Here is a good article warning first time home buyers of the extra costs involved in purchasing a home. All of the lenders that I deal with ask the borrower to prove that they have 1.5% of the purchase price in addition to their down payment. The lenders use this 1.5% as an estimate of closing costs. Lending institutions want to know that you have some money to pay for all the costs involved in closing a real estate transaction. So, when you are putting your down payment together keep in mind that you'll need to save an extra 1.5% in order to qualify for the mortgage.
First-time home buyers should be prepared, rather than surprised, by extra costs
by David Friend, THE CANADIAN PRESS
TORONTO - First-time homebuyers are scouring the market for deals, hoping to take advantage of lower prices but real estate and mortgage experts caution that shoppers need to consider the wide array costs that come with buying a home - including ones that aren't immediately obvious.
They say it's part of a planning process that should start long before the house hunt begins.Dianne Usher, division vice-president for Royal LePage, says first-time buyers need to run through a checklist of the essential services that will add extra costs to their bottom line.
"Some of the costs that people tend to forget about, or are unaware of, are legal fees," she said."They're going to need a lawyer to search and confirm title to the property, physically close the transaction, to register and prepare any charge or mortgage documents.
"They're going to arrange for title insurance, which for some lawyers is an additional cost."Then there are other factors, like initial property deposits, which are part of down payments, Usher said. Those can increase up-front costs by as much as five per cent, she suggested.It's a confusing process for those who haven't done it before, which is why it's best to start planning early."When I get a client sitting down with me, we actually have a closing cost sheet," said Jeff Mayer, an agent at Mortgage Intelligence, a Toronto-area mortgage broker.He said making a detailed list helps potential buyers determine whether they can afford that dream home they always wanted, or if they should scale back their expectations to something more reasonably priced.
Mayer said his sheets break down monthly expenses and assess general affordability factors. He said he'll ask clients to determine their maximum, medium and "comfort level" mortgage approval."You want to look at the actual payment on that house, meaning the mortgage with mortgage insurance," he said."You want to look at what your average household costs are - meaning the heat, hydro, gas, maintenance on the property, and from there you want to see if that's something you can sleep with at night.""I always tell my clients to downgrade whatever they want to buy. So if they want to buy $500,000 buy $450,000.
"Usher said that homebuyers need to choose a knowledgeable local realtor with a good reputation."It's always good to choose a realtor that has been referred to you by somebody who has been pleased by their service," she said."In some major urban centres there is a higher level of activity than a suburb environment. Sometimes the buyers can get caught up in a frenzy and not do their homework."Once a deal is secured, and financing worked out, there can be other surprises along the way, Usher added."The physical cost of moving is often more than two cases of beer and five pizzas," she said.And "a resale unit may be untidy, so it might be necessary to arrange for some professional cleaning to be done.
"For new home buyers, the Ontario government plans to blend the federal GST with the provincial sales tax next year, which could significantly increase the final price.On new homes, where GST is already included, the tax harmonization will apply another eight per cent provincial tax to houses worth more than $500,000.
New homes worth under $400,000 will not face the additional tax, while those between $400,000 and $500,000 will pay the tax but get a rebate.However, Usher noted that there are some refunds for first-time homebuyers, including a provincial land transfer tax rebate of up to $2,000.In Toronto, where there is also a municipal land transfer tax, first-time buyers can get up to $3,725 back.Some provinces also offer "green incentive" rebates for energy efficient homes.