How much does it cost to get a mortgage?
One of the most frequently asked questions I get is ‘how much does it actually cost to get a mortgage?’ My answer is to budget at least 1% of your purchase price to cover costs and this week I want to detail what that number can include. I will also provide you with a timeline as to when these costs will arise during the mortgage process so you are prepared as most of these costs are only applicable if financing the purchase of a home, though they may also apply to mortgage refinances too.
Before the Mortgage
Downpayment – This is the amount you are investing in the purchase which must be at a minimum of 5% of the purchase price. Your downpayment funds should be available at least 10 days prior to your move in date while still allowing sufficient time to redeem any investments such as RRSP funds. The holder of your investment accounts will be able to advise how long the process takes until those funds can be deposited into your bank account.
Deposit upon Offer to Purchase – This is the initial amount you must provide when you write an offer for the purchase of a specific property. The purpose of this most often “refundable” deposit is to show the seller you are interested in purchasing their property and this amount will be credited towards your total downpayment at closing date. The actual amount of this deposit is part of the negotiations your realtor will be doing on your behalf with the seller’s realtor. Be prepared to provide a paper trail of where these funds came from to the lender when confirming the source of the total downpayment.
Application fee– In some high-risk borrowing scenarios, you could be asked to provide an upfront application fee. This is usually a non-refundable cost a potential lender would charge you before they even consider reviewing your application for approval. This is mostly applicable on private mortgages or alternative lending applications only.
During the Mortgage
Appraisal – This is not always required as a good majority of values these days can now be confirmed electronically. Having said that, there are many other reasons why lenders want an appraisal and if they do, the cost for an appraisal report starts at approximately $300 and goes up depending on location and type of property.
Property inspection – Before you buy a home, you may want to know how “sound” the home is. A professional will inspect the roof, electrical and plumbing among other things. Cost could be around $500
Lawyer fees – The lawyer’s role is to facilitate the transaction on behalf of the lender as the lender is not just going to issue a cheque for thousands of dollars to the seller of the home without ensuring a mortgage can be registered against the property. I usually recommend you budget around $1200-$1400 for legal fees though your lawyer can give you a more accurate price quote.
After Closing the Mortgage
Interest adjustment – Depending on your closing date and payment frequency chosen, you will likely have to pay an interest adjustment cost. Different lenders have different guidelines so your mortgage professional or lawyer should be able to give you an estimate of this daily cost if applicable.
Property tax adjustment – Your possession date will determine if you have to come up with additional property taxes for the year you are buying in. This payment would be in addition to the additional amount you may chose to include with your regular mortgage payments. Your lawyer will provide exact amount as it will also depend on how the seller is presently paying their property taxes.
It’s difficult to provide an exact figure for some of the costs mentioned above and that’s why I recommend you budget about 1% of the purchase price for extra costs in addition to your down payment. You may not need the entire 1%, or you may require more, so budget accordingly. Again, your lawyer will be able to provide you with a full disclosure of all costs relating to your mortgage financing, before, during and after the mortgage closes.