Thursday, September 14, 2017
Hidden Closing Costs: It’s Not Just the Mortgage You Will Pay
Buying a home is often the most expensive thing people will do in their lifetime. The cost of a home can seem extremely daunting. Often times, people will forget that the final price of the home is not the only expense they will face. Certain costs like the realtor are expected, yet still can be very high. Other costs, however, are somewhat hidden. The problem is that most people don’t fully understand what they will be paying when it comes to buying a home. It can be easy to assume that small fees are not that important in the grand scheme of things especially when they are compared to the large cost of the house itself. These small fees can really add up and it is important to be vigilant when negotiating your closing costs. In this post, I will discuss some of the hidden closing fees that exist when buying a home. I will also give a relative cost for each so you know what you are up against.
1) Land Transfer Tax
If you are a first time home buyer in Ontario your Land Transfer Tax is waived but if not it could add up to a costly sum. For a 300K home, you will pay $2,975 and in Toronto, it jumps to $5,700. That is if you can find a home that price in Toronto anyway, good luck. For a 500K home in Toronto, it is an absurd $12,950 for the land transfer tax. Certain provinces waive their tax, so unless you live in Alberta or Saskatchewan, be prepared to shell out some dough.
2) Legal Fees
When you buy a home it is imperative that you obtain legal help. You will want the lawyer to review the terms of the offer, make sure those conditions are met, deal with the actual mortgage, do a title search, register the title and get the necessary documents together to figure out the adjustment costs. As you can probably guess, lawyers aren’t cheap. One can run you anywhere from $1500-$2500 but in my opinion well worth the cost as you don’t want to get burnt on the biggest purchase of your life.
3) Appraisal Fee
The mortgage lender will often make you do an appraisal of the home so as to make sure you are not borrowing more than the home is actually worth. If you have some pull you might be able to get them to swallow this fee but if not it could run you about $200.
4) Home Inspection
A popular and necessary condition of sale in many deals is that of home inspection. I personally would never, ever buy a home without having it inspected first. Your inspector won’t see absolutely everything, but they will find out if the foundation, roof, heating/cooling systems, electrical and plumbing are all in order. You don’t want to get burnt so spring for the extra $300-$500 it will cost you to do it.
5) Property Survey
The last thing you want when you buy a home is to find out that part of your backyard isn’t actually yours. My family had to deal with this in the past as a deceitful owner fudged the property lines. A survey beforehand will straighten this out and you will know exactly what you are getting. You can negotiate with the seller to have one done or you may have to fork out the $1000-$2000 on your own. This is especially important for rural properties where larger amounts of land are acquired.
Yes, more taxes friends. Don’t you love the government! If you’re buying a new home or a home that’s been extensively renovated, you’ll have to pay GST. However, you may qualify for a partial GST rebate if your home is purchased to be your primary residence and depending on the sale price. For homes valued at $350,000 or less, you’ll qualify for a rebate of 36 % of the GST paid, to a maximum of $8750.00. For each $1000 of the purchase price above $350,000, the maximum rebate of $8750 is reduced by 1%. If your new home costs $450,000 or more, there is no rebate. Your lawyer should be able to help you find out where you stand on this one.
7) New Utility Hook-Ups
This is an often forgotten one, but companies will charge you extra to hook-up their services for a new home. Some companies offer, “When you move, we move with you,” type deals but others do not. Things like hydro, gas, internet, phone and cable television come at a cost to new subscribers. This cost me $600 when I first moved to my place. Some of these were deposits that I was credited after a year or so, but I did have to shell out a large amount of money to start. Be prepared for that.
8) Home Insurance
This is a new monthly bill you will have to add to the budget and there is no escaping it. You will need to obtain home insurance to appease most lenders. They will need to know that if the home is destroyed they will get their money back. You will still own the lot but will have to rebuild. Be prepared for this added cost every month, as it varies by home and location.
9) Property tax and Condo Fees
If you are buying a townhome, condominium or gated community home you may be charged condo fees. Often the property tax is roped into that cost. If you are not buying one of those homes you will be paying property tax and it isn’t cheap. Condo Fees range from a few hundred to anywhere in the $500 ranges per month. This helps pay for the maintenance of the common areas. Property tax costs will depend on the value of your home and region and it can be upwards of 3-10K per year. Be prepared for this nasty little cost, it’s a doozy.
If the home doesn’t come with appliances you will have to spring for them. The home most likely won’t come with furniture so unless you have enough to fill your new spacious home, that will cost you too. There are often other things missing such as window coverings, mowers if you have a lawn, light bulbs, yard tools, and even locks that need to be changed. Depending on your situation this cost can be huge. Think about this one when saving for a home as opposed to when you have already bought it. You may have to tough it out while you save up for a couch.
11) Moving Costs
Another often forgotten one, but moving your stuff will cost a good penny too. Unless you have a big truck and some solid strong friends, you will have to pay for a moving company and they aren’t cheap. Their costs can range from $500 for easy moves to $5000 for long distance or complex moves.
When you buy a home, it is an ongoing process keeping up with the constant maintenance that occurs. This type of work requires time and money. This is why many choose condo living. You should have an emergency fund of about 3-5K so you are prepared for things that may happen to your home. Also contribute every month to this fund as sooner or later you will need a new roof, water heater, and furnace or water filtration system. These things aren’t cheap and now that you own a home, it’s all on you! Yay!
Buying a home can be joyous, exciting and fun, but it is also costly. You have to get your negotiating hat on when it comes to closing costs. Bring a trusted friend or family member if you have to that can smell a rip off when they spot one. Depending on your situation you could run anywhere from 5-20K in out of pocket closing costs so survey your own personal situation when you buy a home. Know what you will need, and what can wait. Also, be prepared for some rocky roads, as not everyone is as trustworthy as you or me.
“The only difference between death and taxes is that death doesn’t get worse every time Congress meets.” – Will Rogers
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