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"Hidden Costs of Buying a Home"

"Selling a Home"

"The Hidden Costs of Buying a Home"

Beyond mortgage payments, there are less obvious – but often unavoidable – expenses associated with buying a house that can bump up the initial cash outlay. These "extras" can add 1%-1.5% to your basic purchase price.

House Inspection Fees

If you're buying a resale home, before committing, you may choose to have the home inspected by a professional building inspector to assess any structural problems or required repairs. Expect to pay $300 to $400 for the inspection. Keep the written report, as it can be useful if you sell the house down the road. If you're buying a new home, you will probably be exempt from this fee: a new home builder is required by law to provide an inspection before the buyer takes possession.

Legal Fees and Disbursements

Your Lawyer’s Fee for Services

Lawyers charge you a fee usually based upon the purchase price of the property and the fees lawyers charge will vary between firms but expect to pay $800.00 - $1,000.00 in legal fees.

The Disbursements You Will Have to Repay to Your Lawyer

In addition to legal fees, there are certain costs paid on your behalf by your lawyer for searches and documents required to complete the transaction and satisfy your mortgage company's requirements. The approximate cost of these searches and documents (this does not include Information Services Corporation fees as discussed below) is $100. Most law firms also charge you a flat fee of approximately $35 - $65 for photocopying and courier services.

You also pay registration fees to the Information Services Corporation (formerly the Land Titles Office) based on a percentage of the purchase price of the property: 0.3% of the purchase price as a fee to register the transfer of title to your property and a $150 flat fee to register your mortgage against the property. Substantially renovated houses or newly built homes are also subject to GST, and some new home builders include this tax in the purchase price.

Real Property Report - (Surveyor’s Certificate) or Title Insurance

To close a home purchase, you need an up-to-date survey of the property, which specifies its size and shape, the type and size of the buildings, including additions, and the location of these buildings. If the vendor doesn't provide an acceptable survey, you'll need to pay a land surveyor about $500 - 600 for a new one. Alternatively, title insurance can be purchased for less, approximately $150 - $229, that protects the lender and buyer against loss or damage due to any encroachments by building over the property line. It provides coverage for any existing bylaw violations (like a building being too close to a sidewalk or other public property, or a driveway being too wide), encroachments, legal rights of access and other title-related problems that could devalue the property.

Adjustment Costs

You are responsible for your share of any costs for utilities, rentals or property taxes the current owner has prepaid. Sometimes property taxes have been paid by the previous owner for up to half a year in advance. These expenses will be calculated by your lawyer and must be paid at the time of closing.

A. Property Taxes

In the city of Saskatoon, property taxes are assessed at the beginning of June and become due and payable June 30th.

If you are purchasing a house before June, you will be required to pay the taxes for the entire year since you will be the owner when the taxes are assessed in June. Therefore, the seller must compensate you, at the possession date, for their portion of the taxes for that particular tax year. This compensation is deducted from the purchase price.

If, however, you purchase the house after June, the taxes have already been paid and you will be required to pay the seller back for the portion of the year that you are living in the home. This payback will be added to the purchase price and therefore, a purchaser must remember to leave money aside to pay the seller for the taxes.

Complicating the issue of property taxes for homebuyers is the City of Saskatoon’s TIPPS program. This is a program that allows homeowners to pay their taxes on a pro-rated monthly basis. Prior to the TIPPS program, homeowners typically paid a tax amount to their bank in addition to their mortgage payment. Each June, the bank would then use that money to pay the taxes. Under this system, when the house sold, the sellers would keep any money held in their bank’s tax account. Under the TIPPS program, however, if the sellers were paying the taxes directly to the city, the tax account comes with the house. Therefore, if you purchase a home that was registered in the TIPPS program, you must also buy the money that has accumulated in the house’s tax account. This amount is automatically added to the purchase price of the home.

