The cost of buying a home is so much more than your mortgage
What are the hidden or unexpected costs with buying a home? This is a question I often get asked, and it looks like there isn’t a great deal of information out there, so I thought I’d put together a list.
Costs with searching for and purchasing a home
The search and purchase of a home includes a variety of costs, some of which are optional. Which ones you decide to incur are up to you:
Realtor – Fun Fact – As a buyer, having a realtor doesn’t cost you anything! The commission for your realtor is actually covered by the seller of the home, making the service of a realtor even more valuable
Home Inspector – When purchasing a home, you may want to hire an inspector to view the property before you fully complete the sale. I always recommend one as they can help discover things that aren’t visible to the untrained eye – allowing you to determine if the house will have an unexpected costs, or major updates/renos needed in the near or distance future. The cost of a home inspector ranges from $300 - 500
Appraisal – Sometimes the bank will require the home to be appraised before they approve you for a mortgage. This is to ensure that the home is valued close to the purchase price, to ensure you’re not overpaying. The cost of an appraisal ranges from $300 - 500
Property survey – A property survey clearly defines where the lines of the property are located. The home owner may already have one, but if they don’t and you feel the need to acquire one, the cost can range from $1,000 - 2,500
Water quality test - If your prospective property gets its water from a well, you should make sure that the water is drinkable. You will need to have the water tested on several occasions to be sure. These tests can be free, depending on the area. If you need to pay for it can cost around $50
After the deal is final, you'll have closing costs associated with transferring the ownership of the home. Here are some costs you can expect:
Lawyer – A lawyer will handle all the paperwork for the purchase of your home, making it a stress free process. This does come at a cost of $1,000 - 2500. It all depends on your situation, and how much work is involved.
Land transfer tax - Land transfer tax fees are paid to the government when the ownership of a property changes. The amount you pay is determined by the purchase price of the home. - Example: A home priced at $500,000 would pay $6,475 in land transfer tax. - If you are a first time home buyer, you receive a maximum credit of $4,000 towards your land transfer tax. So using the example above, you would only pay $2,475 in land transfer tax ($6,475 – 4,000) - If you are purchasing a home in Toronto, there is also a municipal land transfer tax on top of the provincial tax. So for a home priced at $500,000 you would pay $6,475 in provincial tax plus $6,475 in municipal tax, totalling $12,95 - You can calculate the amount you would pay, using a tool here.
Title insurance - Title insurance is optional, depending on whether the you want to be able to cover problems that may arise due to survey irregularities, issues with power of sale, or anything relating to the previous owners of the property. - There is no fixed fee for title insurance, but it is calculated for each specific case. - For example: On a single-family home, purchased at $600,000, the cost for title insurance is around $500. - This tool can give you an estimate on cost - The cost upfront may seem pricey, but it can save you from expensive problems that may arise in the future.
Down payment - A down payment on a house is the up-front payment a home buyer must provide in order to secure the amount that is borrowed. The amount of a down payment can range from 5% to 20% of the purchase price. The minimal amount required is 5%. - On a $500,000 home, a 5% down payment would be $25,000 and a 20% deposit would be $125,000.
Moving – If you choose to move yourself, moving costs will be minimal, including costs like boxes, and a moving truck rental. If you choose to hire a professional moving company, you can expect costs to range from $1,500 to $5,000 depending on the type of furniture and distance of the move.
Ongoing costs to owning a home
Once you're settled into your home, there are ongoing costs to owning a home. They include:
Home owners’ insurance - Home insurance is one of the most important investments you will make when you buy a new home. Home insurance covers losses and damages to your home, as well as the assets inside, if there is an accident. It also covers liability coverage against accidents on your property. The cost ranges from $1,000 to $2,000 per year, and depends on the features of the home, and surrounding area.
Property taxes – If you own property, you need to pay property taxes every year. These taxes cover services like public education, firefighting, local police and libraries. Property taxes are calculated based on the general municipal tax rate, the education rate and the property value. You can get the current tax rate from the current homeowners.
Utilities and water – These services are required to run your home including power, water, sewer and heating costs. These costs can vary widely from home to home and season to season. You can ask the previous owner for their bills to help give you an idea of the expected monthly costs for the home.
Maintenance – Home maintenance costs can be expensive, but they’ll help protect your home and long-term investment. Dealing with minor repairs as they occur is much more affordable than waiting for the problems to worsen. Maintenance helps keep your home beautiful and increases your ability to enjoy your space. You should budget around $3,000 per year to handle maintenance costs. Costs include repairs, renovations, redecorating, appliances, new furniture, landscaping and more.
Making the right decision.
Buying a home is a major decision and the more prepared you are the better. Meeting with your bank or mortgage broker can help you determine the true cost of buying a home.
You can also download my Household Budget Worksheet - Are you financially ready to buy a home? to help you determine the costs of buying a home, and if you are ready to take the leap.