The Not So Obvious Costs of a Real Estate Transaction
The Not So Obvious Costs of a Real Estate Transaction
When buying a home, there are the obvious costs, like your down payment and your mortgage but in addition to these big sums, you also have to deal with a bunch of small fees. Both the buyer and the seller need to be aware of these costs as they can have a noted impact on their budget.
There's a lot more than a purchase price that's typically paid during a real estate transaction, so if you want to come armed with knowledge, read on.
Appraisal fee
An appraisal, in real estate, is the process of estimating the fair market value for real property. Appraisals are usually commissioned by lending institutions to protect themselves from losses should you be unable to repay your home mortgage. The appraisal fees will vary depending on the type of property.
The appraisal fee is usually paid by the lender. However, in some cases, the borrower may also be required to pay the fee.
Home Inspection Fee
A home inspection is the process of a visual examination of the physical structure and systems of a house, from the roof to the foundation, for defects that could affect the safety, livability, or value of the property. The inspection typically takes two to four hours and focuses on major components such as foundation, framing, insulation, roofing, ventilation, electrical wiring and plumbing. A home inspection is different from a termite inspection.
A home inspection is not an insurance policy, but it can help you find problems with the house before you buy it so you can ask the seller to make repairs or negotiate a lower price for the property. Also, many buyers are surprised that they will have repair costs after purchasing their new home. Most buyers, do not realize the costs of repairs until after they move in, and then it is too late. Having your house inspected gives you a clear picture of the condition of your new home before you buy it.
A lack of money for repairs can also be an issue when selling one's property as well, and many times home sellers are allowed to get out of the contract. If you are selling your house, you must comply with all requests for repairs by potential buyers. The cost of repairs can be costly, but completing these repairs will help assure that you receive top dollar for your home.
The home inspection fee is usually paid by the buyer, but in some cases, the seller may also be responsible for paying it.
Real estate agent commission
A real estate agent commission is the fee that is paid to a real estate agent for their services in brokering a real estate transaction. The commission is usually a percentage of the sale price of the property.
Real estate agents facilitate transactions and keep up to date with the real estate industry to get their clients the best deal possible. They are typically paid but who hired them. The seller's realtor is sometimes identified as the listing agent and among other things sets the listing price and is responsible for marketing the home.
Between staging open homes, paying a recurring multiple listing service fee to show the property to as many people as possible, and doing the leg work to make sales quick - a real estate agent does their best to be worth their commission. For a buyer, agent work looks different as it's the other side of the coin. Real estate fees are what clients pay for access to an agent's wealth of knowledge, their network, and their negotiating skills.
Some people want to get through a transaction without an agent to save money but a real estate commission can be worth it. Real estate services like professional photography for a home, finding good home inspection professionals, and sniffing out homes priced fairly - these are just some of what real estate commission fees encompass.
A real estate brokerage will sometimes ask its agents to have liability insurance which adds to their costs.
Closing costs
Closing costs are the fees and expenses that are paid when a real estate transaction is completed. They typically include the costs associated with the property appraisal, title search, and closing. This encompasses a lot of different fees and is often used as a shorthand by your licensed real estate professional.
These are paid before the closing date.
Homeowner's insurance
Homeowner's insurance, or home insurance, is a type of property insurance that covers a homeowner's structure and personal belongings. The policy will also provide liability coverage if someone is injured on the property. Most lenders require property buyers to purchase homeowner's insurance when a mortgage is taken out on a home.
Homeowner's insurance is calculated based on many factors including your replacement cost and deductible amount (the portion of a loss you will pay out of pocket before your insurer picks up the rest). Some insurers offer discounts for home safety features like smoke detectors, deadbolts on doors, and home security systems.
Homeowner's insurance can be expensive for some people, but it is designed to protect the physical integrity of your home as well as its contents.
Extended Coverage Insurance
Extended coverage insurance is usually included in most home insurance policies. It grants the insurance holder added protection in case of things like hailstorms and earthquakes - given how these events can vary in frequency from place to place, it's important for a client to see if they're paying for earthquake insurance when they live on the east coast.
Mortgage Insurance
Mortgage insurance is another expense you will need to pay on top of your mortgage. It protects the lender in case you cannot make your loan repayments. The cost of mortgage insurance is usually split between yourself and the lender (if you can afford it).
Mortgage insurance is not always required, but it is usually a good idea to have it. The cost of mortgage insurance is usually split between yourself and the lender, so it can be an expensive addition to your monthly payments. Depending on your mortgage amount, your credit score, and the home's asking price you can save money if the risk to the lender is relatively low.
Title Insurance
A title is a document that proves ownership of a property. The title is the most important document when transferring ownership of a property. It includes the name of the current owner, the legal description of the property, and any restrictions or encumbrances on the property.
A bad title is a document that proves ownership of a property but has some sort of restriction or encumbrance on it. This can make it difficult - or impossible - to sell the property.
Title insurance protects buyers from losses associated with a bad title.
Property Taxes
Property taxes in Canada are a form of taxation that is levied on the value of a property. The property tax is paid by the owner of the property and is used to fund local services like schools, roads, and firefighters. When looking at a home, buyers need to factor in more than just their mortgage and have to think of the property taxes they will have to pay over time.
Land Transfer Tax
Also known as a property transfer tax, this is a one-time tax that is imposed on the owner of a property at the time of purchase. This means it will be paid to the government by you. The amount of tax payable depends on the value of the home being transferred to your name.
Loan Origination Fees
Also known as the mortgage application fee, this is a fee required by most lenders to process mortgage applications. This applies regardless of a client's mortgage, whether they are taking on pricey high ratio mortgages or handling something more reasonable.
This is not a security deposit or a guarantee.
Legal and Notary Fees
When dealing with a home purchase, multiple things need to happen on the legal front. The ownership needs to be transferred, large sums of money need to change hands, and so on.
Legal fees in real estate are the payment that the involved lawyers receive for ensuring that the transfer of ownership is legally recognized by the completion date.
Mortgage life insurance
Mortgage life insurance is like a life insurance policy except that, in the event of death, the policy pays off the mortgage, not a sum of money usually involved in a life insurance policy.
These policies are useful in case of a mortgage that would be hard for heirs to pay off but the premiums involved are usually very high. When talking to a lending institution about this type of policy, it's important to understand what happens to the policy after the mortgage's term is over.
There are more...
The above are some of the uncommon costs associated with owning a home. Security deposits, home inspection fees, real estate agent commissions can add up. Before you go forward and buy a home, make sure you can afford more than just the down payment and the mortgage.
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