Hidden Costs When Buying a Home in Canada
Now that my husband and I have finally started to save for a home of our own, it’s important that we look into every single detail that is involved with purchasing. It’s not as simple as picking a house you like and moving in. Buying a house is actually a lot of work.
We have many friends and family members that are always telling us we should move into our own place. They say that our mortgage would be the same price or less than our monthly rent. Apparently, they know nothing about how expensive it is to own a home.
There are so many fees involved with buying your own house such as land transfer tax, lawyers fees, realtors fees, etc. Not to mention a 20% down payment!
Let’s not forget that if something goes wrong with the house, like the roof is leaking or the hot water heater stops working – we are 100% responsible. No more running to the landlord to fix our problems. It’s a lot of money and we are not going to jump into home ownership until we are 100% ready (both financially and mentally).
Hidden Costs When Buying a Home in Canada
These are the fees you can expect to pay when you purchase a home in Canada (I’m going to use a $500,000 home as an example):
20% Down Payment
If put down any less than 20%, you will have to pay mortgage insurance (which costs $60-$175 per month). Total = $100,000
Lawyers Fee
You’ll definitely want to hire a lawyer to review the terms of the offer and make sure you aren’t getting a bad deal. Total = $2000 (approximately)
Land Transfer Tax
In Ontario, 0.5% is charged on the first $55,000, 1% is charged on $55,000 – $250,000 and 1.5% is charged on $250,000 to $400,000. $500,000 would be a $6475 tax. Check out Royale LePage for the Land Transfer Tax Calculator. Total = $6475
Home Inspection
This does not cost much money and in my opinion, is not only a good idea, but a necessary “to-do” before you sign on the dotted line. It’s important to know if there is anything wrong with the home before you purchase. Prices vary on the size of the home. Total = $500 (approximately)
Interest Adjustment
You will need to pay any interest accrued between your first mortgage payment and your closing date. Prices vary by payment frequency and closing date. Total = $500 (approximately)
Home Insurance
If you have a mortgage, you have home insurance. You have no choice in the matter. Prices vary on the cost of the home and the contents inside. Total = $800 Per Year (approximately)
Moving Costs
This time around, we are hiring movers – but you don’t have to. Do it yourself and save lots of cash. Total with movers = $1000 (approximately)
Maintenance
You should be setting aside 3%-5% of your home’s value every year for maintenance. You never know when you will have to get the roof re-shingled, the windows replaced or the carpet removed?. Total = $20,000 Per Year
Move-In Items
This may not apply to everyone, but for us, there will be things we will need to buy as soon as we move in like a couch set, bedroom set and probably a dining room set as well. We want to make sure that we have the money already saved so we can get these things right away. Total = $10,000
That is a grand total of $141,275.00 that we would need to save before we can buy a home of our own (if we were purchasing one for $500,000).
So, you see, it really isn’t cheap to purchase a home. If you are thinking about purchasing a home of your own, be sure to research everything that’s involved.
Comments
Prior to buying my condo I got a lot of good info out of this book:
http://www.amazon.ca/Buying-Selling-Home-Canadians-Dummies/dp/0470837403/ref=sr_1_1?ie=UTF8&s=books&qid=1284404858&sr=8-1
There are sooo many hidden costs when you a buy a home, it’s crazy. There should be a handbook for home buying 101.
We incurred lots of extra fees when we bought our condo last year. One of them being for hydro, because they decided not to bill us for 3 months, and then ended up with our first bill for $500! Definitely wasn’t prepared for that. The next thing, was I had no idea utilities charged setup fees, and some require deposits. Totally unexpected expense.
If you and your hubby are first time home buyer’s you can receive a credit up of $2,000 for the land transfer tax.
http://www.rev.gov.on.ca/en/refund/newhome/index.html
Each lawyer deals with the land transfer tax differently. When my husband and I bought our condo last year, we didn’t pay anything to our lawyer for the land transfer tax. We just had to sign a form and that was it.
Another thing to keep in mind, is property taxes. Property taxes are usually billed quarterly, and depending on when your house closes, you may have to reimburse the owner if they have paid up the taxes past your closing date.
ie. They have paid taxes for February 1-April 30th. If your closing date is April 1st, you will have to reimburse the owner for pro-rated property taxes for April 1-30th.
