Things to consider when purchasing a property
Other associated costs are often forgotten when purchasing a property and it is very wise to make sure you do not forget to add them into your budget. Below are a list of items that may pertain to you:
Mortgage loan insurance
Land transfer tax (see the Tools & Resources tab for a calculator)
Home inspection fee
Harmonized sales tax
If you are putting less than 20 per cent of the house value down, you're going to need mortgage loan insurance. Depending on your lender, the premium can be added to your mortgage payments. Note: As of January 1st, 2018, the Office of the Superintendent of Financial Institutions Canada (OSFI) is setting a new minimum qualifying rate, or “stress test” for uninsured mortgages (if you are putting more than 20 per cent of the house value down). The guideline, applying to all federally regulated financial institutions, now requires the minimum qualifying rate for uninsured mortgages to be the greater of the five-year benchmark rate published by he Bank of Canada or the contractual mortgage rate +2%.
Lenders typically loan a percentage of the home’s purchase price or the market appraisal of the property.
A deposit normally goes with the formal offer to purchase. This is usually a bank draft or certified cheque made out to the listing brokerage firm.
Use the land transfer tax calculator to determine the amount of tax you will be required to pay for both Ontario and Toronto (if applicable). First time home buyers qualify for a maximum provincial rebate of $4,000 and a maximum City of Toronto rebate of $4,475.
The lender may ask for a current survey or certificate of location before signing off on the loan. This could result in a large cost.
Title insurance provides coverage in case of problems with the property title among other things. The cost is relatively low, usually a few hundred dollars.
A home inspection can be completed at a relatively low cost, usually somewhere between $300-$500, depending on property size and type of use, i.e. residential versus commercial.
A number of activities are required to prepare the purchase of your new property. Legals fees cover the cost of the following: conducting a title search, preparing/registering the mortgage and disbursements related to drawing up the title deed.
The lender will require proof of property insurance from the very first day of ownership. This insurance must cover the replacement value of the home and all its contents.
Harmonized sales tax only applies to newly constructed homes. Resale (used) homes are exempt from paying this tax. Depending on a few factors (sale price, whether this property is your primary residence, etc) you may qualify for a rebate.
Many of my buyers come to me asking where they should start. I thought I would put together a list of things to do as well as items that should be accounted for when budgeting for your real estate purchase.
The first thing someone should do when purchasing a property is to obtain a pre-approval. Pre-qualifying for your mortgage will allow you to know exactly how much you can afford and this will help to narrow down your search and use your time more effectively. Pre-approvals come in writing and usually include a guaranteed interest rate which is locked down for 90-120 days (depending on the lender). You should interview most banks and competitors to find the best interest rate and terms. I can provide you with qualified and reputable lenders if you require (see Tools & Resources).
Neighbourhood(s) of choice
Knowing where you want to live is key because it will help to narrow down your property search. Thinking about your lifestyle and what suits you are key elements. If you are not familiar with Toronto and its neighbourhoods I would be very happy to discuss them with you. This is a truly fantastic city with so much to offer its residents, I feel exceptionally lucky to live here.
There are other costs associated with purchasing a property that are often forgotten but shouldn’t be.
Here are some to consider:
moving costs, fees charged for utility hook-ups, property tax and other adjustments (an adjustment takes place when the seller has already paid for something in advance and wants to be credited for the unused portion on the date the house becomes yours), and ongoing maintenance (condo fees, etc.) and finally any utility costs associated with the property.