Tag Archives: Buying a home

How Much Are Closing Costs When Buying a House?

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One of the top pieces of advice for anyone planning to buy a house is to make a watertight budget. However, it’s worth noting that your budget needs to account for many things beyond the down payment.

Closing costs are easy to overlook, but to do so would be a costly mistake that could cause you to fall into debt or lose out on your dream home. With that in mind, let’s examine just how much you can expect to pay in closing costs.

The amount you pay on closing costs depends on several variables. However, on average, buyers in the U.S. can expect to pay anything between 2% and 5% of the total sale price. Meanwhile, the figure is generally slightly lower in Canada, usually between 1.5% and 4% for a typical house purchase.

How Much Are Refinancing Closing Costs?

If you’re planning to refinance your home, you’ll also need to pay closing costs, typically between 2% and 6% of the total loan amount. These closing costs comprise several services, some with a flat fee and others charged as a percentage.

How Much Are Closing Costs for the Seller?

If you’re also selling your home while buying a new one, you must budget for the closing fees on both transactions. It’s usually the seller’s responsibility to pay any real estate agent commissions, which can add a hefty chunk to the closing costs, typically around 5% to 6% of the sale price. In addition, you can expect to pay an extra 1% to 3% in other closing fees, taking the total to around 6% – 8%.

Breaking Down the Typical Closing Costs for Buyers

Now that you know how much you should budget for closing costs, let’s look at each component in detail.

Legal Fees

You’ll typically need to work with a closing attorney when buying a home. It’s their job to oversee the entire process, and while they don’t represent either the buyer or the seller, their fee is generally split between the two. Depending on your location, the cost ranges from $500 to $1,500.

Appraisal Fee

Your lender will need to have the house valued before they agree to lend you the money you need to purchase it. On average, it costs $300 to have a house appraised, though it may be more for larger properties. In addition, if the seller completes repairs on the home after the appraisal, your lender may require a reinspection, which costs another $300.

Mortgage Fees

There are several fees associated with your mortgage. These include credit report fees, around $30, and application fees which generally cost between $300 and $500. But, most important is the mortgage orientation fee that all lenders charge to cover their services and admin costs. On average, this will cost around 1% of the loan value, though some lenders offer lower prices, and it’s a good idea to shop around.

Title Insurance Policy

Typically required by the lender, this insurance protects both the lender and the owner against future title claims. It can cost anywhere between $500 and $3,500 depending on the location and size of the property.

Home Inspection (optional)

While not mandatory, it’s well worth having your future home inspected by a professional before signing on the dotted line. Depending on the size of the house, it typically costs between $250 and $700. Of course, for additional inspections, such as lead paint, pest and roof, you’ll need to budget more.

Escrow Fees

An escrow account is a third-party holding account in which you’ll deposit various fees, such as the down payment. Once the sale is complete, the funds will be distributed to the appropriate individuals. Escrow fees typically cost around 1% of the sale price. This is often split between the buyer and seller, though it must be agreed upon first.

Private Mortgage Insurance (PMI)/Mortgage Default Insurance

If your down payment is less than 20%, most lenders will require you to take out mortgage insurance. PMI costs between 0.5% and 2.5% of the mortgage and is usually rolled into your mortgage payments. However, you’ll often need to pay the first month before closing.

Recording and Documentation Fees

Several companies will be involved in processing your real estate transaction, each with a fee to be paid. Courier fees are required if you’ve had to send your documents physically and typically cost around $20. Bank processing fees are also required, generally between $25 and $100, and you’ll need a notary to make the signing of all documents official, so another $100. Finally, the lender will charge a recording fee of around $50 to pay the county to make a public record of the transaction.

Prepaid Property Taxes and Utilities

Any taxes and utilities that have been paid ahead by the seller need to be reimbursed by the buyer. The attorney will calculate the cost, which generally runs between $1000 and $2000.

House Insurance

Most lenders require you to take out homeowners insurance, typically paid annually or biannually. The cost varies by house type and location, so be sure to get a few quotes.

