3 unexpected expenses to consider when buying your first home

If you’re planning to purchase a home as a first-time buyer, it’s likely you’ve devoted your blood, sweat and tears to building up your down payment. Let’s say you’ve finally saved enough cash to buy your first home purchase. To ensure you get this process started on the right foot, it’s essential that you consider the other expenses that come with this investment beyond your down payment.

Closing costs

With most first-timers focused on their down payment, they sometimes forget about the expenses that come at the end of the homebuying process, also referred to as closing costs. These are the total fees and expenses homebuyers need to pay to finalize their home purchase, and they can add up quickly. Closing costs typically range from 1.5 to 4.0 per cent of a home’s purchase price. For example, if you’re buying a property worth $720,000, you could pay anywhere between $10,800 to $28,800 in closing costs. Generally, closing costs are paid when the property title is officially transferred from the seller to the buyer; however, there are some cases when these costs are incurred before the closing date.

Closing costs include appraisal fees, which provide an estimate of the property’s value and typically range from $250 to $350; home insurance to protect against the threat of fire or natural disasters; land transfer tax, which is a provincial tax calculated based on the home purchase price; closing adjustments, which account for costs not included in your original home purchase price, such as a hot water tank rental; title insurance to protect against title fraud; and real estate lawyer fees.

Home inspection

When you’re on the brink of buying your first home, do not overlook the importance of a home inspection. Part of your total closing costs, the average cost of a home inspection ranges between $500 to $1,000. While it might appear like an additional expense in the grand scheme of your purchase, it has the potential to save you thousands of dollars down the line, along with peace of mind. The size and structure of your new home will generally dictate the cost of the inspection.

A home inspection is crucial as it can expose potential costly repairs or maintenance issues that you might have to deal with in the future. Not to mention, many lenders require a home inspection to assess the property’s condition before approving your mortgage. More than just ticking a box for your lender, a home inspection helps to ensure you are making an informed decision.

Property taxes

Another expense for new homeowners to consider is property taxes. These taxes are calculated based on a percentage of your home’s value, can vary based on the city you live in and need to be paid on an annual basis. If you’re buying a resale home, you may have to repay the previous homeowner at closing if they paid the property taxes in full for the year.

Before buying, it’s important to research the property tax rates in your area and understand how they might affect your annual expenses. In some cases, property taxes can be included in your monthly mortgage payment, but in other situations, you may be required to pay them all at once. Overlooking this expense is an unpleasant surprise, that’s why it’s important to factor them into your budgeting from the start.

Understanding and preparing for these “other” expenses can significantly ease your transition into homeownership. It’s not just about having enough for your down payment but also being financially prepared for these additional expenses. Ensuring you have a comprehensive understanding of the total cost of buying a home will help you budget better and avoid any financial stress as you enter this new and exciting chapter of your life.