Hidden home buying costs to consider

Expenses to consider when purchasing a home

When you think of the cost of buying a home, expenses like the down payment, realtor commission and moving costs probably come to mind. While these expenses usually make up most of your spending, there are other costs associated with home buying that people often overlook. Check out this list of costs you might encounter at different stages of the home-buying process.

Before closing

Home inspection

  • It’s a good idea to have your property evaluated by a certified home inspector. They’ll check things like the foundation, heating and cooling systems, electrical service, the roof and plumbing – important details you’ll want to know about before making an offer.
  • Approximate cost: $500

Down payment deposit

  • After your formal offer is accepted by the seller, you’ll need to make a deposit on the purchase price. This Hidden Home Buying Costsamount will be applied to your final payment of the purchase price.
  • Approximate cost: Variable, can be up to 5% of the property’s purchase price

Appraisal/property valuation

  • Before you’re approved for a mortgage, your lender may require an appraisal of the property’s value.
  • Approximate cost: $250–500, but sometimes waived by the mortgage lender

It’s important to consider all additional expenses before beginning the home-buying process to stay within your budget.

At closing

Legal or notary fees

  • Your lawyer or notary charges fees to search the property’s title to confirm that the seller currently owns the property and what liens (such as mortgages) are registered against the property that will have to be cleared at the time of sale. They will prepare the documents required to complete the sale and ensure that you receive title to the property you are buying.
  • Approximate cost: $500–$1500

Property survey and/or title insurance

  • A property survey is optional but sometimes requested by the lender. It’s used to verify the property’s boundaries, measurements of the land and position of the building on the property.
  • Title insurance is often used when a survey can’t be located or doesn’t exist. It’s used to protect ownership of the property and is typically purchased through your lawyer. It protects you against title fraud and may protect you against identity theft and fees that came up when your lawyer or notary conducted the property title search.
  • Approximate cost: Property survey: $750–$1,000; title insurance: varies based on property value; one time cost

Land transfer tax

  • This is a tax charged upon transferring the ownership of the property to a new owner. In some provinces, land transfer tax refunds are available for first-time home buyers.
  • Approximate cost: A percentage of the property’s purchase price, variable by province. Some cities charge an additional municipal land transfer tax. Visit your provincial government’s website for more information.

GST/HST/QST

  • These taxes are generally only charged on new homes, not resale properties; however, some existing properties aren’t exempt.
  • Approximate cost: A percentage of the property’s purchase price, variable by province. Visit your provincial government’s website for more information.

Pre-paid expenses

  • If the seller has already paid for future expenses such as property taxes or utility bills, you’ll need to reimburse them as part of the legal closing process.
  • Approximate cost: Variable

Property taxes

  • Property taxes can be paid in different ways – as an upfront annual cost, in installments throughout the year, or as part of your ongoing mortgage payments.
  • If you opt for property taxes to be included in your mortgage payments, your lender will make payments to your municipality when due.
  • If you decide to make direct payments, contact your municipality to find out the amount you need to pay and when taxes are due.
  • Approximate cost: Variable

After closing

Transfer fees

  • Some companies, especially utilities, charge a disconnect/reconnect fee when moving; you’ll likely see this on your first bill after moving.
  • Approximate cost: Varies by company

Utility deposits

  • If you’re a first-time home buyer who’s never held a utility account, the utility company will usually require a deposit for the first year.
  • You’ll likely get this money back in the form of a credit to your utility bill, either as a lump-sum or in instalments.
  • Approximate cost: Varies by company

Mortgage default insurance

  • If your down payment is less than 20% of the total purchase price of your home, you’ll have a high-ratio mortgage.
  • High-ratio mortgages require you to buy mortgage default insurance, which protects mortgage lenders in the event homeowners can’t pay their mortgage.
  • Approximate cost: Varies depending on size of down payment; can be added to your ongoing mortgage payments

Home insurance

  • Home insurance offers protection for your home and its contents in the event of fire, natural disaster, theft or other unfortunate circumstances, and is required by lenders. Policies vary according to the options you choose and are priced according to the level of protection.
  • Approximate cost: Variable, paid annually or in instalments

Managing the cost and logistics of buying a home can be a big job. It’s important to consider all additional expenses before beginning the home-buying process to stay within your budget. Don’t forget that home ownership also often involves repairs and renovations as well the cost of furniture and décor. You may also want to evaluate which type of insurance coverage is right for you.

