Prepare your budget effectively by allocating funds for these 7 home buying fees when hunting for your new property
Though searching for a new home is exciting, many buyers save up for their down payment without knowing about other home buying fees that they need to cover. We know how disappointing it can be to save up for a house that you love only to find that you can’t afford it, despite having the down payment ready. That’s why we’ve put together this blog post: to make sure you know about hidden home buying fees early.
But how much budget should you allocate for these additional closing costs? The Canada Mortgage and Housing Corporation (CMHC) recommends that you budget an additional 1.5%–4% of your deposit.
The sooner you know about the additional home buying fees associated with buying a property, the sooner you’ll be able to start a smooth, disappointment-free house-buying journey. So, here they are: the 7 house buying fees that you need to consider besides the down payment when house hunting.
1) Mortgage Interest Adjustments
You’ll need to pay interest on any gap between the dates on which you close your purchase and make your first mortgage payment. Most mortgage interest adjustments cost $100–$1,000. However, you can avoid interest adjustments by arranging to make your first mortgage payment exactly one payment period after your closing date.
2) Provincial Sales Tax on Mortgage Insurance
If your mortgage is insured by the CMCH or Genworth Financial, you’ll need to pay taxes on your insurance premium. You can add the insurance premium to your mortgage amount. However, you must pay the taxes when you close the sale of your new property.
3) Land Transfer Tax
Land Transfer Taxes vary depending on the location of your new property. If you buy in Ontario, you’ll need to pay Provincial Land Transfer Tax. This tax is based on the purchase price of your property. Meanwhile, if you buy a property in Toronto, you’ll need to pay Municipal Land Transfer Tax, too. You can estimate the approximate tax that you will need to pay using the Ratehub Mortgage Affordability Calculator.
First-time buyers may be eligible for the Land Transfer Tax Rebate, which is applied to closings of up to $4,000. On the other hand, the Municipal Land Transfer Tax Rebate applies to first-time-buyer closings of up to $4,475.
4) Title Insurance
Your new property will officially become yours when the current owner signs the deed—a transfer document—over to you. At this point, you’ll need Title Insurance to protect you and any lenders in the case of property losses. When you take out Title Insurance, you’ll usually pay a premium of around $250, a one-time fee. This premium will protect you for as long as you own the property.
Property losses could include existing liens against the property’s title. Existing liens refer to unpaid debts from the previous owner’s utilities, mortgages, or taxes secured against the property. Property losses could also include title fraud. Title fraud occurs when someone forges documents to illegally sell or refinance your property and take the proceeds.
5) Fire Insurance
Your mortgage lender will require you to secure a certificate of Fire Insurance, which must be in place from the closing date. Fire Insurance costs vary depending on property size and policy coverage, as well as your insurance company and municipality. However, you can tailor your policy to meet your particular needs and adjust as necessary.
6) Prepaid Property Tax and Utility Adjustments
You also need to consider any Prepaid Property Tax and adjustments (items that are applied after the closing date because the seller has prepaid them). Any amounts that the seller has overpaid are pro-rated, and the seller receives credit upon closing.
7) Legal Fees and Disbursements
You’ll need to cover legal fees for your lawyer to draft a title deed, conduct searches, prepare the Statement of Adjustments, and facilitate financial transactions for your closing date. You may also need to cover disbursements, expenses that your lawyer incurs from time spent.
Legal fees are usually calculated based on the sale price of the property, typically costing between $1,300–$2,500. When seeking quotes from lawyers, ensure that each price covers any additional legal expenses aside from the base fees.
Know Your Home Buying Fees
Once you know which home buying fees you need to budget for alongside your down payment, you’ll be in a much stronger position to filter your home search down to the best properties for you.
Storey Collective’s free Buyer’s Guide breaks down all the home buying fees that you need to be aware of, plus:
- The benefits of working with a Realtor®.
- Each stage of the buying process.
- Types of offers and negotiations.
- Industry jargon and terminology.
- Benefits available to first-time buyers.
- What happens on closing day.
You can get your copy of the Buyer’s Guide by emailing Marianne at email@example.com. Find out more about the advice that Storey Collective offers at https://storeycollective.com.