It's easy to get caught up in the excitement of home shopping. With every open house we visit, we start to imagine what it would be like to live in our very own home, With all this excitement we often overlook the many surprising and stressful costs involved in this purchase. At Mortgage Sandbox we categorize the costs of home buying by stage and by type as seen in the table below.
Home Buying Stage
|1. Pre-Closing||2. Closing Day||3. Post Closing|
Mortgage Default Insurance
Insurance Binder Fees
Mortgage Discharge Fees
Property Transfer Tax
Property Tax Adjustment
Utilities Hook-up and Connection Fees
Property Tax & Municipal Utilities
Most of these costs are self-explanatory but for clarification we will cover each one below in the order that they appear in the home-buying process.
For the purposes of this guide, the closing stage involves everything that occurs between finding a home and showing up at a lawyer's or notary public’s office to sign the papers to complete the purchase.
Approximately $250 or more
Home buyers should always make an offer to buy a home subject to the property meeting certain conditions, and one very important condition is a satisfactory home inspection. A home inspector will do a physical inspection of the home, will review the sellers’ disclosures, and, in the case of a condo, they will also review the strata documents. They will report the condition of the home and the cost of any repairs that will be needed in the near future.
Keep in mind the home inspection is primarily a visual inspection and may not uncover problems hidden behind the walls. Nor will it necessarily tell you if work has been done on your home without appropriate permits.
You may also want to ask the seller if there's any stigma attached to the property. This is a sensitive topic. You are trying to determine if the property has a history that may be of concern to you but is not related to the structure or physical condition of the property. Examples of events that could attach a stigma to a property are things like:
a death has occurred at this property
a former resident was a suspected member of a criminal organization
the property has a history of break-ins or vandalism
there are reports the property is haunted
a sexual offender has lived on the property
a violent crime has occurred on this property
In British Columbia real estate agents are not required to disclose information related to stigmas. If any of these examples would concern you make sure your real estate agent is aware of them and that the seller and sellers’ agents are specifically asked about these types of events.
$100 or more for Automated Valuation
$360 or more for an Appraisal Report
When you are approved for a mortgage the lender will advance cash equivalent to a specified percentage of the value of the property. As a home buyer we tend to think that the value of the property is the same as the agreed price of the property. A lender, however, will always use the lower of the purchase price and the property valuation when determining how much cash to advance.
There are two primary methods for valuing a property. They are an appraisal by an appraiser and automated valuation. Both methods rely heavily on comparing the property being valued to other similar properties recently purchased in the same vicinity.
Approximately $500 or more
When buying a detached home (particularly with a large piece of land), lenders may require you to obtain a land survey to confirm the dimensions and characteristics of the property match municipal records and the description in the purchase agreement.
Closing day for our purposes is the date you meet with a lawyer or notary public to sign all of the documents. When you use Mortgage Sandbox calculators, they will provide you a rough estimate of closing costs.
$800 or more
Legal fees cover the cost of researching the property, confirming what mortgages and liens will need to be removed from it to effect the transfer. The due diligence means reviewing the contract, the mortgage instructions, the property tax certificate, the strata forms, and the title search. Some lenders don’t send us the commitment at all, and some mortgage products don’t have any detail in the form B (What is form B?) so saying that the lawyer compares the mortgage documents and the commitment is incorrect.
The transfer part is preparation of the documents (including the statement of adjustments), filing the land title documents on the completion date and sending out the cheques (including the sale proceeds cheque to the other lawyer).
The legal fees don’t necessarily cover the land title office fees. Most firms set those apart as separate adjustments, like the costs of the tax certificate, the strata forms, the title searches etc.
Changing the Ownership on Title
Representing you, the lawyer is required by the Law Society to do a lot of research on your property to make sure that everything matches the purchase agreement and that nothing unforeseen will negatively affect your ownership of the home. They receive documents from the seller’s lawyer to transfer ownership. You will sign these and then they will be submitted to Land Titles with a fee to finalize the purchase.
Registering the Mortgage
Representing the lender, the lawyer will confirm that the mortgage documents match the original mortgage agreement. He prepares documents to register the mortgage and submits them to Land Titles with a fee to complete the registration.
The lender will require that you have home insurance before advancing the mortgage funds, so your lawyer will request an insurance binder from the insurance company that proves you have property insurance. There's typically a fee $35 - $40 to obtain an insurance binder.
For strata properties the necessary insurance will have been bought by the strata corporation.
Most lenders will require that you purchase title insurance to protect the lender from any issues with the title including the potential for fraud. A lender policy can cost as little as $100 and if you buy home owner title insurance at the same time it may be as cheap as $25.
If you're putting less than 20% of the value of your home as a down payment, you will have to pay mortgage default insurance. The cost of the insurance premium is between 2.8% and 4.5%
The BC property transfer tax rate is:
1% on the first $200,000,
2% on the portion of the fair market value greater than $200,000 and up to and including $2,000,000,
3% on the portion of the fair market value greater than $2,000,000, and
5% on the portion of the fair market value greater than $3,000,000 (effective February 21, 2018).
Unhappy with BC Property Transfer Taxes? Count yourself lucky! If you live in Toronto, you will pay both a provincial and Toronto property transfer tax. People in Toronto pay a cumulative 4% on the value of a home above $400,000. That’s double B.C.’s rate.
Ontario Land Transfer Tax:
0.5% of the value of the property up to and including $55,000
1% of the value which exceeds $55,000 up to and including $250,000
1.5% of the value which exceeds $250,000; and
2% of the amount by which the value of the consideration exceeds $400,000 for land that contains at least one and not more than two single family residences.