If the thought of buying a home makes you anxious about your finances, I can help you prepare and assess your financial readiness for home ownership, and lead you through setting goals towards owning the house you dream of.

Get up to speed on mortgage basics before buying a home

When you’re starting your home buying journey, it can be hard to know where to begin. For one thing, mortgages aren’t always easy to understand, especially with regulatory changes over the past two years. If you’re looking to buy a home, it’s important to get up to speed on these rules so you can select the right mortgage for you. To help you understand these changes, let’s look at some of the basic requirements for buying a home.

The mortgage basics

Down payment requirements

Home down payments are usually expressed in percentages. They’re calculated by dividing the dollar value of the down payment by the home price. In Canada, the minimum down payment depends on the purchase price of the home:

  • Purchase price of less than $500,000 needs a 5% minimum down payment
  • Purchase price of $500,000 – $999,999 needs a 5% minimum down payment on the first $500,000, and 10% on any amount over $500,000

If you make a down payment of at least 20% of the purchase price, you’ll hold a conventional or low-ratio mortgage. Mortgage Terms & RulesIf you put down less than 20%, your mortgage is considered a high-ratio mortgage. By law, high-ratio mortgages require you to buy mortgage default insurance.

Mortgage default insurance

This type of insurance protects mortgage lenders if homeowners can’t pay their mortgage. Your mortgage lender can arrange a default insurance policy through Canada Mortgage and Housing Corporation (CMHC), Genworth Canada or Canada Guaranty. In most cases, the additional cost is factored into your mortgage payment.

Financial stability requirements

Your lender will use two ratios – gross debt service (GDS) and total debt service (TDS) – to assess your ability to make monthly payments. These are used to determine how much you can spend on housing without risking your financial stability.

  • Gross debt service is an estimate of the maximum home-related expenses you can afford each month, including mortgage payments, electricity and gas costs, property taxes and condo fees. While an acceptable number varies between lenders and the type of mortgage you hold, your monthly housing costs should be less than 30% of your gross monthly income for a non-insured, conventional mortgage.
  • Total debt service is an estimate of the maximum debt load you can afford each month. In addition to your home-related expenses, this number includes things like car loan payments, credit cards and other loan expenses. This number also varies between lenders, but in general, your monthly debt obligations shouldn’t be more than 40% of your total monthly income for a non-insured, conventional mortgage.

Regardless of where you are in your home buying journey, brushing up on mortgage basics and the current rules is a good place to start when thinking about your next move.

Recent changes to borrowing

Changes to mortgage default insurance

What is it? In October 2016, the Department of Finance implemented new stress-testing requirements for all mortgages that need mortgage default insurance. In other words, if you need mortgage default insurance, you’ll have to be able to afford a higher mortgage rate than the promotional rate for the term you selected. This helps ensure Canadians aren’t taking on bigger mortgages than they can afford.

Who’s it for? Homebuyers applying for a high-ratio mortgage that requires mortgage default insurance, or where low-ratio mortgage insurance is required.

How does it affect me? All homebuyers applying for mortgage default insurance (high- or low-ratio) must qualify at the greater of their lender’s standard rate 5-year mortgage rate and the Bank of Canada’s 5-year conventional mortgage rate, regardless of the term chosen. For an insured mortgage, the GDS can’t exceed 39% and the TDS can’t be more than 44%.

How much mortgage default insurance costs

What is it? From time to time, Canada Mortgage and Housing Corporation (CMHC) changes the cost of insurance. Under new guidelines, CMHC increased the cost on March 17, 2017.

Who’s it for? Homebuyers applying for a high-ratio mortgage that requires mortgage default insurance, or where low-ratio mortgage insurance is required.

How does it affect me? The cost of mortgage default insurance is based on the loan-to-value (LTV) ratio of the mortgage you’re applying for – it’s calculated by dividing the size of the loan you’ll need by the purchase price of the home. The higher the LTV ratio, the more insurance will cost. The cost depends on the LTV ratio. For current rates, refer to the CMHC website.

With housing price fluctuations and changing mortgage rules, it can be overwhelming to navigate the housing market. If you need a little help to get started, I can assess your financial security plan to make sure you’re on track towards your home ownership goals.

I can also put you in touch with a mortgage planning specialist who can guide you through each step of the mortgage process. Regardless of where you are in your home buying journey, brushing up on mortgage basics and current rules is a good place to start when thinking about your next move.