How much does it cost to get a mortgage?
A couple of the most frequently asked questions I get are ‘how much downpayment do I have to have and what other costs will there be?’ My answer is to budget at least 1.5% of your purchase price in addition to your downpayment to cover additional costs, and below is what that number can include. With the new Alberta Budget announced March 2015, the additional costs are going up significantly as there has been an increase to Land Titles registration fees. Below is a timeline of when these costs will be due during the mortgage process. Keep in mind most of these costs are only applicable if financing the purchase of a home, though some of them 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. Not including the minimum deposit you make on a property at time of making an offer, your downpayment funds should be available at least 3 weeks – 10 days prior to your move in date. If your funds are invested versus just sitting in a bank account, ensure you are allowing sufficient time to redeem any of these investments such as RRSP funds which could take up to 5 days to be deposited into your bank account. Depending on what program you have been approved under for your mortgage, downpayment can come from savings, gifted funds from an immediate family member, unsecured and secured borrowings, among other sources. Again, the source of your downpayment may be limited if you are applying under a New to Canada program or one of the Self-Employed programs.
Initial Deposit – This is the 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 may be a non-refundable cost a potential lender would charge you before they even consider reviewing your application for approval. Again, 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’m now recommending you budget around $2000-$2500 for legal fees though your lawyer can give you a more accurate price quote. These fees include costs relating to changing ownership to you when buying a new property and with the new Land Titles registration fee increase, you can expect to pay an average of $1100 more in legal fees.
After the Mortgage is advanced
Interest adjustment – Depending on your closing date and payment frequency chosen as well as the lender you are going through, 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 tax portion amount you may choose to include with your regular mortgage payments as those funds will go towards the following year’s property tax bill. Your lawyer will provide exact amounts 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 1.5% of the purchase price for extra costs in addition to your downpayment. Again, refer to your real estate power team to provide you with reliable estimates for all costs relating to your home buying transaction before, during and after the whole thing. When it comes to buying a home, having extra cash is better than being short.