By Mark Demas
After years of saving money, you think you have enough for a down payment on your first home. Congratulations. But before you commit to a purchase, make sure you have considered the less obvious costs associated with buying a residential transaction.
These expenditures vary in size but can add up. That will cause real problems if you are already stretched to make your mortgage payment each month.
Here is a breakdown of the most common “hidden” charges associated with buying a home.
Mortgage insurance: If you are putting down less than 20 per cent toward the purchase of a home in your down payment you must purchase mortgage insurance in Alberta. This protects the lender as the insurance may pay the outstanding balance if you were to die before the mortgage is paid off.
Mortgage disability and critical illness insurance can also make mortgage payments to your lender if you can't work due to a severe injury or illness. The cost of these policies is based on a percentage of your total mortgage amount. The bigger your down payment, the less you will pay for mortgage default insurance.
Home inspection fee: Making a successful home inspection a condition of a purchase agreement is always a wise idea for buyers. The upfront cost will be between $500 to $700, which is minor as compared to the price of paying for potential repairs the home may require.
Always choose a certified home inspector. They inspect the home’s plumbing, electrical system, heating and air conditioning, windows, walls, floors and ceilings to ensure everything is in good condition. They will also be able to detect costly repairs that are needed, such as replacing a roof, water or fire damage that has been covered up, drainage issues or faulty wiring.
Appraisal fee: A property appraisal is an assessment of the value of the property you are buying. Lenders typically require an appraisal to ensure that the value of the property matches the amount of the mortgage. They want to determine you are paying a reasonable amount for the property and that they would be able to recover the debt by selling it if you default on your mortgage.
Land survey: Real estate transactions almost always require a current Real Property Report (RPR). Prepared by an Alberta land surveyor, an RPR is a high-level drawing of the property, the boundaries and the structures on it. This document includes:
- Date of land title search and date RPR was done.
- Certificate of title (land title) number and names of registered owner(s).
- Location and description of all buildings and structures (e.g., decks, fences) with dimensions, directions and distances from the property boundaries.
- Location and dimensions of any visible encroachments (i.e. buildings or structures that are too close or even beyond the property line).
- Designation of adjacent properties, roads or lanes.
- Evidence of municipal compliance with all municipal bylaws and regulations.
- Illustrations of any easements (agreements between the property owner and some other party, usually a municipal authority or utility, for them to utilize part of your property as needed) that are in place.
- The land surveyor’s certification and notation of any concerns.
An RPR will cost $1,000 to $2,000, depending on the work and research involved.
Legal fees: Real estate lawyers review all the legal documents and issues related to buying a home, including the Agreement of Purchase. They ensure property taxes are up-to-date and that there are no claims or liens registered or on file against the property. They also confirm if there is a valid property title and calculate what land transfer tax is due upon closing, as well as any other tax implications. The price for this service varies on location and the complexity of the property, ranging between $900 to $2,500.
Land transfer registration fee: While most Canadian provinces levy a land transfer tax, Alberta requires that only a land transfer registration fee be paid. The amount of these fees is much smaller than the land transfer tax imposed elsewhere in Canada. The fee starts at $50 and an additional $2 for every $5,000 in property value.
New home warranties: All new builds in Alberta require new home warranty coverage. The warranty is attached to the home, not the owner of the home, and remains in effect upon the re-sale of the home or until the coverage expires. The warranty typically covers work and material defects, as well as structural abnormalities.
The cost of a warranty varies based on the price of the home but ranges from $1,500 to $3,000.
Title insurance: This is a form of indemnity insurance for a mortgaged property that covers the loss of an interest in a property due to discovered legal defects.
It can cover future title fraud (if through fraudulent transactions and paperwork, someone loses title to a property they legally own, title insurance can assist in getting it back) and can provide “gap coverage” to buyers and borrowers, which protects their interests when a transaction is closing.
It may also cover deficiencies that would not show on an RPR, such as unregistered utility easements or builder’s liens, and may also cover hidden deficiencies such as underground storage tanks or underground septic tanks.
Other costs: There are numerous costs associated with buying a home that are not based in law or regulation but still must be considered. These include property insurance (which is not mandatory in Alberta but is usually a condition of receiving a mortgage) moving costs, appliance replacement, utility service hook-up fees, landscaping expenses and snow removal fees.
Contact us for assistance
There are many charges and legal requirements that people may not consider when initially looking for a home. The experienced team of real estate lawyers at Demas Schaefer will ensure you are cognizant of all the expenses and regulations you will face before embarking on a home purchase. People in northern Alberta can contact us for a free consultation.