Congratulations! You're ready to buy a home. You've picked the one you like on that cute little street, and you're ready to pack up and move.
But wait -- is buying a house really that simple? On the contrary, buying a house is a lot of work, and money. If you plan well and are aware of what's coming, you'll be ready (both financially and mentally) to buy a home. Here are 10 things that should be accounted for in your budget:
Home inspection fee
Might be a pain now, but this fee could save you from having a huge expense once your new home is in your possession. A home inspection can help discover underlying issues, which you would never have known about without an inspection. This includes things like issues with the house's foundation, the heating and cooling systems, outdated or shoddy electrical work, leaks with the roof or plumbing, and other structural issues. Expect to pay between $300 to $500.
Some lenders will require you get an appraisal on the home you want you buy, and this could be at your expense, depending on the financial institution.
20% down payment
Depending on where you live, the average price of a home will differ. Putting down anything less than 20% on a house means you'll have to pay mortgage insurance, which can run you up another $175 a month (that number will vary too!).
You'll probably want to hire a lawyer to review the terms of the offer to ensure you're getting the best deal. Your lawyer will also deal with the mortgage, do a title search, register a new title, and get the documents needed to figure out your adjustment costs. On average, lawyers' fees can cost you another $1500 to $2500.
These are any prepaid costs that have been paid by the seller that are to be reimbursed when the buyer takes possession of their new home. This includes, but is not limited to, property taxes, prepaid water, hydro, or gas charges, lawn care service contracts, etc.
Land transfer tax
If you live in rural Nova Scotia, Alberta, or Saskatchewan, you can skip this part. For every other Canadian, this bit is for you! Also known as property purchase tax, Land Transfer Tax is a multi-tiered taxation system. For example, in Ontario 0.5% is charged on the first $55,000, 1% on $55,000 to $250,000, and 1.5% on $250,000 to $400,000 and so on. Visit www.ratehub.ca/land-transfer-tax for an estimate.
Interest adjustment is the calculation of interest from closing to the date the first mortgage payment is calculated from.
If you have a mortgage, your lender is most likely going to insist that you have enough insurance to cover the total since the property is their security. Your lawyer is going to need confirmation that insurance has been arranged (if your house is destroyed, the insurance company has to pay the lender first).
Seems obvious, but a lot of people don't consider moving costs until they're taking possession of their new home! Your moving costs will depend on how far you're moving from where you currently live (where I assume your belongings would be picked up from), and the amount of stuff you have to move. If you know you'll have to temporarily place items in storage before or after moving day, don't forget to factor in those costs as well. I recommend getting multiple quotes to ensure you're getting the best deal.
Set aside an extra $2000-$3000 as a move-in safety net. This should cover the first couple of things that might go wrong in your new home, like a leak, a break…etc.
As you can see, buying a home is more complicated (and costly) than it seems, and hidden costs can make it difficult to stick to your budget. Remember, there's more to buying a home than a 20% down payment and monthly mortgage payment. A few phone calls now (for quotes and best rates) can save you big money later.