You’ve decided you’re ready to become a homeowner. Congratulations! Buying a home is one of the most exciting purchases you will ever make.
Doing your homework well in advance and preparing—and saving—for the myriad expenses that accompany a home purchase can reduce a lot of potential stress during this exciting time.
Home inspection: check before you buy
A home inspection by a licenced professional can help alert you to current or future problems—and expensive fixes—down the road, like a roof or foundation repair.
It pays to shop around and ask friends and family for their recommendations. Don’t be shy about asking potential inspectors for references that you can and should call to see if they got good and valuable advice.
Make sure your home inspector is licenced to operate in Alberta. Before they can get a licence, a prospective home inspector must demonstrate to the province that they have a degree, diploma, or certificate in home inspection, among other requirements. The Home Inspection Business Regulation can also tell you the requirements for home inspectors.
Additionally, more and more mortgage companies require an inspection as part of the mortgage approval process. You’ll want to double-check in case they have a list of approved vendors, then verify the credentials and licence of the person you choose. It’s always in your best interests to make a home purchase offer conditional on an inspection and financing.
Property appraisal: a key part of the mortgage financing process
Forbes calls a property appraisal “an unbiased determination of the fair market value of the home by a professionally-trained third party.”
What it means is that an appraiser provides an unbiased, third-party assessment of the value of the home you want to buy. It protects you and your potential investment by ensuring you don’t pay more for your home than it’s really worth.
Appraisers in Alberta are licensed under the Real Estate Act and are part of the licensing and regulatory responsibilities of the Real Estate Council of Alberta. You’ll want to make sure your appraiser is appropriately licenced and regulated.
It doesn’t hurt to see if your appraiser is a member of the Appraisal Institute of Canada – Alberta. AIC-AB represents about 800 members in Alberta, and its objective is to serve the profession and the public by implementing policies and programs to ensure the profession is advanced and the public is protected. There’s also a search tool on the AIC-AB website to help you find a professional in your area.
Most mortgage companies and banks have their own approved list of appraisers, so it’s a good idea to check with them first. That way you don’t end up having to pay twice to get a report that’s acceptable to them.
Mortgage insurance versus mortgage default insurance
Mortgage default insurance is also known as “high-ratio default insurance.” Many mortgage brokers and bankers refer to this as CMHC (Canada Mortgage and Housing Corporation) insurance, although there are two private-market insurers as well: Genworth and Canada Guaranty.
Regardless of your insurance provider, mortgage default insurance is required if you put down less than 20 per cent of the purchase price. There is an inverse relationship between the amount of your down payment and the amount of mortgage insurance you are charged: the higher your down payment, the lower the mortgage default insurance. The amount generally ranges from just under 2 to about 4 per cent of your mortgage.
As an Alberta resident, you can celebrate another of the great things about living here: because we don’t pay provincial sales tax, you don’t have any additional provincial tax on your default insurance that needs to be paid up front as part of your closing costs.
It’s also worth noting that your mortgage insurance is fully transferable to a different lender if you find a better rate when it comes time to renew.
For more information, check out CMHC’s step-by-step homebuying guide and workbook. Genworth and Canada Guaranty also have workbooks and information to help you in your homebuying decision.
Title insurance or property survey
Title insurance is an insurance policy that protects the buyers of real estate property and the lender’s interests against losses that may arise with property’s title or ownership.
Alberta uses the Torrens System, which is a title system that registers titles to real estate. Essentially, title insurance protects you so that someone else person can’t go back in history, find a technical flaw in a historical transfer, and then claim title.
Title insurance is not a replacement for a competent real estate lawyer when you buy a home. It’s an additional form of protection during a real estate purchase and once you own a home.
Title insurance may be an acceptable alternative to some lenders, although others may ask to see the most current property survey, also known as a real property report. If there is no recent one available, you may have to pay to get this done, so expect to pay about $500 for it.
Bridge financing
A bridge loan is temporary financing to help “bridge” the gap between the time when your existing home is sold and when your new property is purchased. You can use the equity in your current home to pay the down payment on your next home while you wait for your existing home to sell.
Bridge loans are short-term solutions, typically six months in length, although they can be for as short a period as 90 days and extend up to 12 months or longer. To be eligible for a bridge loan, a firm sale agreement must be in place on your existing home.
