The Hidden Costs When Buying a Home

The Hidden Costs When Buying a Home

The cost of buying a home is always more than the purchase price and a moving truck rental. First-time home buyers are often shocked when they see the total amount they need to pay on closing day. Knowing what to expect ahead of time can help you financially prepare. By familiarizing yourself with more than just your down payment and regular mortgage payments, nothing will come as a surprise on closing day. Plus, with this in mind, you can negotiate with your broker or lender to waive some of these fees. 

Home Inspection Fee: $350 to $600

Some buyers may think they can cut costs by skipping the home inspection, but the fee is minimal in comparison to what you may have to pay later without one. The cost of a home inspection usually ranges depending on the size of the home. And some lenders even require a professional inspection before issuing you a mortgage.

If you’re in the process of closing the deal on a home, a home inspection should be done promptly so you have the opportunity to uncover potential major issues with the property sooner rather than later.

A licensed professional home inspector understands the ins and outs of a home and can look into things like the roofing or foundation to do an accurate inspection. Since these flaws can be quite costly and you may want to bring them up with the seller, you’ll want to leave the inspection to an expert who can ensure structural safety and that all systems are functioning correctly.

Deposit

When you put in an offer to purchase a home, you are also expected to provide a deposit. This assures the seller that you will indeed go through with the sale when closing day arrives – and if you don’t, the seller keeps the deposit. If you do go through with the sale, the deposit will be credited in full and put towards the purchase of the house. There is no set amount that you need to provide, but generally speaking, a higher deposit says you’re a serious buyer and can ultimately save you money on interest. Our handy mortgage calculator can even show you how different deposit values can greatly change your total interest paid.

And remember – the deposit and the down payment are not the same thing!

Appraisal Fee: $300 to $500

Your lender will only lend you so much when it comes to your mortgage. The amount they lend you will either be a percentage of the appraised market value of your home, or a percentage of the home’s purchase price – often, the lesser of the two.

Either way, the cost of the appraisal service, which costs somewhere between $300-$500, often comes out of your pocket. Although waived by most lenders, some will charge a financing fee, depending on your credit record. Fees vary from one lender to another.

Land Survey: $1,000 to $2,000

Most lenders require a survey of the property that outlines its boundaries so there is no confusion between neighboring properties later on. Although they may accept the last survey that was done on the property, depending on when it was last conducted, it may need to be done again.

Legal Fees: $500 to $1,000

Real estate lawyers manage all of the legal paperwork involved when acquiring a mortgage. After your purchase, they draft your mortgage contracts and assess the property to ensure there are no old mortgages or liens on the property. While your lender’s lawyer can do some of the work, it’s a lot of paperwork and you need to ensure everything is verified to completion with your own lawyer, and you’re responsible for the bill. Lawyer fees can be quite hefty and do include HST where applicable.

Land Transfer Tax: 0.5 to 2% of Property Value

Land Transfer Tax (LTT) is paid by everyone who purchases property. LTT is a marginal tax you must pay to the province when “buying land” or, simply put, just purchasing a house or condo.

Land transfer tax must be paid once the transaction has been closed, to a max of up to 30 days after closing.

Every province has their own land transfer tax, except for Alberta and Saskatchewan. However, home buyers in these provinces still incur a small transfer fee. Furthermore, certain municipalities, like Toronto, have an additional municipal land transfer tax.

Most provinces use a multi-tiered system to calculate your tax owed. For example, in Ontario, if you buy a home for $250,000, 0.5 per cent is paid on the first $55,000, and one per cent on the remaining $195,000. So on a $250,000 home you would end up paying $275 + $1,950, for a total of $2,225 in land transfer taxes. 

Harmonized Sales Tax (HST): Dependent on Province

Harmonized Sales Tax (HST) is the 15 per cent provincial sales tax only applicable in New Brunswick, Newfoundland and Labrador, Nova Scotia, Prince Edward Island, and in Ontario where it is 13 per cent. HST is applied to the purchase price of all new homes, but not to resale homes. It’s also applied to all services, including your lawyer fees, your real estate professional’s commission, the home inspection, and your moving costs.

New Home Warranties

If your home is a new development (it’s not a resale home and you’re the first owner), warranties protect your investment. New home warranties are mandatory in Ontario, British Columbia and Quebec. It is a one-time fee of a few hundred dollars, depending on coverage and price of the house.

