When preparing to purchase a home, the down payment and mortgage costs are obvious financial considerations. There are some additional costs, however, that need to be taken into account.
1) Private Mortgage Insurance
If your down payment is less than 20 percent, your lender will likely require that you carry private mortgage insurance (PMI). Premiums vary depending on the size of your down payment and your loan. Your lender can tell you how much the PMI premium will increase your monthly payment --and for how long. When your loan-to-value ratio reaches 80 percent, you no longer need it.
2) Property Taxes
Property tax rates vary province-by-province, even city-by-city. To get an upfront idea of the tax rate in your area as a percentage of home value, check an online resource. Each city or district's website has a property tax information section.You can also compare tax rates across the country. How much your property taxes can be raised year-to-year also varies depending on your location.
If you carry PMI, your property taxes may be included in your monthly payment; otherwise they're due once a year.
3) Homeowners insurance
This is not a place to cut corners. If you finance your home, your lender will require a minimum level of insurance, but to really protect yourself, it's important to insure your home's replacement cost, not its current market value. In other words, you need enough coverage to rebuild your house in case of a disaster. Also understand that damage from a flood or an earthquake is not covered by standard insurance; you need a separate policy to cover these.
Water damage is especially tricky. Most general policies cover damage from things like a burst pipe or a leaky roof. But only flood insurance will cover damage from surface or below ground water.Liability insurance is also a must in case someone is injured on your property. You may also want to purchase an umbrella policy for additional protection.
Finally, don't make the mistake of believing that all insurance companies and policies are the same. Before you purchase a policy, it's important to do some comparison shopping for pricing as well as research on consumer satisfaction.
4) Association or Strata Fees
Are you buying a condo? Is your home part of a community that includes extras such as a pool, recreation facilities or grounds maintenance? If so, you may have to factor a monthly condo or strata fee into your budget.
5) Major Repairs
If home inspections are a condition of purchase, you may be able to negotiate major repairs with the seller. But be realistic about repairs down the road. Will you need to replace the roof? Repaint the exterior? What about windows, doors, or the deck? When the house honeymoon is over, these things may seem more serious both aesthetically--and financially.
6) Routine Maintenance
Even if you're not hit with major repairs, a home requires regular yearly maintenance. You'll hear rules of thumb that suggest you budget 1 percent of your home's value or $1 per square foot annually for maintenance. While it's fine to have a benchmark, the amount of actual yearly maintenance depends on factors like location, weather, initial condition and age of the house. Costs will vary year-by-year, depending on what needs to be done, but best to be financially prepared. Keeping your house in good condition not only helps maintain its appearance and functionality--it helps maintain its value.
If you're buying low with the idea of doing lots of improvements, start planning for those now. Whether it's a new kitchen, a remodeled bath, or an added room, the costs can be substantial; it's best to know the price tag upfront.