Buying a home can be an emotional process and, in order to ensure that there are no surprises, it is important for purchasers to be aware of the common costs of buying real estate. Aside from the down payment, which requires at least five per cent of the purchase price for a high-ratio mortgage and at least 20 per cent of the purchase price for a conventional mortgage, there are several other expenses that homebuyers in B.C. should account for when budgeting for the acquisition of real estate. Below is a list of common costs that homebuyers should expect to pay on top of the purchase price of their new home:
1) B.C. Property Transfer Tax (PTT)
The PTT is a land registration tax that is paid upon registering a change to title at the Land Title Office. The tax rate is one per cent on the first $200,000 of the purchase price, and two per cent on the remainder. This is one of the larger additional costs that buyers will face upon the purchase of a new home. First-time buyers may be eligible for a full or partial exemption on this tax.
2) Mortgage Loan Insurance
Mortgage loan insurance helps protect lenders against default, which in turn allows buyers to purchase with a smaller down payment. Lenders will generally require mortgage loan insurance on purchases with less than a 20 per cent down payment. The standard premium on a CMHC mortgage loan can range from 0.5 per cent to 2.9 per cent on top of the buyer’s existing mortgage rate, depending on how much of the purchase price is financed by the lender.
3) Appraisal Fee
Mortgage lenders may require that the property be appraised at the buyer’s expense. An appraisal will typically cost a few hundred dollars; however, some lenders will waive this fee in return for your mortgage. For this reason, it’s important that buyers shop around to ensure that they get the best deal available.
4) Property Insurance
Mortgage lenders will require that property insurance be in place on the closing day of the purchase. This insurance will cover the cost of replacing the home’s structure and contents, and also protects the mortgage lender’s interest in the property.
5) Home Inspection Fee
A home inspection is important in determining any defects that may affect the value and livability of a home. The cost of such an inspection will vary, depending on the size and age of the home. Older or larger homes may cost more, especially if the buyers suspect that the property may have hidden or more complex defects.
6) Legal Fees
Legal fees are paid upon completion of the real estate transaction, and will typically cost $500 or more. Lawyers will also charge for any costs that they incur, such as the cost of running a title search and checking the legal status of the purchased property.
In order to save money, prospective homebuyers should begin their research and budgeting as soon as possible. This list covers the larger and more common costs that homebuyers will encounter, and should act only as a starting point for those looking to make a real estate purchase.