Buying a home is an exciting time. Whether you are just starting-out or climbing up the real estate ladder, there are lots of hidden fees and costs you should prepare for as you sign the final paperwork.
Here is a helpful guide to navigating the home buying process and budget for the unexpected.
Costs of Buying a Home
When scrolling MLS listings, you can easily be drawn in by what may seem like a great deal on your dream home. But a listing price of $999,999 is not the final price you pay. Taxes, real estate fees, land transfer taxes and legal fees can quickly push the final price up by thousands of dollars.
You should expect to pay up to $100,000 more on top of the asking price to cover all the fees and costs of buying a home. But what are these costs?
The first fee you will likely encounter is the home inspection fee. This covers the cost of having a certified home inspector visit the home you are considering buying and inspecting it for possible damage or defects. Though this may seem like an unnecessary expense when you tour a home that otherwise looks immaculate, a home inspection can find things that the untrained eye might miss such as damage to the foundation, building code violations and possible upgrade requirements.
A home inspection will usually cost between $300 and $500 but can save you thousands of dollars in the long run.
Provincial and Municipal Land Transfer Tax
Whenever you purchase a new home, you must pay a land transfer tax. This tax may vary from city to city, but is still a required payment upon closing.
Current Ontario Land Transfer Tax Rates
- Amounts up to and including $55,000: 0.5%
- Amounts exceeding $55,000, up to and including $250,000: 1.0%
- Amounts exceeding $250,000, up to and including $400,000: 1.5%
- Amounts exceeding $400,000: 2.0%
- Amounts exceeding $2,000,000, where the land contains one or two single-family residences: 2.5%.
Be sure to check with your local municipality or city for possible rebate opportunities on the land transfer tax. Since January of 2017, homeowners have been able to receive a refund of up to $4000. This qualifying amount is based on a first-time purchasing value of a home greater than $368,000. The refund can be reduced if one of the purchasers is not a first-time homebuyer.
Additionally, as April 21, 2017, a 15% Non-Resident Speculation Tax will be imposed on the purchase or acquisition of residential property located in the Greater Golden Horseshoe by individuals who are not citizens or permanent residents of Canada or by foreign corporations (foreign entities) or taxable trustees. This tax is added on top of the Ontario Land Transfer Tax.
The provincial and federal governments are also looking at possibly waiving the Land Transfer Tax in the future to encourage more people to purchase homes.
Real Estate Fees
Your real estate agent will charge a commission fee on the sale of your home. This fee is based on the sale price of your new home and usually ranges between 3.5% and 5% plus HST depending on the agent. The commission will be split between the buyer and the seller agents. Your agent will be able to give you an approximate cost of their commission on any home you are looking at before the sale.
The completion of any home purchase will involve the use of legal experts. Your real estate lawyer will handle things like registering title, ensuring there are no liens on the home you want to buy, down payments and land transfer taxes.
Default Insurance or Mortgage Insurance
Mortgage insurance protects lenders from the risk of default on a mortgage. In Canada, homebuyers with a less than 20% down payment must purchase mortgage default insurance. Though it may seem like an unfair penalty for paying a lower down payment, it does low lenders to offer lower mortgage rates for high-risk buyers. Home purchased for $1 million or more are not required to have mortgage insurance. The maximum amortization period on insured mortgages is 25 years.
Homes sold for more than $500,000 can no longer be purchased with a 5% down payment. The new minimum down payment is 5% of the first $500,000, and 10% of any amount over $500,000.
Title Insurance is slightly different from mortgage insurance. In this case, the insurance is protecting you from losses such as fraud, forgery or title defects such as liens or encroachments. Title insurance varies depending on the value and type of home you purchase.
If you purchase a $500,000 home, you can expect to pay $325 while a $500,000 condo would cost $150.
Building Code Upgrades
If you choose to buy a home that requires building code upgrades, you can expect to pay several fees including the cost of building permits, inspectors and the cost of construction.
A basic upgrade can cost anywhere from $100 to $200 per square foot.
Permit fees in the City of Toronto start at $198.59, with an additional $85.79 per hour for examinations and inspections.
You can expect to pay a sales tax on your new home purchases in line with the GST/HST rates in your province. This will be equivalent to upwards of 15% on top of your purchase price.
If you buy a home for $1,000,000 this would be an additional cost of $150,000.
Sales tax will also be charged on top of any fees you pay for services such as home inspectors, lawyers, real estate agent commission and moving.
Finalizing Utility and Property Taxes.
If the previous owner of the home you have just purchased had to pay any utility or property taxes beyond the closing date, you are required to pay these back. Often referred to as adjustments, these repayments include hydro, water and property taxes. These final costs can be worked out with the assistance of a lawyer.
Once you have signed all the paperwork, you can focus on moving. Depending on the size of your home, most overs will charge $100 to $150 per hour. They may also charge extra for packing up your belongings. No matter who you choose for your move, make sure they are reputable and have good reviews to avoid unnecessary or fraudulent charges.