If you are planning on buying a new home in Edmonton in 2017, congratulations! You are making a solid investment at the right time. Unlike other Canadian housing markets, Edmonton is not suffering from speculation that usually sends purchase prices through the roof. The capital city has a more stable market, growing at a measured pace thanks to job opportunities and quality of life.
Some of the best real estate deals in Edmonton come from home builders who offer move-in ready options in planned communities. One of the major advantages to prospective buyers is that move-in ready properties are priced to sell. What does that mean for you? These homes are often priced lower than those listed by private homeowners.
With the above in mind, there are certain aspects of the real estate buying process that you should consider prior to signing a purchase contract. One of them is the various expenses you may come across.
Cash buyers can simply settle on a price with the builder, schedule a move-in date and show up to the closing table with a suitcase full of loonies! If this is you, the expenses will be mostly limited to taxes, household purchases, and paying the movers. However, if you are like most Canadian buyers, you will need a mortgage, and this means you will see additional expenses known as closing costs.
First-time home buyers not familiar with the mortgage process may feel a bit intimidated when they hear closing costs being referred to as "hidden fees" in CBC News reports. Although closing costs are somewhat unique to the mortgage industry, they are not hidden. The truth is the Canada Mortgage and Housing Corporation and the Mortgage Broker Regulators' Council require that closing costs be explained to home buyers upfront.
The reason some people believe that closing costs are hidden is because they are not part of a set number. They need to be calculated according to certain administrative and legal requirements. These costs usually represent less than 2% of the purchase price, but they could also be higher than 4% in some cases.
One of the advantages of buying move-in ready properties is the closing costs tend to be lower because certain fees associated with realtor services don't apply. You will get an idea of how much the closing costs will be once you agree on a price and submit a mortgage application to your bank.
It is important to note that closing costs are not recurring. They are one-time fees that you only have worry about once at closing.
Mortgage Insurance Premium
If you must get a high-ratio mortgage to buy your new home, the mortgage insurance premium will be one of your highest closing costs. A mortgage amount that is higher than 80% of the property value is subject to a mortgage insurance premium collected at closing.
Appraisal
Most banks will expect you to pay for the appraiser to inspect the property and determine the actual market price. In some cases, the bank will agree to cover this cost so you don't have to pay for it.
Interest Adjustment
If your closing date is on the last day of the month, you won't have to worry about this cost. If not, the interest owed from the day you move in up to the day you make your first payment will be collected upfront.
Title Insurance
The bank will order a legal study that establishes a clear path to ownership. On top of this search, a title insurance policy will protect your ownership interest against future claims. This is important to the bank to ensure it has good collateral, and you will pay for this policy at closing.
Land Transfer Registration
Welcome to Alberta! Unlike other provinces, right now Alberta does not impose the levy known as the "Canadian welcome tax." But there are property and mortgage registration fees you must pay as closing costs. The cost of registering your new house is $50 plus one dollar for every $5,000 that property is worth. The same calculation applies to mortgage registration.
We've added this to the list for one reason; it could be considered a closing cost because it is collected at the time of closing. You'll know exactly how much this will be and where it will come from long before you move in. If possible, you should provide as much as you can for your down payment, but not so much that you are left penniless. The ideal budget is to have three months of mortgage payments plus all household expenses as savings.
In the end, the more you know about closing costs before you apply for a mortgage, the less likely you will be to fall victim to sticker shock.