Saving a down payment is a huge accomplishment, though it’s unfortunately not the only expense you’ll encounter on your path to home ownership. When buying a home, these are some of the other costs you’ll want to factor into your budget.
Deposit
When you make an offer, you give the seller a deposit to show you’re serious about buying their home.
If the deal goes through, your deposit counts towards your overall down payment.
Your deposit could become an expense, however, if you back out of the deal. Deposits are non-refundable in many cases, which means the seller may get to pocket that money if you change your mind.
Appraisal fee
Mortgage lenders almost always want an appraisal of the home to be sure it’s worth what they’re lending you. Some lenders will cover this cost—in the ballpark of $150 to $500—though some will insist that the buyer pays for it.
Home inspection fee
Buyers often make their offers subject to home inspection, and for good reason. A home inspection will point out any major areas of concern that could leave you on the hook for even more expenses, if you discover them after you move in. You’ll pay around $500 for an inspection on an average-sized home.
Insurance
Home insurance is a must-have, as you won’t be granted possession without it. It’s important to make sure you have enough insurance and the right kind—like overland flood and possibly sewer back-up insurance, for example, if you live in an area prone to flooding.
Along with home insurance, you’ll also need mortgage insurance if your down payment is less than 20% of the purchase price. Your lender will arrange this with you and let you know the monthly premium you’ll have to pay, based on the amount of your mortgage.
Closing costs
This is another one—or several—of those expenses that need to be cleared up before the sale of your soon-to-be home closes. Closing costs, which include the items we’ve listed below, can range between 1.5 and 4% of the sale price.
Land transfer tax
When you buy a property, you’re required to pay the necessary taxes and fees to have its title transferred to you. Land transfer tax varies depending on where you live, with some places offering a rebate to first-time homebuyers. You might also need title insurance, which your lawyer can guide you through.
Mortgage insurance tax
If you’re taking out mortgage insurance, you’ll have to pay PST on that insurance in your closing costs.
Legal fees
Legal fees are a small fraction of your investment, considering your real estate lawyer’s job is to protect your interests through the whole process. You’ll have at least a $500 legal bill, though your lawyer can give you a more specific quote.
Property tax
Homeowners in Canada get an annual bill for their property tax, which is based on the value of their home. Your lender can often work out an arrangement for automatic monthly payments, though you may have to reimburse the previous owner of your home if they’ve already paid up for the year (that goes for other pre-paid utility bills, too).
Moving expenses
Whether you choose to hire a moving company or not, you may have to factor in temporary living or storage expenses. If there’s a gap between when you move out of your current place and when you take possession of your new home, you could be looking at short-term rental fees for you and your belongings.
Furnishings
Once you get your home, you’ll likely need some things to fill it with. Bedroom suites, dining tables, couches, décor—these can easily add up.
Maintenance costs
What happens if you move in and your hot water tank goes a few months later? This, and other unexpected expenses, should be budgeted for in your rainy day fund. There are also expected maintenance expenses, like annual servicing for all the systems in your home, that you’ll have to account for, too.
Emergency fund
Job loss, illness, a global pandemic—you never know what’s coming your way, but you should prepare for it when you own a home. Stashing away enough money to pay your mortgage and bills can help you through a tough time.
While there are a lot of extra costs involved with buying a home, there’s no cost to connect with a financial advisor on Vexxit. Your financial advisor can give you advice on how to save and what to save for, bringing you closer to your home ownership goals.
