Purchasing a home requires up-front funding, often amounting to 8% to 9% of the purcahse price, for a variety of applications. It is essential that adequate funding is set aside to address all of the following:
Down Payment / Deposit(s)
This is usually in the neighbourhood of 5% of the purchase price. The deposit is made when tendering an offer or within 24 hours of acceptance and may or may not equal the full amount of the down payment. If it does not equal the down payment, a subsequent deposit or deposits will be required on specified dates prior to closing.
- Harmonized Services Tax (HST): Most residential resale homes are exempt and most new homes and those substantially renovated and sold for more than $400,000 by a builder/ renovator are not. HST applies to most transaction services including lawyer’s fees, appraisals, processing fees, home inspections, water quality and replenishment analysis, mortgage and home insurance, real estate sales commissions, and moving expenses. Land registration fees are not taxable.
- Home Inspection: This may be one of the conditions in your offer and can cost between $350.00 and $600.00 depending on the complexity of the undertaking. Generally due at commencement of the inspection.
- Home Insurance: Your mortgage lender will require that you have adequate home insurance in place to cover the replacement cost of your home and its contents on the closing date.
- Provincial Land Transfer Tax (LTT): Paid on your behalf by your lawyer as part of the closing process in accordance with the amount determined by using the Toronto Real Estate Board's online calculator @ www.trebhome.com/buying/ltt_calculator?lttcalculator.htm:
- Legal Fees and Disbursements: Due upon closing and can cost between $600.00 and $1,100.00 plus the cost of disbursements such as registration fees and applicable GST. Attractive rate packages including title insurance are usually available.
- Mortgage Application: There is usually a processing fee of about $70.00 + HST.
- Mortgage (High Ratio) Loan Insurance: This may be in the form of a lump sum or may be added to your monthly mortgage payments. Both Canadian Mortgage and Housing (CMHC), Genworth Insurance Canada (Genworth) and a number of new entrants to the Canadian marketplace provide this coverage to high-ratio lenders in accordance with the schedule presented below.
- To obtain CMHC or Genworth Mortgage or Loan Insurance, lenders pay an insurance premium. Typically, your lender will pass these costs on to you. Your lender will give you the exact price when you apply for a mortgage.
- The CMHC or Genworth Mortgage Loan Insurance premium is calculated as a percentage of the loan and is based on the size of your down payment. The higher the percentage of the total house price/value that you borrow, the higher percentage you will pay in insurance premiums.
- Remember: without mortgage insurance you may avoid the insurance premium but you’ll typically pay much higher interest rates and additional administrative fees. At the end of the day, for the vast majority of borrowers, the cost of CMHC or Genworth Mortgage Loan Insurance is more than fully offset by the savings achieved.
- Mortgage Appraisal: Your mortgage lender may require that the property be appraised at your expense to verify its market value. The cost is usually between $200.00 and $300.00 and is due when the appraisal is contracted. Lenders often agree to absorb this expense if you ask.
Mortgage Interest Adjustment: Due, where applicable, at time of closing.
- The Mortgage loan insurance premium is most easily calculated using the online CMHC Premium Calculator at www.cmhc.gc.ca
- Statement of Adjustment Items: Both buyer and seller are each responsible for their share of realty taxes, fuel and utilities with the buyer assuming responsibility for the date of closing and beyond. Where the seller has prepaid some or all of these, the buyer will be required to reimburse the seller at time of closing for that portion attributable to the closing date and beyond.
- Title Insurance: Your lawyer will likely recommend title insurance to cover loss caused by defects in the title to the property. This usually costs about $300.00, which can be $700.00 to $1,700.00 less expensive than contracting for a new property survey.
- Water Quality/Replenishment Inspection: If the home you choose has a well, you will want it to be bacteriologically tested and gauge the water replenishment rate at a cost of $50.00 to $100.00.
- Survey: The mortgage lender may request an up-to-date survey prior to finalizing the mortgage loan. If the seller doesn’t have one or doesn’t agree to acquire one, you will have to pay for it yourself. The cost can run from $1,000.00 to $2,000.00. Due at time of closing. Today, most mortgage lenders accept title insurance in lieu of a current survey. However, most lawyers recommend having a survey to confirm the true nature of the property and all improvements being purchased and to identify potential issues such as easements, encroachments, abandoned fuel tanks, etc.
- Capital acquisitions: Furniture, appliances, equipment of all kinds, fixtures and tools.
- Condominium Fees: Initial in-advance payment.
- Cushion: Retain to cover unexpected expenses.
- Landscaping: Lawn and garden enhancements and driveway, walkway and fencing repairs.
- Moving Expenses: Usually due on the day of your move.
- Renovations: Minor repairs and re-decorating including curtains and carpeting.
- Service Activation: Telephone, Internet, cable, satellite and possible utility hook-ups and deposits.