Costs Related To Buying a Home
When you buy a home, you have to pay for upfront costs in addition to your mortgage. These are called closing costs. You can expect to spend between 1.5% and 4% of the home’s purchase price on closing costs. You usually pay these costs by the time the sale is completed or “closes”.
Legal costs
You have to pay legal fees on your closing day. This is the day that your home purchase is complete. These fees are usually range between $400 to $2,500 but will vary depending on your lawyer’s or notary’s rates.
A lawyer or notary can help protect your legal interests. They make sure that the home you want to buy does not have a lien against it. A lien is a legal claim over another person’s property that someone files to ensure a debt gets paid.
A lawyer or notary reviews all contracts before you sign them. They also review your offer or agreement to purchase.
Home insurance
You must have home insurance in place as a condition of getting a mortgage.
Home insurance can help protect your home and its contents. It typically covers the inside and outside of your home in case of theft, loss or damage.
Learn more about how home insurance works and the different types that are available.
Land registration
Before the sale closes, you’re required to pay to register your property’s title under your name. This may be called a land transfer tax, Welcome tax, a deed registration fee, a tariff, or a property transfer tax.
The cost is a percentage of the home’s purchase price. For example, if your land transfer tax is 1.5% and your home cost $300,000, you pay $4,500. Use this nifty calculator to estimate your transfer tax.
Adjustment costs
The seller of the home you’re buying may be entitled to adjustments. For example, the seller may have already paid the property tax on the home past the purchase closing date. If that’s the case, the seller receives a credit on the closing date. You must then pay this credit amount to cover the money already paid by the seller.
New build GST/HST
Generally, if you buy a new build home, you pay GST or HST. Some builders include the HST in their sale price while others don’t. Make sure to check. Otherwise, you have to pay this cost upfront on closing day.
Other closing costs
Other closing costs may include:
- interest adjustments (period between your purchase date and your first mortgage payment)
- Certificate of Location cost
- estoppel certificate (for condominium units)
- township or municipal levies (may apply to new homes in subdivisions)
- provincial sales tax on premiums for mortgage default insurance (applicable in some provinces)
Other home-buying costs
Other costs you may need to budget for include:
Mortgage Loan Insurance
If you want to buy a home with a down payment of less than 20%, you’ll need mortgage loan insurance. This protects your lender in case you can’t make your payments.
Mortgage loan insurance lets you get a mortgage for up to 95% of the purchase price of a home. It also ensures you get a reasonable interest rate, even with your smaller down payment.
To get mortgage loan insurance, you’ll need a minimum down payment. The amount depends on the home’s purchase price:
- If the home costs $500,000 or less, you’ll need a minimum down payment of 5%.
- If the home costs more than $500,000, you’ll need a minimum of 5% down on the first $500,000 and 10% on the remainder.
- If the home costs $1,000,000 or more, mortgage loan insurance is not available.
Your lender pays an insurance premium on mortgage loan insurance. It’s calculated as a percentage of the mortgage and is based on the size of your down payment. Your lender will likely pass this cost on to you. You can pay it in a lump sum or add it to your mortgage and include it in your payments.
Calculate your insurance premium with our mortgage loan insurance chart. Note that the premiums are taxed at 9%.
Home appraisal
Mortgage lenders may ask you to have an appraisal done as part of the mortgage approval process.
An appraiser provides a professional opinion about the market value of the home you want to buy. An appraisal fee is generally between $350 and $500, if not covered by the bank. The first appraisal is typically paid for by the bank, but if contested, and a new one is ordered, it is at the cost of the contesting parties.
Home inspection
An inspector provides a comprehensive visual inspection of a home’s overall structure, major systems and components such as:
- electrical and plumbing systems
- the foundation
- the roof
CMHC recommends that you include a home inspection as a condition when you make an offer.
Use tips from the Office of Consumer Affairs to find an inspector and learn about home inspections.
Moving costs
Before moving in, you may also have to pay for:
- moving costs
- storage costs
- real estate costs for selling your home (if applicable)
- redirecting mail
Find out what to consider when choosing a moving company, and how to plan for moving day costs.
Once you move in, you may immediately face other costs, including:
- utility hook-up fees
- basic furniture and appliances
- painting and cleaning
- water tests (if applicable)
- septic tank tests (if applicable)
Use this home purchase cost estimate form to estimate your home-buying costs.
Working with a real estate agent
Using a realtor is optional but strongly recommended. By working with a licensed real estate broker, you are dealing with a real estate professional who is covered by a $2 million civil liability insurance and offers you protections like the FICI which offers free protection to consumers who do business with a broker or agency and are victims of fraud, fraudulent tactics, or misappropriation of funds during a transaction. Sophie offers her clients additional consumer protection through the Sutton Secur program which covers up to $3000 in legal fees in the case of an issue or dispute related to the sale or purchase of a property.
A realtor typically searches for homes, negotiates a purchase price, fills out and files paperwork, advises you on best practices and more.
The seller pays the realtor’s fees when you buy a home.
Learn more about a realtor’s involvement in the home-buying process.
Sources:
https://www.canada.ca/en/financial-consumer-agency/services/buying-home.html
