When Marcelle, 29, and Janeen, 31, bought their first home -- a new, condo near funky Whyte Avenue in Edmonton -- they were determined not to join the housepoor crowd. So they saved up a 25 per cent down payment, said no to upgrades and bought used furnishings.
But six months later they were in trouble. They hadn’t anticipated a host of expenses that tipped their purchase from affordable to, “it hurts!”
Consider these 10 frequently forgotten costs when you do your home buying budget.
1. Interest Adjustments: To cover any gap between closing date and your first mortgage payment. Avoid it by lining up the closing date and first payment to be exactly a month apart.
2. Mortgage Insurance: Typically required by lenders if down payment is 20 per cent or less, to a minimum of five per cent. It costs up to 2.75 per cent of your mortgage, and more if you are self-employed without third party verification of income. Usually, it’s added to the principal and increases your payments. CMHC offers a table of premiums for various down payment percentages.
3. Home Inspection: The average is around $100 an hour, though some home inspectors charge by size of a home.
4. Survey (certificate of location): If there isn’t a current one available plan on spending from $750 to $1,500.
5. Legal costs and disbursements: They vary but average $1,500 to $2,500. Ask for an estimate beforehand. Optional title insurance is increasingly common and covers survey issues and un-discharged mortgages relating to previous owners. The cost averages $200 to $300.
6. Property Appraisal: This may be required by your lender, though some include it as part of the mortgage package. Otherwise plan on $150 to $300.
7. Home Insurance: An often overlooked item when calculating monthly payments. Get at least two estimates and inquire about riders for jewelry, high performance bicycles, art and antiques.
8. Vendor reimbursements: Necessary for items like taxes and fuel which the vendor paid in advance.
9. Land transfer tax: Loathed by home buyers, this tax may be levied in your area. Ask about reductions for first time buyers.
10. Condo costs: These can include a parking spot, estoppels for new condo purchases or status certificate, in-advance monthly condo fee, PSTHST on chattels (appliances), occupancy fees, tax on upgrades and warranty program enrollment fees.
A little prep in advance of purchase ensures you won’t be hit by sticker shock at closing or surprised by your first mortgage payment.
Variable? Fixed? Open? Closed? Which mortgage should you choose? Much depends on your temperament and situation.
In a nutshell, a variable rate will change with interest rates while a fixed rate is, well, fixed for a specified term.
Economist Moishe Milevsky’s research indicates that a variable rate saves homeowners money 90 per cent of the time, as much as 50 per cent of the interest paid over the life of the mortgage.
But if certainty means you’ll sleep at night, fixed may be more suitable, even though you’ll pay for the security. Open mortgages are more costly than closed but can be pre-paid at any time with no penalty -- a good option if you expect to sell before the term is up.