Many first-time homebuyers think that pooling up money for the down payment is the only upfront cost they need to worry about. However, as they step foot in the housing market and go about the home-buying process, they realize that there are more upfront expenses that they aren’t ready for.
Want to know what these lesser-known upfront home-buying costs are so you can budget for them? Scroll down below!
Upfront Costs of Buying a Home That Goes Beyond the Down Payment
Title Insurance
Title insurance can protect you against any potential issues with the title of the property you’re buying. These title issues can usually pop up after you’ve purchased the MLS listing in Toronto. For instance, if someone else claims that they have a right to your property or if there are undisclosed liens or errors in public records, the title insurance will have your back.
You need to budget for around $200 to $500 for buying the title insurance of your would-be home. However, these title insurance fees will vary depending on the value of your property and the insurer.
Home Inspection Fee
This is the fee you pay to have a professional inspector come in and thoroughly check the condition of the house you’re thinking of buying. Home inspection fees typically range between $300 to $600 depending on the size of the home.
This home inspection fee is an upfront cost that you can skip while buying the MLS listing in Toronto but it’s wise that you don’t. This is because without investing in these upfront costs, you’ll be essentially buying the house blindly. On the other, by investing money in home inspection, you can know about any hidden issues like faulty wiring, plumbing leaks, or structural problems that could cost you a fortune down the road.
Appraisal Fee
During the appraisal process, a professional evaluates the value of the property which helps your lender determine how much they’re willing to lend you. The appraisal fee is what you pay for that service and it usually ranges from $300 to $500.
Deciding to choose to skip this upfront expense is not always in the hands of a first-time homebuyer. You can only avoid this cost if the Toronto MLS listing has been recently appraised or if the lender is using an automated system to estimate the home’s value.
Closing Costs
Closing costs are all the extra fees you pay upfront before you can officially call the MLS listing in Toronto yours. These upfront costs involved in home-buying often include things like legal fees, land transfer taxes, home inspections, and even adjustments for property taxes. On average, you can expect to spend about 3% to 5% of the purchase price of the Toronto home on closing costs.
Closing costs are an upfront expense that you cannot avoid completely but you certainly can lower these fees. For instance, some first-time homebuyers can qualify for a land transfer tax rebate which can save them a few thousand dollars. Also, you can talk to your lender or Realtor to see if any closing costs can be negotiated or rolled into your mortgage.
Property Transfer Taxes
This is a fee you pay to the government to get ownership of the MLS listing in Toronto. In Toronto, homebuyers are actually hit with two property transfer taxes - one for the province of Ontario and another for the city of Toronto itself. Ouch, right?
The actual amount you’ll pay for the property transfer taxes will depend on the price of the home but as a rough estimate, it could be a few thousand dollars. The good news is that some first-time homebuyers might be eligible for a rebate on the property transfer taxes. This can help cover a portion of this upfront home-buying cost.
Mortgage Default Insurance Premium
You’ll need to pay for this insurance only if the down payment you’re putting down is less than 20% of the purchase price of the MLS listing in Toronto. You can choose to pay this premium cost upfront or you can roll these expenses into your mortgage.
The exact premium amount for your mortgage will depend on the size of your down payment and your home’s price. For instance, if you’re putting down less than a 10% down payment, the premium could be around 4% of your mortgage amount. But in case your down payment is higher, say 15%, your premium would be lower, around 2.8%.
Utility Hookup Fees
You’ll have to pay this fee for the connection of essential services in the MLS listing in Toronto. This can include electricity, water, gas, and Internet or phone lines to your new home. While you can’t typically avoid paying for these hookups (after all, you need these services!) some newly built homes may offer incentives or waive the fee as part of a promotion.
Prepaid Property Taxes
Prepaid property taxes are taxes that the seller of your new home has already paid for the period beyond the date of the home sale. For instance, if the seller has paid property taxes for the whole year and you buy the home in the middle of the year, you’ll likely need to give the seller a share of those taxes for the months you’ll be living there.
Homeowner’s Insurance
This insurance protects you from financial losses due to damage or loss of your home and belongings. On average, you might pay between $700 and $1200 annually for homeowner’s insurance for the MLS listing in Toronto. Lenders often require first-time homebuyers to get the homeowner’s insurance as a condition for approving the mortgage.
Moving Costs
Moving costs cover everything you need to get your stuff from your old place to your new home sweet home. This usually includes hiring professional movers or renting a moving truck, packing supplies, and maybe even paying for extra insurance to protect your belongings. On average, you might spend between $1,000 and $3,000 if you’re moving locally to Toronto.
On Top of Your Upfront Expenses, Stash Away Some Cash for Emergencies
Setting aside an emergency fund is just as important as budgeting for the upfront costs during home-buying. With a rainy day fund, you won’t have to end up scrambling for cash, use credit cards, or worse, sell your new home when life throws a curveball at you and you cannot manage your homeownership expenses. So, while you’re preparing for the upfront costs involved in buying an MLS listing in Toronto, make sure you’re putting away some money for rainy days. For the homeownership emergency fund, aim to set aside at least 3 to 6 months’ worth of living expenses.
Read More:
- Want to Save on Your Home Loan in Toronto? Learn How Mortgage Points Can Help
- Be Prepared Key Questions Homebuyers Will Ask When Choosing You as Their Realtor