After purchasing a home that was registered in the TIPPS program, the new owner will have a number of options:

1. The new owner can register for TIPPS and pick up where the former owner left off with the monthly payments.

2. If the new owner does not want to register for TIPPS, then the purchaser will be responsible for payment of the property for the balance of the year.

a.) If the home was purchased after June, then the taxes for the rest of the year will have to be paid immediately (or a penalty will be assessed).

b.) If the home was purchased before June, then the taxes will not have to be paid until June.

3. If a new owner wishes to register for TIPPS but the former owner was not in the TIPPS program, the new owner must bring the TIPPS account for the house up to date and then begin making monthly payments. For example, if you want to buy into the program in April, you will have to immediately pay, in one lump sum, the monthly taxes for January, February, March and April. After that, you will pay on a monthly basis.

B. Other Adjustments

In addition to taxes, there may also be prepayments on rental units (i.e. water softeners) that have been made by the seller. If you agree, in the Contract for Sale and Purchase, to keep the rental unit you will be required to reimburse the seller for the prepayment from possession on. Any credit to the sellers will be added to the purchase price.

Mortgage Insurance

If your mortgage is more than 80% of the property's selling price, it's considered a high-ratio mortgage, and as the homebuyer you must buy insurance to protect the lender in case you default. The insurance is provided by the Canada Mortgage and Housing Corporation (CMHC), or Genworth Mortgage and Housing Corporation and is calculated on a sliding scale based on the ratio of mortgage to home value and how many years the mortgage is amortized for. If you qualify for the minimum down payment of 5%, the insurance premium will be 2.75% of the mortgage value, for mortgages amortized over 25 years or less. Mortgages amortized over 25 years are subject to an additional 0.2% of the mortgage value for every 5 year period over 25 years, or $7,500 on a $200,000 home with a $190,000.00 mortgage.

Possession Date and Late Interest to Vendor

The possession date is the date that the seller must be out of the home and the purchaser can move in. This date can change, but only if both the seller and purchaser agree.

ISC can often be behind in its registrations by anywhere from 1 to 7 days, depending upon the time of year. Most law firms will, if possible, have all the necessary documents signed and submitted to ISC early so that title to the house transfers on the possession date. When early submission is impossible, or if there are difficulties with the documents themselves that prevent timely registration, possession still goes ahead as scheduled, but there are several behind-the-scenes technical issues that must be addressed.

Until the bank’s mortgage is registered on the title, the bank has no security for the mortgage money it is advancing to the purchaser. Therefore, the bank will not hand over the mortgage money until the mortgage is registered, and when the registration is late, that means the mortgage money will also be late and the purchaser will not have the funds to purchase the house. In order to avoid changing the possession date, a clause is built into every properly drawn real estate contract. This clause provides for late interest on any money the seller has not yet received on the possession date. This allows the purchaser into the home on the possession date and compensates the seller by adding interest to the money the seller has not yet received.

A purchaser should remember, however, that if the bank has not yet turned over the mortgage money, the purchaser is not yet paying interest to the bank. Therefore, even though the purchaser must pay interest to the seller due to registration delays, the purchaser does not pay interest to the bank.

Fire Insurance

If you are financing your purchase with funds from a mortgage, your bank or lending institution will require you have fire insurance on the home, with the loss payable to that bank or lending institution.

Even if you are not taking out a mortgage, the seller will require you to have fire insurance at the possession date and a few days beyond. This is to ensure that there are no insurance problems in the event that there is a delay in the ISC registration and the house burns down before that registration is complete.

If you are purchasing a condominium, the condominium association will have fire insurance, but you may wish to obtain fire insurance for your personal property inside the condominium.

Moving Costs

Don’t forget the movers. Sometimes better deals can be negotiated if you’re willing to move mid-month or obtain your own packing cartons. But usually count on paying $1,000 or more, and make sure your new home insurance commences the day you take ownership.

Setup Costs

If you’re planning to install a telephone, cable, satellite, Internet access or an alarm system, you may face connection charges. Some service and utility companies ask for a sizeable security deposit up front if you don’t have a previous history of bill payment.

Being prepared for these extras, by having 1.0% - 1.5% of the purchase price in your back pocket, will help make the purchase of your new home a more positive experience.