The benefits of homeownership are familiar to most people, but sometimes determining the actual cost of a house can be a bit less obvious. When considering homeownership, it’s important to factor in all the costs you’ll encounter as you move through the process to make sure you’re financially prepared to foot the bill as you sign your paperwork to close on your dream home. Keep in mind that the costs associated with the sale of a house are relative to the type of property, its location, age and overall condition, so make sure you do your homework and pair up with a real estate professional who can help you navigate the market and ensure you’re investing wisely.
Minimum Down Payment
The minimum down payment will depend on the home’s purchase price. If the home is less than $500,000, you’ll be required to make at least a 5% down payment. If the home is between $500,000 – $999,999, your down payment will be 5% on the first $500,000 and an additional 10% of the remaining amount. Even though the minimum down payment in Canada is 5%, it’s important to note that any down payment under 20% is considered a high-ratio mortgage and will require mortgage loan insurance. If you want to avoid that extra cost, you’ll have to be prepared to make a 20% down payment on the house.
Mortgage Loan Insurance
The purpose of mortgage loan insurance is to protect the lender if you don’t make your mortgage payments. It’s also sometimes referred to as mortgage default insurance. As mentioned above, if your down payment is less than 20%, you’ll need to purchase mortgage loan insurance. In some cases where borrowers have poor credit or unstable income (self-employment), lenders may still require the purchase of mortgage loan insurance even if the down payment is 20%. If you find yourself in need of this extra insurance, your lender will organize and coordinate everything to ensure it’s taken care of.
In today’s real estate market, it may be wise to factor in an upfront deposit cost. This acts as a security measure to ensure you don’t lose the home of your dreams to another buyer and also shows the seller that you’re serious about the purchase. If a deposit is required, it’ll be added into your down payment once you’ve purchased the home. There’s no industry standard when it comes to deposits so be sure to consult with your real estate agent for guidance in this area.
If you plan to buy a home, your lender will require an appraisal after you’ve been approved for a mortgage so they can ensure they aren’t loaning money for a property that’s well below the value of the accepted offer. A home appraisal is essentially a professional opinion of the home’s value. The location, age, condition, square footage, amenities, updates and recent sale price all factor into this appraisal. Even though the lender is the one ordering this home appraisal, you as the borrower will likely be the one to pay for it. You can expect to pay around $300 for this service but in can vary so be sure to inquire in advance.
Land Transfer Tax
Often overlooked in the big picture of buying a home, is the land transfer tax (LTT). When you buy a new home, you’ll be required to pay this tax when you close. All provinces have an LTT except Alberta and Saskatchewan. For all other provinces, the tax is calculated as a percentage of the property value so you can use the asking price as a close estimate if you want to calculate this cost in advance.
If you’re a first-time home buyer in Ontario (as well as British Columbia or PEI) you’ll get access to a land transfer tax rebate (a maximum of $4,000 in Ontario).
To qualify for this rebate, you’ll need to meet the following criteria:
– You must be a Canadian citizen or permanent resident of Canada
– You must be 18 years of age or older
– You must live in the home within 9 months of purchasing it
– You cannot have owned a home before
– If you have a spouse, they cannot have owned a home during the time they have been your spouse
Based on the Ontario land transfer tax rates, the rebate will cover the full tax amount up to a maximum home purchase price of $368,333. For home purchases over that value, the rebate will still be applicable but as the borrower, you’ll be required to pay the remainder out of pocket.
In today’s super competitive market, more and more buyers are choosing to skip a home inspection for fear of adding too many conditions to their offer and losing the home. Should you decide to move forward with a home inspection, you can expect to pay around $350 depending on the size, age and condition of the home. A small price to pay for the peace of mind that you’re purchasing a home in good condition that’s worth the investment.
This may be a bit more obvious than some other costs, so you’ve likely already considered it. However, it’s still important to look around for quotes so you can ensure you’re getting the best rate possible with the best and most suitable coverage for your needs. On average you’ll be looking at a cost of $1,250 per year (about $104/month) in Ontario but depending on your home’s value and location, you can expect to pay $700-$2,000 more annually so budget accordingly.
Title is a term lawyers use to describe the right of ownership to land. This is a one-time fee that provides protection to you from any losses related to the property’s title or ownership. The policy provides coverage against losses due to title defects, even if the defects existed before you purchased your home. A title defect is a problem with the title which prevents free and clear ownership. There are many types of defects such as rights of way, encroachments (from neighbouring properties), unpaid liens, etc.
Title insurance protects you for as long as you own the property and is generally purchased when you buy your home or when you refinance it. You will only make one premium payment when you first buy the insurance. The average cost of title insurance in Ontario is $250 and it would be purchased through your lawyer.
Property taxes are an expense that you’ll be billed for on an annual basis. This is a tax that’s paid on property owned by an individual or an entity and is paid alongside sales and income tax. When you’re looking to buy a new home, your real estate agent can let you know what the property taxes were for the previous year. Each city in Ontario has different property tax rates so it pays to do your homework and learn more about the rates you’ll be expecting.
For reference, the 10 cities with the highest property taxes in Ontario are as follows:
Windsor Ontario – 1.7756%
Thunder Bay – 1.5626%
Sault Ste. Marie – 1.5309%
North Bay – 1.5283%
Sudbury – 1.4921%
St. Catherines – 1.4321%
Peterborough – 1.4016%
London – 1.3482%
Orangeville – 1.3105%
Often the cost of moving is overlooked in the big picture of buying a new home. Whether it’s the phone/utility cancellations and new setups, paying professional movers, renting a vehicle to move large items yourself or just compensating friends/family who help out, don’t leave out costs associated with moving as you’re working on your budget. Call local vendors and get in touch with your utility providers to learn more about exactly what kind of fees/penalties you can expect in advance, so you’re prepared to foot the bill when the time comes.
Maintenance/Cost Of Utilities
What is arguably the most expensive ongoing cost for homeowners, maintenance is something you cannot afford to overlook. This refers to general upkeep of your property with things like landscaping, upgrades, additions, professional services and the general cost of maintaining your home throughout the year. Whether it’s discovering a leak in the bathroom pipes or unearthing a surprise electrical issue you can’t overlook, you’ll be on the hook to fix it. It’s advisable to keep 3 months’ worth of your salary set aside to allot for any emergency issues or repairs you may face as a homeowner so you aren’t forced to incur debt when something comes up unexpectedly.
One of the most important aspects of your home buying experience is the legal documentation behind the sale. The legal fees that come along with purchasing a home will likely set you back $500 – $1,000 and include things like conducting a title search, setting up title insurance, registering the house in your name, drawing up a statement of adjustments, and facilitation of the financial transaction on closing day.
Buying a new house is an exciting and fun experience! Don’t let unexpected costs put a damper on your new life chapter. Be prepared to pay the necessary fees associated with the sale so you can spend more time celebrating than stressing. If you’re in the market for a new home, our team can help. Reach out to learn more about the home buying process and how to prepare for what will likely be the biggest transaction in your lifetime.