For first-time homebuyers the unknown costs can be a bit of a shock.  You’re already making the largest purchase you’ve ever made, gone through the pre-approval process, and probably (hopefully) spent quite a bit of time pouring through your personal budget ensuring you’ll be able to actually afford a home.

You’ll have probably heard bits and pieces of different types of fees, which all fall under the umbrella of “closing costs”, but it’s pretty difficult to actually get some numbers attached to them to help you figure out what you can afford. 

As a rule of thumb, closing costs range from 1.5% and 5% of the purchase price.  For a $300,000 home, that means your closing costs will be between $4,500 and $12,000.

Let’s go over a few costs you’ll have to factor in:

Home Inspection Fee

Before you even put an offer down on the home, you should get a home inspection.  This inspection will alert you to any issues such as structural weaknesses, mold issues, roof problems, and anything to do with plumbing or electrical. 

An inspection is always worth doing.  If the inspector finds nothing wrong, you get peace of mind knowing that your home shouldn’t cause any big problems.  If they DO find something, you are in a much stronger position to negotiate with the homeowner.

Legal Fees

Your real estate agent should be able to recommend a lawyer who specializes in real estate.  If you’ve never worked with a lawyer before, don’t worry, this isn’t like anything you’ve seen on TV.  A real estate lawyer will:

  • Perform a title search – this is to determine if there are any outstanding legal issues with the property like liens or other judgments.
  • Write up contracts – ensure all the legal documents you need are well-written and won’t come back to haunt you later.
  • Register the mortgage and land transfer documents – simple tasks that you don’t want to mess up, your lawyer will make sure everything is done properly.

Land Transfer Tax

The land transfer tax varies by province, but typically the buyer pays between 0.5% and 2% of the purchase price.  Most provinces use a tiered approach, so you wouldn’t pay 2% of the entire amount.

Harmonized Sales Tax (HST)

This also varies by province, but look into what sales taxes you will be responsible for.  In Ontario for example, home buyers pay HST on the purchase price of brand new homes, but not on previously owned ones.  When buying an older home Ontarians only pay HST on things like lawyer’s fees and home inspections.

Mortgage Loan Insurance

The Canada Mortgage and Housing Corporation (CMHC) provides loan insurance to anyone making a less than 20% down payment on their home.  This insurance is required by the lender and the insurance is to protect THEM, not you.

Without this insurance, most lenders wouldn’t give you a mortgage unless you had the 20% down.  Using mortgage loan insurance means you can be approved for a mortgage with only a 5% down payment.  It’s a necessary evil to get you into a home sooner.

Often the premium you have to pay for CMHC coverage can be tacked on to your mortgage payments, making it easier to budget for.

Note: Mortgage loan insurance should not be confused with mortgage life insurance.

Moving Costs

Hiring a mover can cost hundreds and hundreds of dollars, and can add to the financial stress of everything else going on.  Make sure you have a plan for either getting your buddy with a van to help or that you’ve put enough aside to cover professional movers.

House to Home Costs

You know how you spend money more freely when you’re on vacation?  A new house is kind of like that, except instead of some extra clothes and some nice restaurants, you might think about buying all new furniture, re-doing a kitchen, or building an addition.

A new home can be very exciting, and the desire to make it ‘a home’ can be overwhelming.  Always keep your budget in mind, and it’s usually best to hold off where you can until you’re sure everything with the house is ok and there aren’t any surprise repairs you’ll have to make.

Understanding these costs can help you budget and prepare properly and make you confident that your home purchase is the right decision for you.