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Be Prepared For Up-Front Costs

Be Prepared For Up-Front Costs

Are you getting ready to buy a new home? If so, you’ve probably already thought about establishing a budget, but did you know that there are some up-front costs that you’ll need to be prepared for?  

These may include things like:

  • a deposit and possibly a down payment;
  • inspection fees, like home inspections, and WETT inspections for fireplaces and wood-burning stoves;
  • water quality system and septic system tests and inspections;
  • appraisal fees;
  • land transfer tax, legal fees, title insurance, land registration fees;
  • property insurance, condo fees, moving costs and more.

To help you prepare for these possible costs, here’s some information about a few of the most common up-front costs & what exactly they are – to help make your new home purchase a little smoother.

Deposit:

When you make an Offer to Purchase a home, you will be required to accompany it with part of your down payment. Deposits can be anywhere from 1% to 5%, or more, of the purchase price depending on the situation, the location, or the cost of the home. The seller may request an increase in the deposit once all of the conditions have been met, and this percentage could creep past 5%, so it’s best to have that cash set aside ahead of time.

Appraisal Fee:

An appraisal is an estimate of the value of your prospective new home, and this value is used, in part, to determine how much financing you will be eligible for. Your mortgage lender will probably ask that the property be appraised at your expense – though if you can find a lender that’s willing to make that inspection part of the deal, all the better! An appraisal service can cost between $300 and $500.

Home Inspection Fee:

A home inspection is a report on the current condition of the home, and will be an important condition of the Offer to Purchase. The price of a home inspection is usually between $400 and $600, however if the inspection is complex, this price can rise. Inspections for larger or older homes cost a bit more at inspection time, especially if there’s a suspicion of defects or possibly older construction materials that have been used to build the home. 

Land Transfer Tax:

This is a provincial tax that you pay as part of the closing costs. The land transfer tax amount is calculated using a percentage of the property’s purchase price. The percentage varies by province, and in Ontario, this percentage can be anywhere from 0.5% – 2.0% or more depending on the value of the home. Some municipalities also levy a land transfer tax, which further increases costs. If you are a first-time home buyer, you may be eligible for a land transfer tax rebate.

Property Insurance:

Financial lenders will require property insurance to be in place by closing day, because the home is the security for the mortgage. This insurance will cover the cost of replacing the structure, and the contents, of your home if anything catastrophic were to happen to it. 

Water Quality Inspection:

If the property you want to buy has a well, you should get the quality of the water tested to see if it’s drinkable by professional standards and make sure that the supply is adequate. This is usually a condition on your Offer to Purchase. Make sure dug wells are thoroughly tested, as runoff water from areas surrounding the home, could have a negative impact on quality depending on the season.

Septic System Inspection:

If the property has a septic system, you should also get a septic system inspection. This is typically beyond the scope of a regular home inspection, but is important to ensure that the system has been installed and maintained correctly, and is working properly. 

Legal Fees:

Your real estate lawyer will bill you for the preparation and recording of the land title documents (to check on the legal status of the property), and any other disbursements they incur while doing so. These need to be paid by closing, and the minimum going rate is around $750.00 (plus tax). It may not end there, so be sure to stay in contact with your lawyer to avoid surprises at closing. 

Title Insurance:

Your lawyer will recommend that you purchase title insurance to cover loss caused by defects of title to the property. It is a one-time premium payment that protects the title while you own the home. The cost will vary depending on the cost of your home. For example, Title Insurance is generally around $350.00 for a $500,000 home and goes up from there.

The items above are just some of the examples of upfront costs involved in purchasing your new home. Every home purchase is different, and there may be other costs that we haven’t detailed, so it’s never a bad idea to have a little extra included in your budget. If you’re not prepared, you could be in for some costly surprises. When creating your budget, ask your real estate agent & lender for advice – or do a little research online – so that you know what’s coming. As you embark on the journey of buying your dream home, stay a couple of steps ahead so that you don’t feel ambushed by expenses along the way.

When you are ready to make your home purchase, be sure to call us at Clairwood Real Estate, and we will help guide you through your purchase!