The Hidden Costs of Buying a Home

by Justin on December 21, 2016

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For years it’s been hammered into our heads that real estate is a great investment. “Renting is like throwing your money away!” parents lamented to their adult children and savvy individuals to their less enlightened friends. It’s true that it can feel strange at times when you think that you are paying off someone else’s mortgage, however, there are more costs associated with buying a home apart from paying for the value of the building itself. These often come as a surprise to new homebuyers that only just fit in their budget and scraped up enough for the down payment.

  1. Real Estate Fees

These don’t affect you if you are a first time homebuyer, however if you are selling your home and buying a different one, this is a cost that you will have to pay. Depending on the area and on the agent him or herself, you’ll have to turn over anywhere from 4-7% of the value of the home that you just sold. This means less equity for you to put into your new investment and less of a profit than you expected.

  1. Home Inspection

Many buyers present an offer that is contingent on a positive review from a home inspector. The services of a certified home inspector can cost anywhere from $200  to $470. However, this is considered a good investment, especially if you are buying an older home that could have damage that isn’t visible to the average person or the naked eye. There is a significant number of offers that have been voided due to a bad inspection, saving the would-be homebuyer from a possible safety and financial disaster.

  1. Land Transfer Tax

Depending on jurisdiction in which you live, you might end up paying a state or provincial plus a municipal land transfer tax. This tax is added for the privilege of transferring real estate within that specific area. The rate of this tax varies from jurisdiction to jurisdiction, and can range from extremely low, 0.01%, to quite high, at 4.0%. Research the rates in the area that you are looking to buy in and calculate the amount on the price that you have budgeted for. Is it still affordable to you? The good things is that in most jurisdictions, there is a partial, if not complete, discount for first time homebuyers. This is to encourage them to enter the market, however don’t get used to it. For your subsequent homes it’s something that you will have to budget for.

  1. Legal Fees

Legal fees cannot be avoided no matter what the circumstance. The price of this professional service will cost you between $1,300 to $2,500 plus tax. Though it’s mandatory for a lawyer or notary to close the deal, it’s a good idea to ask your chosen professional to review your Offer of Purchase before you sign it and give it to the other party. For example, a law firm based in Montreal whose expertise is real estate law will have an excellent understanding of the conditions of the offer and keep your interests protected if you plan on purchasing a property in Montreal.

  1. Home Insurance

Though you might have been paying some sort of tenants’ insurance while renting, home insurance is a whole other ball game. Depending on the going rates in your area, you are looking to spend at least $450 annually for home insurance. Thankfully the rates are usually monthly, but you better have enough for the first payments or else you’ll be more in the red than you have ever been.

These are just some of the inevitable costs that come with buying a home, apart obviously from the price of the property itself. There are also optional or situational costs like title insurance, a property survey and more. Depending on what you already have, you might find yourself having to buy more furniture to fill up the space you now own, or having to pay some painters to redo some of the rooms that you can’t stand to look at. Take some time to fully research the costs of buying a home in the area that you are looking at and create a budget that factors in the real price tag on having your own home.

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