Your home is likely the most expensive thing you’ll ever own, there is a lot of expense that goes beyond just the purchase price. You are aware of the price you're going to write an offer to purchase the home, but there can be many expenses that are upfront that can catch you off guard. Some of these costs are not exactly “hidden,” but there are commonly overlooked and not taken into account when designing your budget. I will discuss many of these costs in detail as they will relate to you, the buyer or seller. My overall objective for this article is to get you thinking and planning if you are considering buying or selling.
Home Inspections as I talked about in last month's newsletter, Home Inspections are an important process in purchasing a home. However, most buyers do not go into a transaction thinking about the cost of this inspection. Other inspections that you may require depending on your location sewer/septic inspections, well inspections, wood-destroying insects (termite) inspections. These inspections can all add up to a hefty sum that you weren’t planning on. Again all of these inspections will ultimately give you peace of mind, and under certain circumstances, some can be required by lenders.
Closing Costs are usually the expense that has the most “sticker shock” to buyers and sellers alike. Closing costs will usually run you an extra 2%-5% of the home purchase price. You can, in general, expect to spend several thousand dollars on top of your down payment when closing on your home. Here is usually what is included in closing costs: Lender fees: these include everything from administrative costs to wire transfer fees to fees for pulling your credit report. Appraisal: The home appraisal can be a big expense, at several hundred dollars. The lender sometimes will cover this fee, never hurts to ask your lender. The appraisal is a must as the lender wants to ensure he home appraises for the sale price. Title & Attorney fees and Adjustments: lawyers will conduct a title search, registering your new place in your name and making sure the downpayment and land transfer tax go to the correct offices on time. Fees include filing fees, notary fees and any other expense associated with transferring the deed over to you. Average costs $1,500 and up. Adjustments are normally related to taxes or utilities, i.e. if the seller prepaid property taxes or utilities, you’ll have to read them the prorated amount. Property Taxes and Land Transfer Tax: depending upon the time of purchase, you may be responsible for the full amount of property taxes. All provinces, excluding Alberta and Saskatchewan, have land transfer tax when you purchase a property. Rates are a percentage that varies based on property value. Ontario’s land transfer tax ranges from 0.5% to 2%, depending on property value. Good news for first-time buyers can apply for a rebate of up to $2,000. Interest: you will also likely have to pay interest that is prorated from the date of your closing to the first of the following month.
Property Taxes and Insurance these are ongoing expenses but are often underestimated or completely left out of the budget. Many people simply focus on how much their mortgage payment will be each month. Depending on your situation, you may have incorporated your property taxes into your mortgage payment, and may have mortgage insurance, but did you factor in that adjusted payment? The difference can be hundreds of dollars a month that you may not have planned for.
Most people have plans of making some repairs to their new home, whether it be as simple as painting or a major renovation in tearing out wall people very rarely properly budge and stay within the budget. I speak from experience when doing renovations; it is easy to run away with the budget and go all out. But people seldom plan for maintenance and repair costs; I also can speak from experience when in the middle of the summer, my air conditioner failed, and I had company coming the next day. When your air conditioner fails as a renter, it’s a pain, but you just have to call your landlord and hope for the best. As a homeowner, it hurts a little more because you have to foot the bill for the repair yourself. Most people know owning your home means you're responsible for maintenance, but many underestimate how much these repairs will cost you. Many financial planners recommend having 1%-4.5% of the homes purchase price set aside for annual maintenance, and there is no cookie-cutter answer as every home is different.
The last sleeper costs I will highlight is moving & utility costs. Depending on your situation, you may be required to pay a large deposit to the utility provider. If you were a renter or lived in a smaller home, you may be surprised by the utility bills of your new home. I always request utility information for all of my transactions, as this information is vital for a proper budget. Lastly, moving costs most people move themselves other choose to hire professional movers; either way, it may be a last-minute decision. It is definitely something to consider and moving costs can range from $500-5,000.