If you want to avoid unpleasant surprises and disappointments, make sure you do a bit of homework before you try to arrange a mortgage and make an offer on a new home. On top of the down payment, you’ll have to pay for the various additional costs of buying a property. These startup costs can amount to several thousand dollars.
- Appraisal costs. Your financial institution needs to know the actual value of the property you want to buy, and in some cases will only accept the evaluation of a licensed appraiser. Keep in mind that you may choose to apply for a mortgage that doesn’t exactly match the actual purchase price.
- Inspection fees. It is strongly recommended—but not required—to have the property inspected by an independent professional home inspector.
- Legal fees. The purchase of a property must be formalized by a notary or lawyer, who prepares the documents for signing by both parties.
- Mortgage loan insurance. If your down payment is less than 20 or 25 percent of the mortgage value, which is often the case, you must take out mortgage insurance from the Canada Mortgage and Housing Corporation, Genworth Financial Canada or Canada Guaranty. The exact amount of the insurance required varies with the percentage of your down payment. You can pay it in a lump sum or have it added to your mortgage loan.
- Title insurance. This optional insurance covers you in the event of title fraud, survey issues, or challenges to your ownership.
- Adjustment costs. The seller may have negotiated with you to receive a reimbursement for a portion of the annual expenses he or she made as homeowner. These may include property and school taxes, electricity and fuel bills or annual condominium fees.
- Home insurance. You will need to arrange an insurance policy that will take effect as soon as you gain title to the property. This will protect you in the event of theft, vandalism, fire, etc.
- Mortgage life/disability insurance. Some people opt for this optional insurance, which allows you and your spouse to meet your outstanding mortgage obligations in the event of a death or major disability.
- Other costs. There will be municipal and school taxes you’ll have to pay, as well as possible condo fees, sales tax (if you’re buying a new house), land transfer tax (a.k.a the welcome tax) and survey costs.
Don’t forget the many other additional costs of buying a property you’ll need to prepare for, such as moving (hiring a truck and movers), furnishing your home (paint, curtains, lawn mower, furniture and appliances), having mail forwarded from your old address and connection fees for electricity or gas, phone, cable and Internet.