Buying a Fixer-Upper House: What You Should Know

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Based on what you see on TV shows, buying a fixer-upper seems like an easy way to make a lot of cash with a bit of basic DIY. But unfortunately, the reality is a little different. On the one hand, fixer-upper houses can be extremely affordable and a solid investment. On the other, they can also quickly become money pits.

With that in mind, let’s look at some of the most important things to know when buying a fixer-upper.

You Need a Solid Budget

Like any real estate transaction, buying a fixer-upper requires creating an air-tight budget. Before you even start searching, you need to know what you can afford. Unlike a typical real estate transaction, however, your budget needs to factor in the cost of repairs, as well as the home’s price tag, closing costs and all those other hidden fees.

When you create a budget for a fixer-upper, you need a firm figure in mind that you’re willing to spend on the project. Be sure to add an extra 15% since even the best-laid plans don’t always pan out. With this figure in mind, you’ll be better placed to decide what level of renovations you can afford, which can dictate the most suitable homes for you.

You Have Various Financing Options

While we’re talking about budgets, it’s worth knowing that in both Canada and the U.S., you can take out a special mortgage aimed at fixer-uppers. In the U.S., you have the following options:

  • Fannie Mae HomeStyle Loan: Funds for renovations go into an escrow account to pay contractors; a 5% down payment is required; lower interest rates than HELOC; can be used for primary and vacation homes, as well as investment properties.
  • Freddie Mac’s CHOICERenovation Mortgage: A 5% down payment is required; lower interest rates than HELOC; can be used for primary and vacation homes, as well as investment properties.
  • FHA 203(k) loan: The cost of renovating and buying the home is rolled into one loan; lower credit score requirement compared to a conventional loan.
  • VA renovation loan: The cost of renovating and buying the home is rolled into one loan; must use a VA-approved contractor.

Meanwhile, in Canada, you may be eligible for a renovation mortgage, which boasts lower interest rates and a longer amortization period with lower repayments.

You Should Have the Property Thoroughly Inspected

It’s always good to have your potential new home inspected by a home inspector, but with a fixer-upper, it’s essential. In fact, there are several specialized inspections that are worth spending a little more on to ensure you’re not buying a home with significant problems.

  • Pest inspections: Essential in areas with termite, ant or beetle problems.
  • Roof certifications: Provides evidence of the age and condition of the roof.
  • Sewage inspections: Aging septic tanks and sewage lines can cost a lot to replace.
  • Engineering report: Discloses any existing or potential natural or geological hazards.

In addition, be sure to have foundations, HVAC systems and electrical systems thoroughly checked, as these can also be extremely expensive and time-consuming to repair. If there are issues, they are often not worth the cost or effort to fix, so be sure to make your offer contingent on the result of these various inspections.

You Need a Plan

You’ll need to think ahead when buying a fixer-upper, and a solid plan will save a lot of stress. For example, how much of the work can you do yourself? Can you afford to hire contractors for major jobs? Will you live on-site during renovations? Ask these questions, and even if you intend to make this your forever home, plan as if you’ll be selling soon. And remember to plan for delays too, as they’re frequent in construction projects.

Location is Key

No matter how amazing you make your home, you can never change its location. So remember, plan to sell. A great house in a bad neighborhood, or next to noisy, smelly or unappealing amenities, will struggle to sell. Some sound advice is to buy the worst house on the best street. A fixer-upper can be a great way to get into your dream neighborhood at an affordable price.

Do I need a REALTOR® to purchase a home?

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Realtor in a blue suit shows a young couple a property, couple entering through front door

While there are plenty of great resources available to help you narrow down what you’re looking for, and research the region or neighbourhood that may best suit your lifestyle, consider these benefits to hiring a real estate professional when buying your next home.