Mortgage Default Insurance: 1.75% to 2.95% of the Mortgage Value

If you are applying for a high-ratio mortgage (meaning you have less than a 20 per cent down payment), your lender will require you to purchase mortgage default insurance. This type of insurance protects the lender in case you no longer can make your mortgage payments. Most lenders will also require you to protect your home with fire and extended coverage insurance. Quite often, these types of insurance can be calculated right into your monthly mortgage payment.

Life Insurance or Mortgage Life Insurance: Rates Vary

While mortgage default insurance protects the lender, you may want to consider mortgage life insurance for your own protection. This type of insurance protects you and your family in case, for some reason, you are unable to make your mortgage payments. That way, the burden is not placed on your family and loved ones.

An individual life insurance plan may also be a better fit for some buyers as it offers greater peace of mind and less limitations on how you would use the policy payout.

Title Insurance – $300

Though not required in all provinces, title insurance protects you from such things as title defects, errors or omissions. This includes errors in the public registry and existing surveys. Title insurance also protects you from undisclosed heirs who may try to claim your property and/or fraudulently discharged mortgages. Although it depends on the property type (resale, new, condo) and the purchase price, title insurance usually costs approximately $300. The cost is minimal and well worth the peace of mind. Ask your lawyer for more details.

Your Own Home Insurance

Home insurance (also known as property insurance) covers any damage related to the home, inside and out. If you’re a first-time home buyer, you likely have never bought home insurance before. But if you do happen to have insurance on a current property and want to transition, you technically will have to cancel your old policy first. That being said, the cost may vary between policies since each property will likely have differing square footage, age, additional structures, and more. While you can stay with your current insurer, this is probably the best time to shop around for a new and better rate. You never know how much you could be saving on your premium with a different provider.

Utilities and Taxes: Only if Applicable

You may have to reimburse the previous owner for utilities or taxes if they were paid beyond the closing date. Referred to as adjustments, they include hydro, water and property taxes. 

Moving Costs

Moving costs vary, depending on your personal preferences. Although it can be stressful, you can save a lot of money if you take the do-it-yourself route. But don’t forget to include the cost of a rental truck, if necessary. Alternatively, you could hire a moving company to do the work for you. Again, costs vary, depending on whether or not you want them to pack for you, or simply move your belongings.

Other Costs to Consider

The following costs may or may not apply to your situation, so consider them carefully as they may have an impact on your budget:

  • Appliances
  • Renovations or repairs
  • Service hook-up fees
  • Condominium fees
  • Gardening expenses
  • Snow-clearing equipment

How can I save if I’m a first-time home buyer?

For cash-strapped first-timers, there are government programs and tax credits to help offset some of the costs for your new home.

The Home Buyers’ Plan

As a first-time home buyer, you’re eligible for the Home Buyer’s Plan, which will allow you to withdraw up to $25,000 from your Registered Retirement Savings Plan (RRSP) to put towards your down payment. The catch? Any amount you withdraw must be paid back fully within 15 years, with a set amount required by the end of each year. If you can’t pay it back on time, the remaining amount is added to your personal income for that year and you will need to claim it on your income taxes. 

First-Time Home Buyer’s Tax Credit (HBTC)

The Home Buyer’s Tax Credit (HBTC) is a non-refundable tax credit for qualifying home buyers. HBTC is calculated by multiplying the lowest personal income tax rate for the year by $5,000. For example, in 2017, the lowest rate was 15 per cent, so the 2017 HBTC was $750 ($5,000 x 0.15 = $750). If you and your spouse are buying a home for the first time, you will likely qualify for HBTC. This means you or your spouse have already bought a qualifying home, and haven’t owned or lived in a primary residence for at least four years before the date of purchase. 

Land Transfer Tax Rebate

Those purchasing property for the first time may qualify for a rebate on the provincial Land Transfer Tax, depending on the province. For example, in Ontario, first-time home buyers can receive a maximum rebate of $4,000 (or $2,000 for those who registered a land transfer at the rate prior to January 1, 2017). Municipalities with land transfer taxes may also offer rebates for first-time home buyers.

This post has been updated.

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