Questions About Buying or Selling in Newfoundland?
How Much Money Do I Need to Buy a House?
Costs of Buying a Home
So you've decided to buy a house. It is important to understand all of the costs involved in addition to the price you're paying for the property. Doing some research and a little financial planning will go a long way to ensure you have enough money left over to live comfortably after the purchase of your new home. If you're like most people and you're getting a mortgage then you will also need to consider things like your mortgage payments, interest rates, CMHC mortgage insurance premium (if you're paying less than 20% down)
If you don't already have the full purchase price for the home chances are you will need to obtain financing by way of a mortgage. There are a few things to consider when deciding how much of a down payment to make on your new home. The minimum requirement is 5% of the purchase price of the home but you can make as much of a down payment as you wish. So why would you want to put more than 5% down? Well, first let's talk about high-ratio mortgages and how it affects your payments. Any down payment less than 20% of the purchase price is considered a high-ratio mortgage and will require CMHC Mortgage Loan Insurance. This is an insurance policy that the bank takes out on the loan they give you to protect their investment. The cost of this loan gets passed along to the person taking out the loan. The chart below outlines the different rates available:
|Percent Down Payment||Premium|
|5% to 10%||3.60%|
|10% to 15%||2.40%|
|15% to 20%||1.80%|
|20% to 25%||1.25%|
|25% to 30%||0.75%|
|30% to 35%||0.60|
As you can see, the more you put down the less your CMHC premium will be. This is a one-time payment and the total amount is often applied to your principal mortgage balance which will be calculated into your monthly payments. If you have more than 20% down you can avoid paying this CMHC premium altogether. 20% is a significant amount of money so most people end up getting CMHC insurance.
An offer to purchase a property is often acompanied with a deposit that goes into the real estate brokerage's trust account after your offer gets accepted. This amount is negotiable between the buyer and the seller. Most offers to purchase are "conditional" meaning the purchaser offers to buy the home under certain conditions such as being approved for a mortgage and being satisfied with a home inspection. If the purchaser does not get approved for a mortgage or they're not satisfied with the home inspection they can back out of the sale. In this case the purchaser would get their deposit back. In the event that a purchaser backs out of the deal without a valid reason they can lose their deposit as well as other legal penalties. The deposit shows that the purchaser is serious about buying a home. When the deal finalizes the deposit will go towards the funds used to purchase the home. A deposit doesn't have to be a large sum of money. Typically it is around $1,000 for a $200,000 home.
Your lawyer will handle the actual transfer of land from the seller to the buyer and release the purchase funds to the respective parties once they make sure there are no claims against the property and all registrations are in place (such as your new mortgage being registered against your property). They will also adjust any items the seller may have pre-paid such as property tax for that year. Every sale is different but a ballpark figure is around $2,500 - $3,500.
All purchasers are advised to get a home inspection done on the property they are buying. A home inspector will inspect the condition of the home and list any defects or repairs that should be made. Although it is not mandatory, the small cost of a home inspection could save you a lot of money down the road. A typical home inspection here costs around $400 - $500.
Real Estate Commission
A common misconception is that you'll have to pay a commission if you buy a home through a realtor. In realtiy, the seller actually pays his agent a commission for selling his home and that agent splits his commission with the other agent that brings a buyer.
If you're getting a mortgage your lender will often require you to take out a home insurance policy to protect against any loss or damage to the home. This cost will vary depending on your policy and the company you go with.
Often overlooked is actual cost of moving. Chances are you may need to rent a truck to move your furniture. Then there are service hookups (eletricity, phone, cable, etc) Some of these service hookups may require a small deposit. Calling ahead of time and checking to see the cost of these items will help you better plan your move into your new home.
Click below to download an editable PDF worksheet