What does it cost to buy a home these days? Depending on the province and city you live in, buying a home will run into the hundreds of thousands of dollars. However, the purchase price of the home is not the only expense to consider. There are numerous hidden costs of buying a house in Canada.
Let’s get into more detail about what these costs are and how much you can expect to pay over and above the price of your new home to help you budget effectively.
Key Points
- In addition to the purchase price of the home, make sure to budget a few extra thousand to cover additional costs associated with buying a home.
- Many hidden costs of buying a home in Canada are mandatory, while others are optional.
- As a general rule of thumb, budget about 2% to 5% of the purchase price of the home to cover these additional costs.
Hidden Costs Of Buying A House In Canada
There are many costs associated with buying a house, however, some are more obscure costs that are often left out of people’s budgets.
Down Payment Costs
Your down payment represents a part of the overall purchase price of the home. If you’re applying for a “conventional” mortgage, your down payment must be at least 20% of the home’s total value. If you’re applying for a “high-ratio” mortgage, your down payment is less than 20% but must be a minimum of 5%.
Mortgage Default Insurance (CMHC Insurance) Costs
Mortgage default insurance (also referred to as CMHC insurance) is required if you make a down payment less than 20% on a home purchase. This type of insurance protects the lender if a borrower defaults on their loan. Standard payments for mortgage default insurance premiums for anyone putting down less than 20% typically ranges from 2.8% to 4% of the total loan amount.
Closing Cost
The purchase price of a house is certainly the biggest cost involved in the home buying process. But there are closing costs that are also involved that you’ll need to pay for in addition to the price tag of the home. These items can cost you a few thousand dollars, which you must have available upfront on closing day.
Legal Costs
During the home buying process, you’ll need to pay for the services of a lawyer or notary to review certain aspects of the contract and to perform various legal duties. Hiring a lawyer of any kind, even one that specializes in real estate, can cost at least $1,000 to $2,000 on average, with the standard amount hovering around the $1,700 mark.
Real Estate Agent Costs
Hiring a real estate agent isn’t a necessary expense. However, they can definitely be beneficial to have on your side during the search for and purchase of any home. Agents can also make sure that those sellers are providing you with all the proper paperwork/warranties for any renovations, extensions, and repairs done on the home, so you know you’re getting a good, safe deal.
Agents are generally paid on a commission basis, usually around 4% to 5% of the purchase price. This represents the total commission split between the listing agent and buyer’s agent.
Title Insurance
This type of insurance protects you from problems that arise with encroachment issues (issues of intruding on other people’s property) and challenges to the ownership of the property. In other words, it acts as proof that you are the sole owner of the home. Title insurance costs anywhere from $250 to $400.
Property Survey
You may want to access the survey of the land that the home is situated on, which includes the measurements of the plot and positions of structures. This will show you where all the property boundaries are and the position of structures, such as sheds and fences. The cost of a survey can range quite a bit, though surveys can be obtained for as little as $200 or more depending on the type of survey required.
New Home Warranty Fee
Insurance providers offer warranties on new properties to protect you against any repairs from building errors or structural defects. The cost for these warranties varies by province and home type.
Appraisal Costs
When you’re about to buy a home or refinance your existing mortgage, your lender will require that the home be appraised to review the property and confirm its market value. While the lender may appoint the appraiser, you’ll need to pay the appraiser as the buyer, which can cost you around $300 to $600, on average.
Property Valuation Cost
At some point, you may need to pay to have the property evaluated to determine it’s real or market value. This is similar to an appraisal but is usually much more thorough. A valuation is conducted for a property settlement, when trying to determine the value of a deceased estate, or when a court orders it as part of a property dispute.
Home Inspection Cost
A proper home inspection by a licensed inspector is essential when you are about to purchase a home. It’s extremely important to be of aware of anything that might be wrong with the house before you decide to buy it. The cost of a professional home inspection is around $450 to $700.
Prepaid Fees
If the seller has prepaid any costs — such as property taxes, utilities, or condo fees — you’ll have to reimburse them for the amount they spent.
Hidden Costs Of A House: Homeownership
Aside from the actual home-buying process, there are many other costs to consider with homeownership. Here are some of the costs you should prepare for:
Renovation Costs
If you’re buying a home that requires upgrades, you’ll need to factor in these costs. Depending on the project, you could be spending thousands of dollars in renovation costs. However, you may also be able to get some financial assistance to cover the cost of renovations with a home improvement loan.
Maintenance Costs
Experts suggest setting aside about 1% of their home’s purchase price every year to put towards maintenance. Some common maintenance issues include (but aren’t limited to):
- Replacing the windows
- Re-tiling/fixing the roof
- Installing a new hot water tank
- Adding new insulation
- Having the vents/furnace cleaned
- Cleaning the eavestroughs
- Servicing the HVAC components
Homeowner’s Insurance
It’s extremely important to invest in property insurance to protect your home against any damages, including fires, floods, theft, storm/weather damage, etc. The average cost of home insurance is about $1,000 per year.
Mortgage Life Insurance
This insurance is optional but can certainly provide you with peace of mind, as it pays off all or a part of your mortgage if you or another owner of the property should pass away suddenly. The average cost of mortgage life insurance in Canada is just over $74, according to PolicyMe.
New Household Items/Furniture/Appliances
Outfitting your new home with everything you need to make life comfortable can be incredibly expensive. Be sure to set aside a few thousand dollars to pay for your furniture, appliances, decor, and anything else you need to fill the home.
Moving Costs
Hiring professional movers to help you transfer all your belongings and furniture from one home to another can cost a few hundred dollars, if not more. Generally speaking, movers typically charge between $300 to $5,000, depending on the extent of the job.
Hidden Tax Costs
There are several taxes you may be required to pay for when you buy a home, including the following:
- Land transfer taxes
- Property taxes
- GST or HST if you buy or build a new home
Programs To Help With The Cost Of Buying A Home
The list of costs mentioned above can be overwhelming and can add up to be very expensive. To help ease the financial burden of buying a home, there are some government programs available that you may want to look further into:
- GST/HST New Housing Rebate. If you bought a new home, you may be able to receive a rebate for some of the GST or HST you paid when you bought the home. The maximum amount you can get depends on the province. In Ontario, for instance, the maximum rebate is $24,000 if HST was paid on the purchase of the land, and $16,080 if it wasn’t.
- First-Time Home Buyers’ Tax Credit (HBTC). If you’re buying your first home, you may qualify for the HBTC, a non-refundable tax credit. You can get up to a $1,500 tax credit when you file your income taxes.
- Home Buyers’ Plan (HBP). This program allows you to withdraw up to $35,000 from your RRSP account tax-free and use the funds towards a down payment for your first home.
- First Home Savings Account (FHSA). First-time homebuyers may be eligible to save up to $40,000 tax-free in an FHSA. Plus, every contribution you make (up to $8,000 per year) is tax deductible, so it reduces your taxable income and thereby helps lower the taxes you owe.
Choosing The Right Mortgage
Whether you’re trying to enter the real estate market for the first time or you’re a seasoned professional, you’re number one goal should always be to find the right mortgage and best the lender. This will provide you with a solid foundation you need to be able to afford all the other costs associated with becoming a homeowner. Loans Canada can help match you with the right lender for your unique situation.
Final Thoughts On The Hidden Costs Of Buying A House In Canada
Budgeting for a home purchase shouldn’t stop at just the purchase price. There are several other hidden costs of buying a house in Canada that you need to consider. Be sure to budget accordingly so you have the funds needed to cover these expenses.
