When it comes to buying a home there are the obvious costs, such as saving up the deposit. However, it is important to factor in all the other costs that are also involved to avoid ending up with an unexpected bill!
- Deposit - You might need to put down a deposit; the amount depends on your area, the purchase price of the home, and your situation. If a deposit is required, it will be held in trust and will be deducted from your total purchase price and is considered part of your down payment.
- Down payment - Generally speaking, the larger a down payment you're able to make, the better, because that means you'll have to borrow less. But you also don't want to leave yourself so cash-poor you can't cover all of the other costs that come with closing a sale. The minimum amount you can put down is 5% of the purchase price, assuming that you have made an offer to purchase and all conditions have been met.
- Mortgage loan insurance - If your down payment is less than 20% of the purchase price of your home, you are required to have mortgage loan insurance. It protects your lender not you in case you default on your mortgage. This is called a CMHC fee - click here to find out more about it! I always recommend talking with a specialist mortgage advisor to work out what your best option is!
- Land transfer tax - Ontario uses a tiered Land Transfer Tax system. In the tiered systems, the rate varies depending on the purchase price of the house. As a first time buyer you may be eligible to not pay this tax - ask your lawyer for more information.
- Appraisal fee - Your mortgage lender will likely require an appraisal, it prevents you from borrowing more than a property is actually worth. Some mortgage companies may ask you to pay upfront for the appraisal, and if you proceed with your purchase then they'll refund this money to you after closing.
- Home inspection - Don't even think about buying a home without first having a proper inspection done. In fact, your lender may insist on one to verify the condition of the home. On average an inspection costs between $300-$500, depending on the type of property and the type of inspection that you are doing.
- Property insurance - Your mortgage lender will require you to have property insurance in place on closing day, since the property is actually the security against the loan amount.
- Mortgage life insurance - Mortgage life insurance protects you in the event something happens to you. Obtaining life insurance or term insurance instead of mortgage life insurance can often be more beneficial.
- Legal fees - Legal fees for buying real estate range in price and must be paid upon closing. When purchasing brand new condos, since such deals can involve more paperwork, the cost might be higher. Be sure to find a lawyer who specializes in real estate!
- Title Insurance - Insures you against any defects of title to the property. For example, if the previous owners undertook major renovations without proper permitting, you would be protected against any costs required to bring the house up to code. Typically, this one-time premium costs less than $500.
- Moving expenses and services connections - The final cost is of course moving expenses and connection fees or deposits for services, such as phone, electricity, and other utilities. Moving expenses vary widely, depending on your personal circumstances and possessions. Your lawyer should normally discuss with you setting up services at your new home.