Bridge financing has advantages and disadvantages, so make sure to do your homework and check with your lender of choice on fees and terms. Many banks have loads of information on their websites about this.
Legal fees
You’ll get a wide range of estimates on legal fees, but it’s safe to say that if you budget between $1,500–2,000 you should be covered. Some companies may charge a flat rate, depending on the value of the home you’re buying.
Check to see what’s included for the price you pay, like a title search and land registration fees. Those costs may be billed separately, depending on your firm.
Make sure your legal advisors specialise in residential real estate in Alberta so that you’re fully covered. Again, recommendations from family and friends will be valuable here.
Moving
While some friends are willing to help you move for the cost of pizza and drinks, they may not be quite so willing in one of Alberta’s famous blizzards or -30ºC weather. If that’s the case, you may have to consider hiring professional movers.
Costs vary widely and can include packing and unpacking, costs per kilometre, storage, packing materials, and other fees, so get everything in writing and compare accurately before you sign on the dotted line.
Beware of hidden costs that could be added on after the fact, read the fine print, and ask lots and lots of questions. Checking references and getting recommendations and advice from friends and family will also be helpful to you.
Utility transfers, utility costs, and property taxes
If the homeowner has already pre-paid taxes for the year, be prepared for the possibility of having to pay the balance of property taxes up front on the place you’re buying. Sometimes municipalities will remit the remainder of these taxes back to the seller, so have this matter clarified in writing with your lawyer.
If you’re a new customer to your utility provider, whether it’s gas, electric, sewer, or garbage, you may have to pay service connection charges and utility deposits to transfer service to you.
Typically, utility deposits are for the first year of service. If all bills are paid on time, you get either a refund or a credit applied to your future billings. Confirm the policy of each utility company, as no two ever seem to be the same.
Property insurance
If this is the first time you’ve purchased a property, you’ll be surprised at how much more homeowner insurance costs compared to tenant insurance. That’s because you aren’t just covering your personal possessions anymore.
Now you’re also looking at the replacement cost of the home and its contents, liability insurance (a minimum $2 million is now the norm), and any additional riders or specific additional coverage you’d like to have. Ensure your policy covers things like sewer backup, and be sure to compare policies from various companies before you buy.
Additional potential costs
If you buy a new home, you’ll have to pay GST as well as the Alberta new home warranty, which is about $2,500 for an “average-priced” home.
The warranty program says that Alberta’s New Home Buyer Protection Act “reflects the Government’s desire to ensure all new homebuyers receive warranty protection, clear expectations and an ownership experience protected from unpleasant surprises.”
Under the legislation, every homebuilder must provide proof of warranty coverage to obtain Alberta building permits.
You may also wish to consider purchasing mortgage loan insurance from your financial institution—if that’s who holds your mortgage—to protect your mortgage in the event you have an illness or interruption of work.
This is different from mortgage default insurance. Mortgage loan insurance is quite expensive, so be sure to carefully consider this additional cost before signing on the dotted line.
Additional fees when buying a condo
There’s a lot of additional information to consider when buying a condo, but we’ll just touch on a few things here that fall under the category of fees and costs.
Monthly condo fees are one of those basics. They vary widely, so make sure you find out what’s included. Sometimes it will be all or only some utilities. Often it includes caretaking of common areas, like cutting grass in summer and clearing snow in winter.
Check out how they care for the property and what’s included. Don’t be surprised if you pay extra for a parking spot and it has a title on it.
At the discretion of the condominium corporation, there may be a fee for the estoppel certificate. This is a signed statement from the condo corporation that certifies the information provided is correct.
At the discretion of the condominium corporation, there may be a fee for the estoppel certificate. This is a signed statement from the condo corporation that certifies the information provided is correct.
The estoppel certificate tells you things like the current condominium contribution assessed to the unit, how often your fees are paid, whether the seller’s fees and contributions are up to date, and any accrued interest.
For more on this subject, check out the CMHC website or Service Alberta.
Thanks to the magic of the internet and search engines, we have a wealth of information at our fingertips to help answer every question we could ever think of about being a homeowner, and how much it will cost us to get there.
Be sure to do your homework, ask lots of questions along the way, and check in with trusted family and friends who have walked this path ahead of you. Before you know it, it will be closing day, and you’ll be the proud owner of your very own home. Celebrate—you’ve earned it!