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Upfront costs of buying a home

You've found the house of your dreams. You've signed on the first of many dotted lines. You've come to terms with the notion of a mortgage, which will loom over your head like an ominous rain cloud (figuratively speaking).

But before you take possession of your new abode, you need to consider the closing costs. Generally estimated at between 1.5 percent and 4 percent of the total price tag of the home, these are the unavoidable disbursements that are the last hurdle between you and glorious home ownership.

Due upon the acceptance of your purchase offer, a deposit is essentially a gesture of good faith between the buyer and the seller. A minimum deposit is usually $10,000.

Mortgage loan insurance
This is a mandatory expense for buyers who make a down payment of less than 25 percent. Administered through either the Canada Mortgage and Housing Corporation (CMHC) or GE Capital Mortgage Insurance Company, this insurance accounts for between 0.5 percent and 3.25 percent of the mortgage loan. (And don't forget to factor in provincial sales tax.)

Home inspection
Real estate agents counsel buyers to make an offer on a home conditional on the outcome of an independent home inspection. A home inspector looks for items that could affect the price and desirability of a home, such as outdated wiring, shabby roofing, an elderly furnace or cracks in the foundation. The fee depends on the home's size, age and the amount of time it takes to do a thorough inspection. For residences that are more than 25 years old, Carson Dunlop -- one of the most widely used companies -- charges $405 for homes under 2,500 square feet, and $995 for ones that are more than 5,000 square feet.

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House insurance
Canadian law states that a home owner must have fire insurance on his new property effective when he takes possession. If the home inspection turned up antiquated wiring or other problematic features, a potential insurer may refuse to cover you unless you get it fixed. Rule of thumb: Factor in all costs required to pacify the insurance company.

Legal fees
A lawyer is vital to any home deal. She's responsible for research, handling documents, mediating with the seller's attorney and trundling down to the Land Transfer Office to pick up your new keys.

Land transfer tax
Some provinces impose a one-time fee when you buy a home. Varying in rate from province to province, the levy is based on a percentage of what you paid for the property. In Ontario, for example, the rate is 0.5 percent on the first $55,000 of the price, 1 percent on the next $195,000, 1.5 percent on the next $150,000 and 2 percent on the balance.

Title insurance
This protects you from any unpleasant revelations about your property's history that might crop up in the future. Unless you pay for a survey, it's difficult to ascertain a comprehensive history of your property. In order to deal with potential errors or omissions in the public registry or secret heirs to the land, most new homeowners buy title insurance. For a typical residence in downtown Toronto, for example, the cost for this insurance is $270. The fee depends on two factors. The first is whether the property is urban or rural; title insurance costs more out in the country because there's a greater chance that the property may contain an undisclosed structure, such as a well or a septic tank. The second factor depends on whether it's a single residence or a multiple-family dwelling (such as an apartment); the cost is more in the latter case.

Interest adjustment
Unless you take possession on the first of the month, you must prepay the amount of interest accrued up to the first day of the next month. That sum is due on closing day.

Prepaid bills
The seller may be entitled to a reimbursement, from you, if she has prepaid bills (water, gas or hydro) or property taxes.

Moving expenses
Whether you're hiring professional haulers or conscripting friends and family to lug boxes, you can expect an outlay of cash on moving day.

Service activation fees
Once you move into your new dwelling, you'll inevitably have to pay activation fees for utilities such as phone, cable, gas and electricity.

Forwarding your mail
You've made a point of apprising the important people in your life -- family, friends, employers, the bank, the utilities, your credit card company -- of your new address. But you're bound to forget someone. To ensure you don't miss any crucial mail, you should get Canada Post to forward mail sent to your old address to your new residence. You can sign up for the service online or at any post office. The cost is about $30 for six months, but peace of mind is priceless.

Andre Mayer is a freelance journalist based in Toronto, Ontario.

-- Posted: Sept. 20, 2004
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