Toronto Land Transfer Tax:
0.5% up to and including the first $55,000
1% of the value which exceeds $55,000 up to and including $400,000
2% of the value over $400,000
Depending on your province, you will need to pay GST or HST. In some cases, you may be eligible for a rebate. GST in British Columbia is 5%, but in Ontario where they pay HST the tax is 15%. Buying a new home in a province with GST is significantly cheaper than buying in a province with HST.
The harmonized sales tax (HST) is a consumption tax in Canada. It is used in provinces where both the federal goods and services tax (GST) and the regional provincial sales tax (PST) have been combined into a single value added sales tax.
Property tax and Municipal Utilities like water and sewers are paid annually. As a result, the seller of a property may have already paid the taxes and fees for the year when you take ownership, so the buyer needs to reimburse the seller for the buyer’s portion of any taxes or utilities paid. This is called an adjustment and it will be calculated in a statement of adjustments that the lawyer will present to you and confirm.
More important than the adjustments, your lawyer will ensure the seller doesn’t owe any outstanding amounts to the city because any money owed to the city is attached to the land rather than attached to the person. In other words, if there is an outstanding unpaid bill the city will seek to be repaid by the current owner, even if that isn’t the owner who owed the money in the first place.
Eventually you will want to pay off your mortgage. The cost for canceling a mortgage is relatively standard unless you are transferring it to another financial institution. Your lender may charge you anywhere from $75 to $365 when you transfer to another lender, and there may be other fees.
Moving costs can be significant. If you pay for the movers to wrap and pack your belongings and move them to your new home, the cost can easily reach thousands of dollars. Before you start shopping for a home we recommend that you get a moving company to provide an estimate and include this cost in your home-buying budget.
There are a lot of cheaper options for moving your belongings. Just remember that you put a lot of thought and care into choosing the items that you own today and the cheaper options may have a higher risk of damage to those belongings. Speaking from experience, the cost of replacing damaged items can well exceed the savings of a cheaper moving alternative. Imagine the disappointment of finding 2 broken wine glasses out of a 4 glass set, or having a 50 inch television that works perfectly but has a 1 inch crack in the corner of the frame.
Moving costs are usually calculated using the distance you will be traveling, the amount of space that your furniture will take up in the truck(s), the weight of those belongings, and the number of people they believe will be needed to get the job done. If you have oversized items, or your home is difficult to access, this could add additional costs.
Electricity and Natural Gas: When you open a new account with your utility, they will charge you a setup charge, typically $15 to $30 plus GST. The cost isn't that great even after you add sales tax, but, if you don’t have a strong credit history, you may also be asked to leave a security deposit with the utility. Keep in mind you may have to set up a different account for Electricity and Natural Gas.
Internet: Mortgage Sandbox scanned an internet provider comparison site and saw activation / setup fees in a range of $30 to $100. Some providers didn't have an activation fee, but it’s a competitive marketplace so it’s likely those that don't charge an activation fee make up the difference in their monthly charges.
You've toured the home, there's been a home inspection, and you feel really good about your new purchase. You should still budget approximately $1,000 toward minor repairs and improvements. Whether it's damaged electrical outlets, a minor toilet leak, accidentally scratched hardwood floors while setting up your living room, or finding out there are no studs in the wall where you wanted to hang your television, there will always be repairs and improvements you'll want to make after move-in.
If you live in Metro Vancouver a good estimate for your property taxes is $3 for every $1,000 of home value. For example if you own a home worth $500,000, your annual property taxes would be $1,500 or $125 a month. The city of Vancouver has a lower property tax rate because the average value of a home is higher, while outlying municipalities have higher rates and more affordable home prices.
A recent study found that the typical household in Toronto pays the highest hydro rates at close to $200 per month, while Vancouver sits at $115 per month, and Montreal seems to get the best deal at just over $80 per month. Of course regional weather, the average size of a home, the construction of the home, and whether you have electric or natural gas heating, are all factors in hydro bill. Since you haven't found a home yet you should budget for the typical cost.
Paying for electricity may not be new to you but some renters have utilities included in the rent and aren't accustomed to the monthly cost.
Home insurance can range from $450 a month to over $1,000 a month depending on the type of home you own. Use one of our calculators to get a broad estimate of insurance costs, or get a detailed quote and add it to your home-buying budget.
In pursuit of affordability, many people are moving to new neighborhoods. In some cases they're buying homes that are further from their work, or they're no longer able to take transit to work. You should have an idea of what neighborhood you want to live in and use Google Maps to figure out distances. Then factor in any incremental transit or vehicle costs resulting from your move.
As a rule of thumb, we recommend you use 50¢ per kilometer to approximate your travel costs when driving. This is based on the Government of Canada vehicle allowance rates.
Again, if you're going to start driving to work you may have to pay for parking. Research monthly rates for parking near your office and add these to your budget.
The average lifespan of a roof is 15 to 20 years, a refrigerator’s is about 15 years, window seals’ 20 to 30 years, a hot water heater’s 8 to 12 years,and a furnace’s up to 20 years. Eventually all these will need to be replaced! Then there is cosmetic maintenance like a fresh coat of paint every few years and new carpets or refinishing the floors. Whether you own a house or a condo there's a good chance that one of these major expenses will happen sooner than expected and present you with a big expense.
As a rule of thumb, we recommend you budget 10¢ per square foot per month for maintenance and repair costs. If you own a 1,000 square foot apartment, for example, budget $100 per month for maintenance and repairs. Talk to your bank or credit union about setting up a special savings or investment account that automatically takes the monthly amount on your pay day and sets it aside for that rainy day. This way in 10 years when you have to spend $20,000 on a new roof, you'll be ready.