Buying a new house is undeniably an expensive endeavor. Many people will apply for a mortgage loan to cover the majority of the sales price. They may also save money for many long months or years to pay for the down payment and closing costs for the home. If you have been saving regularly, you may now think that you are ready to move forward with your buying plans. However, there are hidden costs of buying a house that may need to be aware of. By learning more about these hidden expenses, you can more easily navigate through the buying process without financial challenges.
The Land Transfer Fee
In many areas, home buyers are required to pay a land transfer fee or tax when buying a new home. This fee can vary dramatically based on which province or city you are in, so it is important to take this into consideration when choosing the property you want to purchase. For example, if you buy a home in a major city rather than a distant suburb, you may find yourself paying significantly more for this tax. The tax can vary from a half-percent to two percent of the sales price in most cases. Some locations, however, exempt first-time home buyers from paying this tax. Your real estate agent can explain this in greater detail to you when you request more information about house sold prices and other information relevant to your buying plans.
For many buyers, the steps to buying a house includes applying for a home mortgage. A mortgage allows you to finance up to 80 percent or more of the sales price. This makes it more affordable for buyers to purchase a new home and prevents the need to save for long years or even decades to enjoy the benefits of home ownership. However, mortgage fees can be costly and should be factored into your budget. You may pay a brokerage fee, fees for third party reports and even mortgage insurance if you are applying for a loan greater than 80 percent of the home’s value. Mortgage insurance may cost as much as two to three percent or more of the sales price of the house. The other expenses related to mortgage financing can also be high and vary by lender and broker.
Many home buyers wonder how much are legal fees for buying a house. A conveyancing lawyer may complete title and utilities searches, record the mortgage and deed and perform other necessary tasks. After all, buying a house is a financial matter as well as a legal matter. Complete conveyancing and other services performed by a lawyer may cost you as much as one percent of the sales price.
The last thing you want is for a fire, flood or other issue to damage or destroy your home. This could create significant financial hardship for you. Home insurance may pay for most of the cost of repair or replacement if a major event impacts your home. Many mortgage companies require you to purchase a minimum amount of coverage, so this often is not an optional expense for you. You may be required to prepay the premium for a year as well as to pay a few additional months of coverage to establish an escrow account. You typically have the ability to shop around for the best rates. Because some companies offer a discount when you bundle policies, you may consider getting a quote from your current auto insurance carrier first.
Title insurance is not always required, but it is highly recommended and relatively affordable. Depending on the value of your home, it may only cost a few hundred dollars. This type of insurance provides coverage for title disputes. The title insurance company will initially review the title history on your property to ensure that there are no disputes or other claims on the property. Then, they will insure you against losses related to property claims that arise during your years of ownership.
As you can see, the hidden costs of buying a house can be substantial. The last thing you want is to start searching for a home and fall in love with a house that you ultimately cannot afford to buy. Update your budget with these additional costs in mind to ensure that you are financially ready to purchase a home. If not, you may consider saving money for a few additional months so that you have enough money available to buy a new home.
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