There are many costs associated with buying a home. Aside from the cost of the home itself, there are additional costs of which prospective purchasers should be aware. Being prepared for these costs can help avoid surprises and improve your cash flow during and after the closing process is complete. This article endeavours to prepare prospective homebuyers for some of the costs they will face when buying a resale home.

Once you have signed the agreement to purchase the home, you may decide to hire a home inspector. Due to the ability of a qualified inspector to uncover problems that are potentially expensive, this is money well spent. Additionally, if your agreement is conditional upon a successful home inspection and the inspector discovers potentially serious problems, the vendor may choose to make the necessary repairs rather than face losing the transaction. The cost of a home inspection ranges from $200 to $500. Some real estate agents will pay for or subsidize the cost of a home inspection as a way to get your business.

An additional cost you will incur is land transfer tax. This is a fee charged by the provincial government each time a house is purchased. Land transfer tax is calculated according to the purchase price of the home, but in general terms, one can count on paying approximately one per cent of the purchase price. For a $250,000 home, for example, the cost of land transfer tax is roughly $2,225.

Buyers who use a mortgage broker to arrange their mortgage are also charged a broker’s fee. Like most things, the cost of this service varies, but buyers should budget to pay approximately 1 per cent of the amount of the mortgage loan they are getting. Additionally, for those getting a CMHC mortgage, an insurance premium of anywhere from one to two per cent of the value of the mortgage loan is charged. Provincial sales tax of eight per cent applies to this premium.

Your next major expense will be legal fees. You will need a lawyer to prepare the paperwork required to close your deal. While lawyers’ fees vary, you can avoid surprises by asking your lawyer for a written estimate of the total fees and disbursements you can expect to pay. Regardless of the lawyer from whom you get a quote, the disbursements should be roughly the same. Some examples of disbursements are land transfer tax (see above), title search costs, registration fees and the cost of a title insurance policy.

When ordered early in the transaction, a title insurance policy can eliminate many of the costs a buyer typically incurs. Title insurance can also satisfy a lender’s requirement for a new survey, thereby saving the buyer hundreds of dollars.

One final expense prospective purchasers may not expect is the final adjustment between the purchaser and vendor. For example, when a vendor has prepaid realty taxes for the entire year and the property is sold prior to December 31, the purchaser is required to compensate the vendor for that portion of the taxes calculated from the date of closing to the end of the year. Such a payment is called an adjustment and is made by either the vendor or purchaser by their respective lawyer. Examples of adjustments abound, but the bottom line is that purchasers should be aware of this cost before closing.

An experienced real estate lawyer should be able to help prepare you for many such unanticipated costs.