Buying a home is an exciting time. For most of us, we buy based on our emotions, how well it meets our needs, and whether or not we can squeeze it into our budget. Of course a home has to feel good and work for your lifestyle, but squeezing it into your budget is not usually the best plan. Or, at the very least, if you’re going to squeeze it in, make sure you’ve considered all of the expenses involved in buying a house up front. If you’re only working with the purchase price, your budget may burst at the seams.
Here’s a basic rule of thumb:
- Plan on spending about 2 per cent of your purchase price on additional costs.
- If you have a down payment of less than 20 per cent, another 1.25–3.15 per cent of the mortgage amount will be added to your costs, although this is usually added to your mortgage amount.
So, if you’re buying a new home for $400,000 with a mortgage of 5 per cent down ($20,000), you’ll have another $11,970* added to your mortgage for insurance. Your total mortgage will be $391,970. Then you’ll also need to budget approximately $8000 for additional costs. And you haven’t even started to decorate.
Here’s how it breaks down:
Costs you always have to pay
- Adjustment costs. (It varies, but budget for $300 – $500) You’ll need to reimburse the previous owner for any utility payments or property taxes that have been paid beyond the closing date.
- Legal fees. ($500 – $1000) Lawyers will need to do paperwork. Make sure you know exactly what they’re charging you for.
- Title insurance. ($300 or so) Your mortgage provider will require this. But this is good—it may save you the higher costs of a property survey.
- Property insurance. ($700 – $1000 at closing, and then annually) Your mortgage provider usually requires you to have insurance to cover the replacement value of your home and its contents.
- Moving expenses. (_______) This varies significantly. It could be anything from beer and pizza for your friends, to a well- insured international moving company. Figure out what your expenses will be and fill in the blank.
- Utility service charges. ($35 – $50 per utility) Check with your utility providers to find out what your exact moving fees will be.
If you put less than 20% down
- Mortgage insurance. (Between 1.25 and 3.15 per cent of your mortgage amount) If you have a down payment of less than 20 per cent of your mortgage amount, you need to insure your mortgage. This cost can be paid up front or added to your mortgage.
Costs you may have to pay
- Property appraisal. ($300 – $500) Sometimes, your mortgage provider will ask you to have the property you’re purchasing appraised at your expense. It costs more if your house is very large, very unique, or very rural.
- Property survey. ($1000 – $2000) Your mortgage provider may want an up-to-date survey. If the seller doesn’t already have one, you’ll have to pay for it. But before you do that, see if your lender will accept title insurance instead—many do.
- Home inspection fee. ($350 – $600) It’s a good idea to get your new home inspected before you purchase. This can save you from very costly surprises after you move in.
- Estoppel certificate fee. (up to $100) If you’re buying a condominium or strata unit, an estoppel certificate lets you know if the previous owner has outstanding payments and the amount of interest owing on unpaid condominium contributions.
If you’re buying a brand new home (as opposed to one that’s just new to you)
- Goods & Services Tax (GST). (5 per cent of purchase price) If you’re buying a new home, you will be charged GST. This is usually included in the contract price. But if the new home you’re purchasing is less than $450,000 and will be your primary residence, you may qualify for a partial rebate. Check out the Revenue Canada website or consult with a real estate accountant for more information.
- New Home Warranty. ($2,000) In Alberta, this is mandatory if you’re building a new home.
Many of the higher costs can be rolled into your mortgage, but keep this in mind when you decide how much of a mortgage you can afford. Your lender will be able to guide you through this process. Understanding the real costs of buying a house will help you find the home that’s just right for you—one that you love, and can afford.
*Based on a 25-year amortization.
Other articles you may be interested in:
6 creative ways to come up with a down payment6 mortgage terms you need to knowHow to avoid (or lower) mortgage prepayment penalties