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Newcomer's guide to buying a home |
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Page 3 of 4
Determining your budget
One of the most important steps you must take before deciding on a
house is to assess your financial situation and determine what you can
afford. There are several initial costs involved, plus other regular
payments that extend through the period of your mortgage.
The biggest initial cost is, of course, the down payment.
Most lenders will extend a maximum of 75 per cent of the cost of the
home, which means you will have to pay at least 25 per cent as down
payment.
The minimum acceptable down payment in most provinces,
however, is just 5 per cent of the cost of the property. It is possible
to get an advance for the balance from some lenders but you will need
to take out insurance and may also be subject to a higher lending rate.
Apart from the down payment, home buyers must also budget for closing
costs which can be as high as 2 per cent of the cost of the home. These
costs include:
- mortgage application fee. This is refunded if the application is
rejected.
- appraisal fee. The mortgage lender appoints an appraiser to determine
the true value of the property, but you are responsible for paying the
appraisal costs.
- inspection fee. Not compulsory, but recommended. Home inspectors will
examine the structure of the house to determine faults, if any, and
evaluate how much it will cost to repair. If the report reveals
problems that may be expensive to fix, you can lower your offer to the
seller, or opt out of the deal entirely.
- legal fees. Unlike many other countries, a real estate lawyer is an
essential part of the home buying process. Your lawyer is responsible
for reviewing any offer or deal before you sign it, and will also
investigate if there are any claims registered against the property,
calculate the various taxes owed on the house, and work out the
‘adjustment costs' such as prepaid utility bills and taxes that you
must pay to compensate the seller.
- land transfer tax. This is a one-time fee, and is a percentage of the
total cost of the home.
- insurance. You must have adequate insurance against fire, loss and
theft before your mortgage lender completes the transfer of funds to
the seller.
Besides these costs, you will also have other initial expenses such as
paying the movers, buying furniture, appliances, gardening equipment,
snow removal equipment and the like.
Budget for all of the above when you start planning to buy a house.
Apart from these costs which you will have to pay up front, there are
other recurring expenses you will have to take care of. The biggest of
these will be your monthly mortgage payment. You will also have to pay
out for property taxes, school taxes, utilities such as electricity,
gas, power and water, and condominium fees (if applicable). Some of
these charges are payable each month, others half-yearly or yearly.
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