There are numerous direct and indirect expenses related to obtaining a mortgage. Not all the following expenses will be applicable in your case, but it is helpful to be aware of them. There are also additional expenses that do not relate directly to the mortgage itself, including legal fees and disbursements, provincial land-transfer filing fees and property purchase taxes. Other potential expenses include new home warranty fees, mortgage life insurance premiums, condominium maintenance fee adjustments, utility connection charges, repairs that may be required prior to occupancy, and moving expenses.
Costs will vary considerably from one lender to another, and the type of financing that you obtain will be a factor. The following discussion covers some of the most common expenses that you should consider budgeting for.
Appraisal fee
The lender will obtain its own appraiser to determine the value of the security for mortgage purposes. The necessary fee is either paid by the borrower to the lender in advance at the time of application or is taken from the mortgage proceeds by the lender. In any event, the borrower pays the cost of the appraisal. Generally lenders will not give you a copy of the appraisal, although you should attempt to get it by requesting it in advance. Appraisal fees can range from $150 to $300.
Property inspection
There are many benefits of having a professional inspection to ensure that you are getting the home in the condition that you were expecting. The fees normally range from $200 to $400, but could be even more.
Survey fee
You will generally be required to obtain a property survey prior to mortgage funds being paid out if you are buying a house. The survey would be done by a qualified professional surveyor, and the purpose is to make sure that the lender knows the exact dimensions of the property that it is using as security. The lender may also want to be satisfied that the building meets the requirements for setbacks as required by the municipal by-laws, or that any additions to the building have complied with the by-laws.
The cost of the survey would be deducted from the mortgage funds that have been advanced to you, or you would pay for it directly. Your lawyer normally arranges this survey for you. It is primarily older houses that lenders are concerned about, due to additions, etc. If you are buying a new or relatively new house, you can ask the lender if they will waive the survey requirement. Survey fees range from $150 to $300.
Mortgage insurance fees
If you are obtaining a high-ratio mortgage or the lender requires you to obtain mortgage insurance for other reasons, then you will be paying a mortgage insurance fee to Genworth Financial Canada or Canada Mortgage and Housing Corporation (CMHC). The fee is between approximately 0.5 to three per cent of the amount of the mortgage that is being insured (generally the first mortgage) and is either added onto the mortgage total or paid by you in a lump sum at the time of closing the mortgage transaction.
Fire and liability insurance premium
Primary lenders require that any borrower of a mortgage carry sufficient fire insurance to cover the amount of the mortgage, and that they be paid off first. The second mortgage lenders would want the same type of coverage and have it shown that they are paid off second, and so on. It is necessary for the borrower to purchase sufficient replacement insurance. The borrower is responsible for making insurance arrangements and paying the costs of the insurance policy, showing that the lender is on the policy as being paid first or second, as the case may be. This has to be provided to the lender’s lawyer before any mortgage funds are advanced.
Renovation, repair and redecorating costs
Make sure you include these costs in your purchase budget. Depending on the condition of the home, your needs and budget, the costs could be low or high, necessary or discretionary. For example, if you have an older home, you will probably have to repair or replace various items. If you had a professional home inspector provide you with a report and possible estimates for repair prior to purchase, you probably have a fairly clear idea of the “might do”, “should do”, and “must do” costs. You may have successfully negotiated a purchase price reduction to cover all or part of these costs. If you are covered by a “New Home Warranty Plan”, any major structural repairs should be covered. Check it out.
If you are buying your first home, you could have additional expenses such as new appliances, furniture, yard maintenance equipment, tools and supplies.
Due to the age of the house or your needs or style preferences, you may wish to redecorate all or a part of the house. This could include drapes, curtains, wallpaper, paint, flooring, carpeting, light fixtures, etc. You may wish to add on or renovate rooms for in-laws, renters, a growing family or a home office. Finally, if you are buying a new home, there could be landscaping costs to consider.
