How Much Will It Cost to Buy a House?

You’ve likely heard people lauding the benefits of home ownership. Canadian real estate has historically seen solid long-term gains, which bodes well for existing homeowners and those who plan to buy and keep the place for the long term. There are several other benefits of owning a home, including a roof over your head, a place to plant roots, pride of ownership, and a part of retirement planning. However, as with all investments, there is that initial cost of owning a house in Canada, and unlike other investment vehicles, a home also comes with ongoing expenses. So, down to the nitty-gritty: How much will it cost to buy a house?

Here’s How Much Will It Cost to Buy a House:

The price of the home and the services associated with the purchase are all relative to the type of property, its age/condition and location, so do your research to ensure it remains a good investment. A real estate agent can outline what you can expect to pay and maybe some unexpected expenses. In the meantime, here’s a list of hidden costs to factor into your budget.

Deposit

Depending on the price of a home and the market conditions, you should factor an up-front deposit into the cost of buying a home. You’re expected to pay a deposit when you make an offer on a home.

The deposit is a security measure to ensure you don’t lose the home to another interested buyer. The deposit also assures the seller that you’re serious about the purchase. If you are required to pay a deposit, it will become part of your down payment once you have purchased the home—it comes off the home’s purchase price. There’s no standard deposit amount, as it varies between provinces. However, your real estate agent can advise you based on the home’s asking price and the market conditions.

Down Payment

In Canada, the minimum down payment on a home depends on the purchase price. If the house is below $500,000, the minimum down payment will be five per cent. If the price is from $500,000 to $999,999, the down payment is five per cent on the first $500,000 and 10 per cent on the remaining amount.

While five per cent is the minimum down payment, anything below 20 per cent is considered a high-ratio mortgage and requires mortgage loan insurance. To avoid this, you’ll need a down payment of 20 per cent or more. This insurance is paid in a lump sum or added to your mortgage and included in your payments.

Indeed, this can be a challenge; given how high home prices are in the Canadian real estate market, there are many avenues to pursue to help you achieve this goal, from the First-Time Home Buyer Incentive to the First Home Savings Account (FHSA).

Land Transfer Tax

When you buy a home, you are required to pay a land transfer tax on closing to the territory or province where you are buying. This tax is based on the amount paid for the property, as well as the remaining amount on any mortgage or debt assumed as part of the arrangement to buy it.

Cost will vary depending on your municipality, the size of the land and other factors. Alberta, Saskatchewan, and parts of Nova Scotia do not have Land Transfer Tax at all, while other provinces use a tiered system—meaning, the higher the purchase price, the higher the per centage you pay. Meanwhile, homebuyers in Toronto are hit with a double whammy, having to pay a municipal land transfer tax on top of the provincial land transfer tax.

Appraisal Fee

An appraisal is essential for the buyer. It lets the lender know they are providing a mortgage for a legitimate price and that you are paying fair market value for the home.

A property appraisal will typically cost in the ballpark of $300 – $400 but can vary depending on the appraiser and your location. However, this is an essential step, saving you from borrowing more than you need to and preventing lenders from giving you too much.

Home Inspection

Though it is not required, a home inspection is recommended in the home-buying process, helping you avoid many potential pitfalls. In hot real estate markets, many homebuyers will waive a home inspection from their conditions. It is a wise investment, helping you avoid costly repairs and renovation. A failed home inspection could be a negotiating factor or a deal-breaker.

A home inspection will generally cost an average of $500 depending on the size, age, and condition of the home, but it’s well worth the cost for the peace of mind you’ll have.

Property/Home Insurance

Most lenders will require you to have enough home insurance to cover the total cost of the property. Lenders will ask for proof of insurance before providing the funds to purchase the home.

While property insurance is likely already something you have factored into your budget, it’s important to do your research and find a reasonable quote that will ensure you are covered should anything unexpected happen. The more coverage you add to your home insurance, the higher the annual premiums.

Mortgage Insurance

Your lender will most likely offer you mortgage life insurance. If you pass away while the policy is valid, the insurance company will pay out what you owe the lender, ensuring that your family can remain in your home without making any payments.

An alternative to mortgage insurance is factoring your mortgage into the payout of your life insurance policy. This way, your beneficiaries get the money directly and can pay your mortgage lender, unlike mortgage insurance, where the payout goes to the lender first. Talk to your financial advisor about which option works better for you and your family.

