Buying a Home
Extra Home Buyer’s Fees and Taxes
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When buying your home, you may have to budget for other costs apart from the standard closing costs. These extra fees vary from one purchase to the other depending on some factors. You need to ask the following questions:
- Are you buying a brand new home?
- Are you a first-time home buyer?
- Does the seller have any prepaid costs?
- How does your mortgage financing work?
All these are determinants of additional fees that you will have to pay. The following are some of the extra fees that you may be required to pay when buying a home:
New Builds Warranty Enrollment Cost
This is applicable to newly built homes (brand new homes). In most locations, you may have to spend extra cash between 500 dollars and 1,000 dollars as a warranty on the new home. The new builds warranty is charged by the insurance provider to cover any repairs as a result of an error made by the contractor (the builder). You may have to pay for this fee with cash up front, or it may be included in the asking price for the new home (as part of your mortgage). It is important to find out whether the new home warranty fee is included in the buying price to avoid unexpected cost on closing day.
If you can raise 20% or more down payment, you are safe from purchasing mortgage default insurance. However, your lender will require an appraisal of the home you wish to buy. In this case, you will have to find a professional appraiser to assess and confirm the home’s market value. The appraisal fee can range from 100 dollars to 500 dollars and you need to be prepared for such costs and budget for it.
Land Survey Fee
Your mortgage provider may also ask for an updated land survey in which case you will have to pay a surveyor to visit the property and take measurements of the land and confirm that the boundary lines are accurate. The amount is paid to the surveyor and is known as the land survey fee and it is approximately between $600 and $900. In most sales, the survey is commissioned by the seller before listing the home but if not the case, you will have to cater for this extra fee.
Utilities Hook-up Fees
This refers to the costs of inspection of your gas, electricity, water and whether they are well connected and ready. You may also need a professional to hook up internet and cable and these will attract hook-up fees. It is advisable to set aside some dollars in your budget to cater for the installation fees.
Prepaid Property Taxes
Every homeowner is required to pay an annual property rate. The amount may vary from one location to the other but is usually some few hundred dollars. The homeowner may decide to pay the property taxes quarterly, twice per year, or on a monthly basis. If the previous homeowner had prepaid the property taxes, you will be required to refund them a specified amount counting from the close date up to the period paid.
Prepaid Condo Fees
If you are purchasing a condo and the seller has prepaid the strata fees (condo maintenance fees), just as the case with prepaid property taxes, you will have to refund the seller a prorated amount from the date of possession transfer up to the date the seller has paid. This amount is listed on the Statement of Adjustments and is payable in cash on the closing date.
The home seller may have prepaid for water, electricity, gas or oil. You will be required to refund the advance payments in cash on the closing date. This amount is also listed on the Statement of Adjustment as is the case with the prepaid strata fees.
Property Taxes Fee
Home ownership comes with continuous property taxes payable to the local authority (municipality). The amount depends on the value of the other properties in your neighborhood and may vary with different local authorities (municipalities). The property taxes are used to pay for important services including sewer protection, garbage collection, drainage and road maintenance, policing, fire protection and street lighting among others.
Property Taxes Calculations
Each municipality determines the property tax rate every year. The amount ranges between 0.5 and 2.5 percent of the current market value of your home, but not the buying price. Due to appreciation or depreciation, the property tax rate may be different every year.
How Can I Pay My Property Taxes?
You can discuss with your lender to pay your property taxes together with the monthly payment in which case the lender will take the annual property taxes for your home, subdivides it equally and adds the amount to your monthly mortgage payments. For example, if you are required to pay 12 monthly payments per year and your property tax is $6,000, the lender will take 6000/12 = 500. $500 will then be added to your monthly mortgage payment throughout the 12 months. In this case, the lender will be responsible for paying the property taxes for your property.
You can also decide to pay the property taxes directly to the local authorities, either online, by mail, by phone or any other authorized payment plan.
Unpaid or Prepaid Property Taxes
When buying a home, your real estate agent will follow up and confirm that all the seller’s expenses are updated accordingly. In a case of any unpaid property taxes, the seller will be required to pay the amount due to the municipality. In an event the seller has prepaid the property taxes; you will be required to refund the amount from the closing day up to the prepaid date.
In 2017, a new Canadian mortgage law specified that every Canadian who was applying for an unsecured mortgage at a federally regulated financial institution had to pass a mortgage stress test. Even a hefty down payment was not a sufficient reason for waiving the test....