It’s a big step buying a home and I find that sometimes there are costs associated with the purchase that some people do not take into account or do not know about.
So What Are the Costs??!!??
Let’s break down the numbers associated with buying a home. For simple numbers we will use a purchase price of $500,000.
The biggest part is the down payment. After that there are costs associated on closing and we are going to discuss these a bit further. For some of us maybe we have owned before but it’s been a while since we have moved so it’s hard to remember all the costs. If this is your first home purchase than knowing how much money to put away can be very important and stressful on closing day if you are not aware.
Down Payment – In Ontario you will need to put down at least 5% for your mortgage. If you put down less than 20% you are required to have a insured mortgage. For our example we will use 10% deposit or $50,000
Mortgage Insurance – An insured mortgage protects the lender should the buyer default. With our example of a $500,000 house if you put 10% down you will be required to pay 3.10% of the amount being borrowed. The cost would be $13,950 and would be added to your mortgage.
Now lets chat about the other fees you could inquire in order to purchase your home.
Home Inspection – A home inspection is not mandatory and depending on what kind of property you are looking at you may not need one. However, if it is an older home we would recommend you have one. The inspector looks at the “bones” of the house, all the systems and gives you a report of the condition of everything, including any concerns there may be. The typical cost of this is $500
Lawyer Fees – In Ontario you must have a lawyer complete your transaction. They ensure there are no encumbrances on the property and take any action should there be an issue. The lawyer will search title on the property, transfer monies from your bank to the seller and help you to purchase title insurance which is covered in their fee. The cost is usually $1200 to $1500
Property Appraisal – An appraisal is typically done by the banks on your new purchase to ensure their investment is sound. This is typically covered by your bank or broker. However in some rare cases it is not and the cost for this can be $400. You can ask your bank beforehand to ensure they will cover this cost.
Land Transfer Tax – This is a big one and the most confusing of all of the costs to purchase. Land transfer tax is paid only by the buyer. If you are a first time home buyer there is a rebate in the amount of $4,000. The land transfer amount on a $500,000 house would be $6,475.
Now for the costs that no one tells you about !
Property taxes – These are generally paid by your mortgage company but if you purchase a home later in the year it’s likely the home owner has paid for the full year. You will need to reimburse them for the months that you will be the new home owner. This is something the lawyer will figure out and you will need to pay for on closing day.
Moving Costs – I know I hear it all the time we are just going to have our family help or friends, etc. I’m not saying there is anything wrong with that. Let me tell you how many times I have heard my friend with the truck can’t come, or the trailer we were borrowing broke, or my friend’s couldn’t make it. All I’m saying is if you can try and have a couple hundred dollars put away in case you need to get a trailer, hire some help, etc. If you have to move out of a place and into a new place on the same day that can be very stressful. All you need is one glitch whether that is at the lawyers office, the mortgage company or someone lost keys to make the day even more hectic.
New Household Furniture/Appliances – Check to ensure that all the appliances come with the house and they are in good condition. Are you planning on purchasing new furniture, painting, etc. You should have funds put aside for this.
Home Insurance – Yes of course you need insurance on your new house. We all know that but sometimes we forget to look into it. The mortgage company will want to have that information before they give you any monies for your new home. I would suggest factoring in $1000 to $1200 for the year.
Hook up fees – Especially if you are a first time home buyer and have never had hydro, gas, etc in your name. They may ask you for a deposit since you have no record with them. Last I checked it could be a couple hundred dollars. Which of course comes off your future bills but once again you need that up front.
Penalty on Current Mortgage – If you are selling one home and buying another check to see if you still have a fixed mortgage. If you have fixed mortgage ask what the cost of breaking that mortgage will be.
So to recap using a purchase price of $500,000 here are some numbers that you may need to keep in mind for your house purchase.
I hope this information helps you be more prepared when it comes time to purchase your home. Feel free to contact me should you have questions.