First-time home buyers are sometimes surprised by the additional costs that are involved in purchasing real estate. The actual amount of upfront and settlement charges seems to mount steadily, and the total can add up to between two and four percent of the home's purchase price, in addition to required down payment. Some charges and fees are unavoidable, even if the buyer pays cash.
Even though some costs are standardized, others vary widely from one area to another. By having a sense of the funds needed, determining a budget and approaching a lender for a mortgage are simplified. Some fees must be paid in advance, while other charges can be rolled into the loan and repaid over the long term. Some charges are pro-rated between seller and buyer at time of settlement.
Deposit amounts for taxes and insurance, typically two or three months in advance, may be collected at closing are subsequently paid monthly as part of the mortgage, held in escrow until balances become due, and disbursed by the lender or mortgage company.
Lump Sum Fees
Borrowers may be charged application and loan origination. Sometimes they are paid in cash at time of application or loan approval; other lenders delay payment until closing. Prospective buyers also typically pay for a professional third-party home inspection prior to signing a final purchase contract.
Other routine fees in conjunction with buying a home generally are settled at closing, and the buyer must have adequate cash funds available to cover all costs. In all cases, the buyer is presented with a settlement statement has an opportunity to review all the charges in advance.
Funds Collected at Closing
The settlement statement is a document that accounts for all financial charges and credits to both buyer and seller accounts. On the buyer side, the amount of cash down payment is listed as well as the total amount supplied by the lender. Additional charges collected at closing may also include:
- Any mortgage processing fees not collected in advance;
- Title Insurance;
- Land Transfer Tax, if levied. Some provinces offer a reduced rate to first-time purchasers;
- Legal fees, if an attorney is necessary;
- Pro-rated adjustments for property taxes, insurance and other fees as agreed upon.
- Homeowners Insurance: Depending on the company, the amount charged may represent a deposit, or it may be the entire first-year premium, but a policy must be in place prior to settlement.
- Miscellaneous amounts that might include document fees and copies, credit checks, and fax or postage charges;
- Property appraisal and/or survey, if required: Appraisals may be included in the loan application fee, while a survey is typically paid for by the seller, although there are exceptions;
- Land Office registration and filing fees: In order to effect a property deed transfer, documents must be filed with proper authorities.
Budgeting for Moving
In addition to being prepared for the actual costs of a home mortgage, buyers will be responsible for a variety of charges associated with moving into that new new home. Utility deposits and property improvements, including such things as fencing, the need for new locks and/or home security, Internet, cable and communication, even window coverings, landscaping or yard services, cleaning supplies and initial home stocks can total up quickly. The best advice is to have a contingency fund to handle unexpected changes.
While it can be exciting to buy a new Crestwood home, it also represents a financial commitment that cannot be ignored. Knowing in advance what is required is the best way to determine if the price—and the timing—for a new home are worth it.
By Justin Havre