the lender, carries out this service and, upon completion, provides a detailed report directly to the lender. Buyers bare the cost in most cases. Fees do vary from $300 and up, depending on the size of the property, location and type of appraisal being done.
The last honorary mention is Title Insurance. Some lenders will require this type of insurance policy as part of your mortgage contract. Title is a legal term defining who owns land or property.
When a purchase is made, the title of the house or condo is transferred to you. Title insurance protects the buyers and lender against against potential losses including:
- Survey issues
- Title fraud
- Problems with the title on your property
- Challenges to the ownership of your home
Costs range between $150 and $350 and is a one time payment, based on the value of the home you’re purchasing.
If I could be of assistance in any way, please feel free to reach out. Talk soon.