Mortgage insurance is not to be confused with mortgage loan insurance, which protects the lender against mortgage default. Mortgage loan insurance is required if your down payment is less than 20 per cent of the purchase price. Premiums for this type of insurance range from 0.6 per cent to about 4.5 per cent.

Canada Mortgage and Housing Corporation (CMHC)

The Canada Mortgage and Housing Corporation (CMHC) plays a useful role in your home-buying endeavours as it offers prospective homeowners a broad array of calculators, online tools, and reports to ensure you are making the most informed and responsible decision for you and your family.

The federal housing agency provides the public with six vital tools:

• Decide if homeownership is right for you.
• Finance your home (mortgage basics, pre-approval, and loan insurance).
• Make an offer and close the deal (how to produce an offer).
• Check if you are financially ready for homeownership.
• Find the right residential property.
• Maintain your home and protect your investment (rebates and funding for renovations, repairs, and emergency planning).

Lawyer Fees

A real estate lawyer or notary is required to complete the purchase of a home. They prepare and review all legal documents, with the agreement of purchase and mortgage as the primary documents. Additionally, they ensure there are no previous claims on the property to help provide you with a clean title to the property.

The fee you will be charged by your lawyer will vary depending on the person representing you and must be paid upon closing. Ask your real estate agent for advice, as they likely have a preferred trusted lawyer they can refer you to.

Title Insurance

Title insurance is a one-time fee that protects from losses related to the property title or ownership. Though not required, it protects you from unknown title defects, existing liens on the property, structural encroachment issues, title fraud, and errors in surveys and public records. Talk to your lawyer about title insurance and if it benefits you.

Property Taxes

Property tax is billed annually, and it is expressed as a dollar rate for every $1,000 estimated to be the market value of your property. The tax is paid on property owned by an individual or an entity and is one of three taxes a household pays in Canada, the others being sales tax and income tax.

When you’re looking at homes to purchase, your real estate agent will be able to tell you what the property tax was for previous years. This information will allow you to plan for this ongoing expense.

Maintenance and Energy Costs

Potentially your largest ongoing homeowner expense, these costs include lawn care/ yard work, professional services, additions/upgrades and the cost of keeping the house running year-round. Ensure that you factor these costs on top of your mortgage and property taxes when determining if you can afford a home.

Depending on your location, many utility companies will offer an energy calculator to give you a rough estimate of how much you may spend on any given month. So, if you are in the beginning stage of moving up from a bachelor condominium suite to a three-bedroom house and you are unsure how much the energy bill will be, this tool can help you.

Moving Expenses

It’s easy to forget about the small things when moving, but it’s important to remember they can add up quickly! Consider the cost of cable, Internet, electricity, natural gas and other utility installations. Don’t forget about movers, a moving truck, and feeding your friends who are helping out!

Ultimately, this is what you should be planning for when it is time for the big move:

• Moving truck rental or professional movers.
• Moving supplies.
• Moving insurance.
• Move-in expenses.

Believe it or not, you can put your moving expenses on your taxes. By taking a gander at Line 21900 on T1-M, you can claim moving expenses and determine which expenses you can claim.

Land Survey

A land survey is a legal document that evaluates your home’s boundaries. Though it is not a requirement to sell your house in most jurisdictions, it will establish trust, outline the size of the property, and define future possibilities of expansion. The cost of the survey depends on how much work is involved and the time of year, but you can expect to pay at least $1000.

Additionally, it can provide insurance against future headaches because you will not have to engage in potential quarrels with your neighbours since the land survey will identify a border between two plots of land and where the fence should be erected.

In the end, you will need to find qualified local surveyors. Be sure you interview these professionals and understand the full costs of these services.

Time to Create a Budget

Now that you have a better idea of the cost to buy a home, it’s time to hit the books to find out how much these services will cost in your area. Make a list, create a budget, and get started!

Here is how to get started:

• Get to the brass tacks: Can you afford a home?
• Dig deeper into your finances (fixed and variable)
• Review your budget frequently to ensure you have not missed anything.
• The 28% Rule: Your mortgage should not exceed 28 per cent of your gross income each month.
• Do you have a down payment?
• Whether you are buying a home or you already own one and want to protect your finances, be sure to have a dedicated savings account for anything property-related. Plus, set up automatic transfers to this account to pad your finances.
• If you have extra money at the end of the month, put it toward anything related to your home, be it a down payment or paying off your mortgage faster.