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Personal Finance: Buying A House? Consider All The Purchase Costs

An article from the Hamilton Spectator by Julie Shea

I remember getting the first property tax statement for our new home. I was pleased to see our annual installment was quite reasonable. My delight was short-lived as my husband quickly pointed out that the bill represented not our annual, but our monthly payment.

What? How could property taxes be that expensive?

This would become one of our biggest monthly expenses and I had not even considered it when we made the decision to move.

That decision was made in a flurry. My father discovered this gem of a house in an amazing neighbourhood. After a brief run-through we put an offer in with no conditions. There was another conditional offer and we had to knock it out of the running. It was a very emotionally charged transaction, as house purchases often are.

Home buyers can fail to consider hidden costs. Many find themselves in the lawyer’s office on closing day and discover they owe thousands in closing costs that they didn’t consider. Don’t let these costs sneak up on you. When you are shopping for your dream home, don’t just consider the monthly mortgage payments, but make sure you consider all of the costs involved in a house purchase.

Some are obvious, such as legal fees. Those will run between $1,200 and $2,400. House inspections and appraisals are pretty standard fare (inspections can run between $300 and $500 while appraisals run around $250 to $350). If you are purchasing a property with a well, you will have to pay for a water test to prove the water is potable. This could add around $200.

Buying a new house? Don’t forget to consider hook-up fees for electricity, gas, telephone and cable. New homes may also come with GST. You can often obtain a rebate, but you’ll want to add this cost into your calculations.

Buying an existing home? Be prepared for adjustment costs. These are costs that need to be reimbursed to the seller if they have prepaid property taxes, utilities or even filled up an oil tank.

If you are putting less than 20 per cent down on your home, the lender will require default insurance. The premium is added to the mortgage and does not represent a closing cost. But PST will be charged and is not rolled into the mortgage and will have to be paid at the lawyer’s. A $400,000 house with 10 per cent down payment will come with an $8,640 premium, adding $691.20 in PST to your closing costs.

One of the largest closing costs buyers face is land transfer tax. This is based on the price of your home. For that $400,000 home, it would add up to $4,475 at closing. (There is a rebate for first-time home buyers of $1,000 per purchaser.)

The rule of thumb is have 1.5 per cent of the purchase price of your home set aside for closing costs. Some lenders even insist you prove you have that amount set aside. If you don’t like surprises, have a “home purchase dream team” made up of a mortgage broker, realtor and lawyer to help you navigate an ever-changing landscape and avoid last-minute surprises.

Julie Shea is a mortgage agent and money coach at The Personal Mortgage Group in Hamilton.