As the buyer, you do not pay the realtor any fees. The seller pays these fees. If you use your own realtor (instead of using the realtor who is selling the home) both realtors split the commission (paid by the seller).
Not sure what you mean about the mortgage “Interest Adjustment”. We had our mortgage setup and signed for 3 months before closing. We didn’t pay anything until 1 month after the closing date, and there was no interest adjustment. I guess it depends on the bank…we used Scotiabank.
Home ownership is certainly very expensive! We own a condo, and that is costly. Sure we don’t have grass to cut, snow to remove, or have to do any maintenance. But we still have monthly maintenance fees to pay, property taxes (which sucks because I don’t have any property! lol), etc.
DEFINITELY, DEFINITELY get a home inspection! We did not, only because my dad is a home builder, so he knew what to look for, and is well aware of building code too.
My husband’s cousin put an offer on a home back in the summer, that they knew would need a bit of work. Fortunately, they had a home inspection done, and found out that the foundation required $20,000 in repairs!! The seller would not fix the issues with the foundation, and refused to lower the asking price in lieu of fixing the issues. So she walked away. Could you imagine if she had not had a home inspection, and found out a few months after moving in that they would have to spend $20G’s?!!! Omg I would be livid…
Great tips! It sounds like you and your husband are being very smart about your approach to home buying.
realtor fees are just charged to those who sell, you dont pay fees when you buy
we are looking into getting a 500k house and all said and done we only plan on saving:
3k for lawyers
1k movers
5% down 25k
400 home inspection
and having a house emergency fund you should always keep 10k in there
30k is plenty to have when buying a house – and a 10k house emergency fund
we have bought 3 houses in the past 3 years and trust me 30k is perfect – some of those fees they include in your mortgage -yes it is not 20% down, but hey if you try and save for 200k liek you have planned your not going to have a house for a very long time and you wont be able to pay off the house before you retire and will be stuck working till your old. Also it is great to own your own house. Plus you dont want to wait 10 years to buy a house because you never know how expensive houses will by then. And you could have paid off half of your mortgage in 10 years. (if you get a 25 year mortgage, pay bi-weekly and throw a little bit of extra money down on the principle every month or year.
When I start looking to get a house I’m going to hire you! lol
OMGASH i sound dumb. i forgot that the realtor fees are only when you sell. duh! well there’s $25,000 less we have to save 😀
bb, there is no way we will buy a house without 20% down. we are not willing to pay the monthly fee for putting down any less. we don’t care if we have to rent for another 5 years. we want to have a huge chunk of money saved up before we buy a house, not just for the downpayment, but for everything else as well. hubby makes great money and we know we will be able to afford a house in the next few years. this is not something we’re willing to rush.
@admin: No worries, you don’t sound dumb at all. You have really done your research so far, and it sounds like you’ve looked in to pretty much everything that might arise when buying a house. There will still be things that you didn’t consider, or things that people will forget to tell you about.
you didnt sound dumb at all.. lol i think most people forget that you dont pay fee’s when buying through a realtor,
i think that is very smart of you to put down 20% it is the smartest way (i know first hand of those nasty fees for not putting down 20%.. 1 of the houses i have bought i only put 5% down and ended up with that lovely fee of 10k added onto my mortgage but i was desperate to own a house so it was worth it for us), i know you can do it in a few years your great at saving!!!
But dont wait till you have 200k saved up or you wont be able to buy a house forever… when you have enough for 20% down and 10k for expenses then meet with a mortgage broker to go over the numbers to see if you can afford everything at that point… if not he will let you know approx. how much more money you will need 🙂
There are income tax breaks for first time home buyers! Make sure you check those out.
Do you have any RRSPs? You can use those if you are a first time home buyer, to put towards your down payment. Can get you into a house faster, and than you gradually put money back into them.
i didn’t know there were tax breaks, thanks for letting me know!
and i would never take my rrsp funds and put them into a house. those are for retirement! thanks for the suggestion, but no thanks. :p
i think our main goal right now is the 20% down. once we get that, we will decide how much more we need. the 20% down is the hardest to save i think. once we have that, i think the other $41,000 will be a piece of cake!
