Budgeting for Home Ownership
Smart budgeting is required when buying your home. Saving the down payment and crunching numbers helps determine how much mortgage you can afford. But the costs don’t just end there. Planning in advance ensures that financial surprises will not interfere with your homeownership plans. Be prepared for these additional costs.
This is due when your Offer to Purchase has been accepted and is essentially a gesture of good faith between the buyer and the seller. Your deposit becomes part of your down payment if the deal proceeds. A minimum deposit is usually a small percentage of the purchase price.
Homebuyers are usually counselled to add a home inspection as a condition to the Offer to Purchase Agreement. A home inspector looks for items that could affect the price and desirability of a home, such as outdated wiring, shabby roofing, an elderly furnace, cracks in the foundation, moisture or mold issues, or poor insulation.
An appraisal may be required to determine the market value of the property you are buying.
Mortgage default insurance
This is a mandatory expense for buyers who make a down payment of less than 20%. The cost of this insurance depends on the amount of your down payment and also certain details of your application. This premium is charged on the amount of the mortgage and can be added on to the mortgage.
Once you sign your Agreement of Purchase and Sale you will need to hire a real estate lawyer or notary. Your lawyer will conduct a title search, register your new home in your name, register the mortgage properly and make sure the down payment and land transfer tax go to the correct offices on time.
This protects you from any unpleasant revelations about your property's history that might crop up in the future. This insurance is obtained through your lawyer.
Unless you take possession on the first of the month, you must prepay the amount of interest accrued up to the first day of the next month. This depends on what payment structure you have chosen (monthly, bi weekly, weekly, etc). That sum is due on your closing day or with your first payment, depending on the lender. This is not an extra cost. It is the amount used to align the payment schedule that works for you.
The seller may be entitled to a reimbursement, from you, if he or she has prepaid bills (water, gas or hydro), property taxes, or condo fees.
Provincial and Municipal Land Transfer Tax
All provinces, with the exception of Alberta and Saskatchewan, charge a land transfer tax when a property is purchased. This is called a provincial land transfer tax. In Alberta and Saskatchewan, the provincial government charges a much smaller registration fee instead. Land transfer taxes are normally calculated as a percentage of the property value and are to be paid up front.
Canadian law states that a home owner must have fire insurance on his or her new property effective when he or she takes possession.
If you are a new customer, in most cases be prepared to pay a deposit when you sign up for your services.
Take into account the cost of moving all your possessions from one location to another. Get an estimate of your moving cost.
Source: Jason Nesseth - Mortgage Broker with TMG The Mortgage Group