Don’t be surprised with hidden costs! There are many costs associated with purchasing a new home, and it’s important to be aware of everything, to avoid being blind sided. Many people are recognizing now as a great time to purchase their first home. Even if you have purchased a home in the past, this will serve as a good reminder of the extra, often forgotten and overseen, expenditures associated with purchasing a new home.
In order to budget effectively, consider not only your down payment, but also closing costs, and initial costs of moving. Some mortgage lenders may want to see proof of your required down payment, plus an additional 1.5% of your purchase price for closing costs. 1.5% is an estimate, and closing costs can end up being more or less than this amount, but it is a good point of reference when budgeting.
New regulations surrounding down payments were stipulated in February 2016. The minimum down payment for purchasing a home in Canada is now 5% for homes under $500,000, and a rate of 10% down is required on the remaining amount of the home’s value. For homes valued over $1,000,000 a minimum 20% down payment is required. Therefore, if your purchase price is $750,000 you will need 5% down for the first $500,000 and an additional 10% on the remaining $250,000.
You can use savings, TFSA’s, RRSP’s, gifted funds, or existing equity as the source for your down payment. Existing equity is the net equity you acquire after selling your home and paying off any mortgage, realtor, and lawyer fees. If you plan to use RRSP’s as the source for your down payment, you must be purchasing your first home via the Home Buyers’ plan to a max of $25,000 per person, and you cannot have previously owned property anywhere else in the world. If you plan to use an RRSP fund, lenders want to see that it has existed for 90 days prior to your closing date. Also, it is important to be aware that some employer RRSP plans are not eligible for withdrawal, so if you plan to use an RRSP plan make sure you check beforehand that the funds can be withdrawn. Gifted down payments are acceptable when received from immediate family members only, like a mother, father, brother, sister, and grandparent.
Plan to pay 5% GST on any new built home, newly subdivided parcels of land, and property used in business. If your home is under $450,000 there are various GST rebates available; some rebates you can apply for after paying, and others the builder may assign themselves. Sometimes GST is included in the purchase price of the home, and other times it can be excluded. If it is excluded, you will need to come up with 5% cash, or finance the GST into the mortgage.
You will need to pay realtor fees if you are selling your current home. Realtor fees are payable to a Brokerage and are a percentage of the first $100,000 of the sale of your home and another percentage for the remaining amount. The buyer’s and seller’s realtor will agree to split the commission on the sale of the home.
Legal Fees and Title Insurance
Legal fees usually include service charges, fees for Land Title Registration, confirmation of signatures on the Mortgage Contract, title insurance, ensuring property insurance, property tax adjustments, payouts of mortgage debts etc. Typically legal fees are $800 – $1,000 for completion of a full real estate transaction.
Home inspections are necessary assurance for everyone interested in buying a new home. A licensed and qualified home inspection in Calgary will uncover any potential problems with your new home. Sometimes the information discovered through an inspection has assist you in negotiating a better purchase price as well. The average cost for a home inspection is between $400 and $500.
Property Tax Adjustment
Property taxes are due every year on July 1. Each person is responsible for the property taxes on their home only for the dates that they own the property. If you purchase your home before the property taxes have been paid for the year, you will be reimbursed for the seller’s portion; likewise, if you purchase your home after July 1, or if the seller has paid for the entire year, you will need to reimburse the seller for your portion of the property taxes. Your lawyer will calculate and adjust the costs for property taxes.
Should you have any further questions about the costs associated with purchasing a new home, contact AC Lending for expert advice!
Based on Down Payment Considerations by Chris Grasty