There are actually quite a few benefits when you are first time home buyer:
http://www.cra-arc.gc.ca/gncy/bdgt/2009/fqhbtc-eng.html (First Time Home Buyer’s Tax credit)
http://www.rev.gov.on.ca/en/refund/newhome/index.html (Land Transfer Tax Credit for First Time Buyer’s)
There may be more, but those are the two I can think of at the moment 🙂
I just thought of another unexpected expense. When we were looking at condos to buy, our realtor told us how much the hydro and gas cost for each unit we looked at. The one we bought, we were told $65/month for hydro, $35/month for gas. No clue where they got those figures from, because our hydro is anywhere from $95-$150/month, and gas is $47/month! So when you are looking at houses, try to research for yourself what those utilities will cost you per month, because the rates the realtor provides may not be accurate at all.
thanks Ashley! 🙂
and yes, i definetely agree with researching yourself for the hydro/etc. everyone’s useage is different.
WOW…….$500000 for a house…YIKES!!!!!!!! We live in a small town in Ontario, and that kind of money would buy you a mansion. Our house on an acre, built 11 years ago cost $160 000. You must live in the GTA. Sorry about that! 🙂
i just went through this process, and walked at the last minute…
couple of suggestions, go through a mortgage broker, they will be able to give you the best rate, and you get your pick of the bunch of mortgages… my bank wouldn’t touch the mortgage i wanted, but i went to a broker and had 5 different mortgages to choose from, and this was with no job, and a very limited income currently… mortgage brokers are gods imo…
the second thing that struck me was you budgeted $500 for a home inspection… i just paid $1000 for the one i got done… and it was well worth the money, as they used an infra red technology, to see the actual insides of the house, looking at the framing, for rot and or any issues… there were other cheaper options, but i am so glad i went for the more expensive option, as it saved me from making a huge mistake.
there are first time home buyers credits/ tax breakers, but only if all people on the mortgage are first timers… i was gonna have mine co-signed by my mother, and therefore wouldn’t get the credits. even though my mother has never bought a house, but she has 2 in her name…
a broker where i live doesn’t charge you for their services, the banks/ unions/ mortgage lenders pay for bringing them business…
as for lawyer fees, you don’t have to have a lawyer review it, you can have a notary (at least you can where i live) mine was a super efficient and hard working lady, who reviewed everything very closely with me and made sure i understood everything… and she charged very lil for her services… good luck with your adventure into buying, and hopefully it works out for you
yeah, we live in the GTA and it is expensive. 🙁
thanks for those tips happy.bunny! the credits will be fine for us because neither of us have ever bought a house and aren’t co-signers (would never ever do that). i’ll definetely have to look into a notary instead of a lawyer. thanks for that one!
Property tax is a big one that people tend not to research before they buy a house. It tends to go up higher after you buy a house if the purchase price is bigger than prior assessment.
This write up is a complete joke. If you are considering the purchase of a home you need to go and talk to all the reputable and knowledgable professionals like a realitor, mortgage broker/bank, ask friends for referals for lawyers they used and home inspectors and NEVER EVER purchase a home you sincerly cannot afford.
On a side note, tell me WHO has managed to save over $100k before buying a home?? And can anyone sincerly say they save $20k a year for “home repairs”??? And if you have did you put the $20k into your home each year?
What makes me the most angry about this post is you give the impression to people that owning a home is next to impossible. It is NOT. It can be done, do your research, save for your down payment and purchase within what you can afford. Lets be honest, if you weren’t paying your own mortgage you’d be paying rent (someone elses mortgage).
To answer your question about WHO can afford to save $100,000 for a home – lots of people. We did. We have friends that did. The same goes for putting away 3-5% for home repairs (we put aside 3%, and last year alone had to spend more than $15,000 for a new roof, to repair a bunch of cracks in our foundation, and some electrical work – if we hadn’t been putting aside that 3% each year, we would have been screwed).
People need to stop buying a house just so they can say they own a home, and first weigh the pros and cons (and there are many cons!) of home ownership.