You’re ready to buy a home. You have all your ducks in a row: you’re pre-approved for a mortgage, you have your list of home-buying wants and needs, and you’ve hired an experienced real estate agent. Then it happens. You find your dream home, you make an offer and it’s accepted. Congrats! It’s smooth sailing from here… or not necessarily. Here are three unexpected expenses to account for when buying a home.
When buying a home, home insurance is a must. Not only does it make sense to protect your most valuable asset, most lenders require that you have home insurance is in place before they’ll approve your mortgage. When shopping for insurance, your premiums depend on a number of factors outside your control, including your neighbourhood and how close you are to a fire station. Rather than being blindsided with higher-than-expected insurance premiums, it’s best to shop around for home insurance ahead of time. That way you’ll know what you can reasonably be expected to spend on home insurance on a monthly basis.
Some insurance companies make you pay your home insurance premiums on a monthly basis, while others do it on an annual basis. This can make a huge difference in your cash flow, especially since the cash flow for new homebuyers is usually tight. (Some insurers give you a choice between monthly and annual and charge a fee for paying it monthly). Make sure you factor this into your decision when shopping for home insurance.
Property taxes can be another unexpected expense for new homebuyers. While many homebuyers look at the countertops and the stainless steel appliances, many forget to ask about property taxes. The amount of property taxes you pay mainly depends on the city or municipality that you live in, as well as your property’s value. Make sure to factor this into your new home budget.
Something else to budget for is the statements of adjustments. Your real estate lawyer will be responsible for preparing this. If the home seller overpaid for property taxes, you'd be responsible for reimbursing them. Don’t overlook this.
The third and final unexpected expense to account for when buying a home is land transfer tax. While many homebuyers are aware of property taxes, some buyers overlook land transfer tax. As a buyer of a property, you’ll be responsible for paying your fair share of taxes to the government. The amount of land transfer taxes you’ll pay depends on where you’re buying. Different provinces have different formulas for calculating your land transfer tax. To budget for this ahead of time, speak with your real estate lawyer, who can help you crunch the numbers.
If you’re a first-time home-buyer, you’ll usually catch a break on land transfer taxes. However, if you’re buying in the city of Toronto, you’ll pay a double land transfer tax, which can be quite costly, so don’t overlook it.