A REALTOR®1 will not only take the time to help you find the right property, but also assist you through the buying and closing process. By getting to know you they can make suggestions of similar properties in similar neighbourhoods that may be off your radar. They have their fingers on the pulse of communities across the region they cover. They will advise you through the offer process and once a bid is won, they can recommend trusted professionals to help you complete the transition. 

Here are some benefits to consider:

ACCESS TO A LARGE NETWORK: A licensed real estate agent will have access to more available properties than the general public. Through their professional databases and relationships with other agents, a realtor knows what properties are coming on the market before they are posted, and may have other clients, or colleagues with clients, who are preparing to sell a home that fits your criteria. Some homes are sold prior to being listed and others are only publicly listed for a very short time. You could miss out on your perfect home.

NEGOTIATING: A realtor is a professional negotiator, and it is part of their job to get you the best possible deal on a property. They have insights into the local market, and with access to important data, they have a deep understanding of property values in a particular area at a given point in time.

NAVIGATING THE TRANSACTION: A real estate agent is an expert in their field, and having an experienced professional on your side will take the stress out of the critical paperwork that is necessary when purchasing a home. A realtor will guide you through one of the most significant and important transactions of your life.

ACCESS TO OTHER PROFESSIONALS: It’s always helpful to have referrals from friends and family when hiring a professional. Just as you may be referred to an agent, your agent can refer others to you. Real estate professionals have access to a large network of home inspectors, appraisers, contractors, financial advisors and mortgage brokers, and movers, to name a few. When you hire experienced experts, you get what you want the first time while saving time and money.

Want to find a Royal LePage real estate agent in your area?

1The trademarks REALTOR®, REALTORS® and the REALTOR® logo are controlled by The Canadian Real Estate Association (CREA) and identify real estate professionals who are members of CREA.

What Is a Bridge Loan and How Does It Work?

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Are you a homeowner looking to relocate or simply buy a new home? In that case, taking out a bridge loan can help you fill the gap between selling your house and financing your new purchase. Here’s what you need to know.

What Is a Bridge Loan?

A bridge loan, also known as a swing loan, is a short-term loan taken out by an individual or a company until they can secure permanent financing. In real estate it’s a type of loan that uses the existing equity in your home to finance the purchase of a new house. Quick to take out and quick to pay back, most lenders will expect repayment when the house is sold or within one year. Bridge loans also come with higher interest rates and more rigorous requirements than conventional mortgage loans.

How Does a Bridge Loan Work?

Bridge loans are often used in real estate purchases to help a buyer bridge the financial gap between finding a property and securing a mortgage. For example, if you’re a homeowner, one common scenario is finding a new property that you’re interested in buying but either lack the funds for a downpayment or, in a hot market, you want to secure the sale before your current property sells. In such cases, a bridge loan will help cover the downpayment and closing costs.

Once your first property is sold, you can then use the resulting funds to pay off the bridge loan. Most lenders will expect you to pay back the loan within a year, but some may extend that deadline to up to two years.

Applying for a bridge loan takes significantly less time than a regular mortgage, and most lenders will approve your loan within 72 hours. There are, however, some requirements to be aware of. For example, the maximum amount you can take out on a bridge loan is usually 80% of the combined value of your current home and the one you want to buy. If you lack sufficient equity in your home, the lender may reject your application. Similarly, you will need an excellent credit score and a low debt-to-income ratio. It’s also worth keeping in mind that lenders typically expect collateral in the form of a property.

When Is a Bridge Loan a Good Idea?

Taking out a bridge loan can work in your favor if you’re buying a home in a seller’s market. In such cases, buyers often face a bidding war for their dream home. And because it’s a hot market, it’s unlikely that the seller will agree to a sale contingency. With a bridge loan typically taking around three days for approval, you can use it to tip the scales in your favor.

A bridge loan can also help if you need to relocate fast and you’ve already found a house that ticks all the right boxes, but you haven’t yet had the time to sell your old one. Again, being able to take out a quick loan that would cover the down payment and closing costs will be of immense help.

