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.
Realtor Cassie Kangas with DFH Real Estate 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,” she said.
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 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’s purchase price is less than $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.”
Another thing buyers don’t often realize is 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Stevulak, senior mortgage specialist with TD Canada Trust, said there must be a statement showing the money has been withdrawn from the giver’s account and another showing it transferred to the recipient.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.”
Q: WHAT ELSE SHOULD I LOOK FOR BESIDES A GREAT HOUSE?
First-time home buyers have a lot on their plate in the months and weeks leading up to a purchase. Here are some tips:
Don’t just look at the house, look at the neighbourhood. Location, location, location doesn’t just refer to the physical home. Nearby businesses, schools and parks play a huge role in how much you enjoy living in an area. Walk the blocks around any serious contenders before making any hard decisions.
Invest in a professional inspector. Yes, an inspector can miss things, too, but the average home buyer won’t understand plumbing, wiring or electrical issues that might be problematic long term.
Base your purchase on the house you need, now and in future, but ensure it fits your needs, not wants. Buying more home than you need or can afford will severely hamper your enjoyment of the home long term.
Try to look past how a home is decorated or staged for your showing. Your job is to ensure it fits your lifestyle and home decor needs, not what others want to project on you to maximize their sale price.
GREATER VICTORIA MARKET UPDATE » MONTH TO DATE DEC. 15/14 Courtesy Victoria Real Estate Board
» 198 / 355 — NET UNCONDITIONAL SALES/ TOTAL, DEC. 2013
» 271 / 437 — NEW LISTINGS / TOTAL, DEC. 2013
» 3,406 / 3,554 — ACTIVE RESIDENTIAL LISTINGS / TOTAL, DEC. 2013