You’ve found the home of your dreams and put aside the money you’ll need for a down payment, so now all you need to do is make an offer and then sit back and wait for the moving van to arrive.
Well, not so fast. There’s a lot of other costs involved in the purchase of a home, and not being prepared for those costs can lead to your dream home slipping right through your fingers.
Oak Bay realtor Cassie Kangas said she often encounters buyers who are caught off guard when informed of the additional costs they’ll likely face when buying a home.
“Obviously, first-time buyers have no clue because they’ve never done it before. But even people who’ve bought before, or maybe haven’t bought for a long time, there is stuff that has changed or they’ve just forgotten about it,” said the realtor with DFH Real Estate.
Kangas has prepared a budget sheet that allows her to walk through some of the additional costs they’re likely to encounter.
When we go through those hard numbers, people for the most part are always caught off guard by something.”
Some of the costs that buyers should be prepared for are legal fees, land survey, property appraisal, municipal taxes, insurance and moving costs. Unless you’re a first-time buyer and the home is under $475,000, you will also be looking at a property transfer tax of one per cent on the first $200,000 and two per cent on the balance.
“People often don’t realize that none of those costs can be rolled into the mortgage. They need liquid money for that, and it has to be cash available and it has to be paid at closing through the lawyers, in most cases,” said Kangas. “And because you need that on top of your down payment in accessible money, that’s a big chunk of change.”
She said another thing buyers don’t often realize is that there are stringent rules governing the gift of a down payment from a parent or grandparent.
Dana Stevulak, senior mortgage specialist with TD Canada Trust, said there must be a statement showing the money has been withdrawn from the giver’s account and another showing it transferred to the recipient.
“Then we have a one-page gift letter that has to be signed showing that you are in fact gifting this money to a child or grandchild,” said Stevulak. “It’s just really to prevent money laundering so people aren’t just shuffling money around. It’s very simple and straightforward.”
Both Stevulak and Kangas also recommend to get pre-approved for your mortgage before you head out shopping for homes.
“A lot of people put the cart before the horse and they start looking at houses and then want to get pre-approved,” said Kangas. “Maybe they will lose the deal because in between somebody else is pre-approved and gets the house, or they can’t really afford what they think can afford.”
Kangas said buyers should also remember they will be required to make a deposit of no less than five per cent of the cost of the home at the time they make an offer.
“I think the biggest piece of advice I could give someone is to work with a realtor who sits you down before you start looking at homes to go through those hard costs so you know you can afford what you’re looking for.”