Last but not least, a bridge loan can be beneficial if you already have at least 20% equity in your home but you can’t afford to make a down payment on a new property. Not only will the bridge loan provide funding for that, but if you can use it to cover more than 20% of the down payment, you will also avoid paying private mortgage insurance (PMI) on your new mortgage loan.

Bridge Loan Alternatives

Bridge loans can be real lifesavers, but the high interest rates and quick repayments can make some homeowners wary. Here are some alternatives worth considering.

HELOC

A home equity line of credit is one of the most common alternatives to a bridge loan. Both can be used to tap into your home equity, and both use your home as collateral. However, a HELOC has lower interest rates, and you won’t be required to make any principal repayments during the draw period, which can take a minimum of 10 years.

80-10-10 Loan

A combination of fixed-rate loan and HELOC, the first loan covers 80% of the new home cost, with another 10% loan piggybacking as a second mortgage covering half the minimum down payment needed to avoid PMI. It’s a good alternative if, despite having enough equity, you can only provide 10% of the down payment.

Like any type of financing, a bridge loan can be a great way to fund the purchase of your dream home. However, under the wrong circumstances, they can quickly become a strain on your budget. To make the most of it, take the time to discuss your options with your lender or financial advisor.

 

Buying Land for a Home: Pros and Cons

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Owning a plot of land is a dream that many strive towards. At first glance, it offers a host of benefits and opportunities. But is it the right move for you? In this guide, we’ll look at both the advantages and disadvantages of buying land for a home.

Pro: You Can Build Your Dream Home

This is by far the best incentive to buy land and build your own home. Buying land helps secure the spot you want for your house, and when it comes to building and design, you can let your creativity go in any direction. Provided you comply with local zoning and building laws, of course.

Building a house from scratch also allows you to put in energy-efficient systems or, if you want to go all out on being eco-friendly, even build a home that’s completely off-grid. Also, if you are licensed to act as your own general contractor, you may find that building your own home can be cheaper than buying one.

Con: The Process Requires More Research

If you plan to build a house, the list of things to do before laying the foundation can be surprisingly long. Finding an architect and contractors is just the tip of the iceberg. You will need to conduct soil tests, check local building codes and zoning regulations, obtain building permits, and make sure that you have access to underground utilities.

Encroachments can be a real problem with vacant land, same as boundary disputes. Always get a land survey to confirm that the surface area listed corresponds with what you’re actually buying. Also, you’ll need to make sure that you have access to the land via a road that’s not on private property.

Pro: Diverse Investment Opportunities

Both land and buildings are fantastic real estate assets. But when it comes to investment opportunities, land can be more versatile. Depending on how you plan to pursue things, you can buy a vacant lot and start building a house as soon as you have all your approvals in place.

Or, if you’d rather pace yourself, you can keep the land vacant, then resell it for a higher price several years later. Vacant land requires significantly less maintenance than a house, and while properties tend to depreciate over time, land tends to appreciate in value.

Con: You May Have More Options in Rural Areas

A vacant lot located downtown is a prized piece of real estate. Even in the suburbs, especially in up-and-coming areas, you may find yourself competing with developers, investors and other homebuyers.

As a result, you may have better luck looking for land in rural areas. This shouldn’t be a problem if you work remotely, but if you have a family with kids, the lack of local amenities such as schools or playgrounds can be challenging. However, buying rural land can have its pros:

Pro: You Can Qualify for a USDA Loan

The construction loan guaranteed by the U.S. Department of Agriculture offers financing opportunities for homebuyers looking to build a house in rural areas. This is an excellent avenue worth pursuing, especially if you plan to build a home that will be your primary residence.

The fact that a USDA mortgage does not require a downpayment is a major plus. Yet, you’ll need to meet USDA’s loan requirements for location, credit score and debt-to-income ratio, maximum income limit, and working with a USDA-approved contractor.

Con: Getting a Conventional Loan May Be More Difficult

Lenders will always prefer using tangible assets as collateral. And when it comes to loans, land is considered a riskier investment than a house that’s already in place. As a result, some conventional lenders may not even provide land loans, and those that do may have stringent requirements in place.

The lender may require a better credit score and debt-to-income ratio than for buying a house. Down payments and interest rates may also be higher as a result, and some lenders can even set a repayment period as short as two years.

The Middle Ground: Consider a Teardown

If you’re still trying to choose between buying land for a home and buying a ready-built house, a teardown can be a great middle-ground. This option is worth considering if the market for vacant land offers few options in your area or if you’re prospecting an old house that would cost a fortune to renovate.

One of the benefits of a teardown property is that access to utilities such as plumbing and electricity is already in place. Also, given that a residential building is already there, you’ll spend less time checking local laws than you would with a vacant lot.

Royal LePage’s Rent vs. Buy Report

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The Royal LePage Rent vs. Buy Report includes insights from economist and housing market analyst Will Dunning’s recent study on the financial benefits of home ownership versus renting. 

The study uses price data for 278 scenarios (broken out by city and housing type) across the country and aims to answer the commonly-asked question ‘Is it better to buy or rent?’. The study, which assumes the buyer is able to secure a 20% down payment, found that it is more financially beneficial to buy a home in Canada than to rent an equivalent dwelling over the long term, in 91% of cases.

According to a Mortgage Professionals Canada report, close to half of first-time homebuyers that purchased a property in 2018 or later in Canada, had a down payment of 20% or more. The average down payment for first-time homebuyers in Canada is 21%.

Key findings from the release include:

  • For those able to secure a sufficient down payment, it is more financially beneficial to buy a home in Canada than to rent over the long term, in 91% of cases analyzed;

  • As of Q2 2021, on average the net home ownership cost was $769 per month less than the cost of renting an equivalent dwelling;

  • Even with a 10% decline in home prices over a ten year period, approximately half of homeowners studied would still see a positive rate of return on investment, while the other half would break even or see a modest loss.

Read the full press release here.

Prices in Canada’s secondary cities continue to rise as buyers prioritize space and affordability in age of remote work

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Parents playing with young child in their living room, with moving boxes and large window to yard in the background

Since the late spring of 2020, Canadian home prices have been rising at historic rates, following the onset of the global pandemic. Widespread lockdowns suddenly forced millions of workers and students to conduct their daily business from home. While the trend of working remotely was gaining in popularity in the years prior, the seemingly unending health crisis accelerated the movement, driving many Canadians living in major urban centres to trade in their cramped quarters for more space in smaller cities and rural communities.

The latest Royal LePage House Price Survey and Market Forecast shows price growth in Kingston’s single-family detached segment was the highest in the country, posting an increase of 46.5% year-over-year in the third quarter. Following Kingston, Ajax had the next highest year-over-year home price appreciation for the detached properties, rising 36.2% year-over-year; then, Langley (34.5%) and Greater Victoria (34.0%). Kingston also had one of the highest aggregate price increases nationwide (36%), second only to Saint John, New Brunswick (36.4%).    

“Competition in Kingston’s housing market is incredibly high. Inventory has reached an all-time low, while demand gets stronger everyday,” said Bob Armer, area manager, Royal LePage ProAlliance Realty. “Today, there are even more buyers from out of town – namely from Toronto and the GTA – than there were a year ago. This migration continues to put a lot of upward pressure on prices, which is especially challenging for local buyers.”

Armer noted that Kingston’s proximity to Toronto has made it very popular among young people who can work remotely but may need to be in the office once or twice per week. 

This is just one example of secondary cities that have grown in popularity and population over the last 15 months. Nationally, home price appreciation is being driven by the detached segment in secondary cities, like Kingston. Royal LePage is forecasting that the aggregate price of a home in Canada will increase 16% per cent to $771,500 in the fourth quarter of 2021, compared to the same quarter last year, putting real estate values on track to grow 33% by the end of the year from June, 2020.

Read Royal LePage’s third quarter release for more regional and national insights.