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In Step 1 of the Buyer Process, we explained how mortgage preapproval determines the types of properties you can afford. Although the purchase price is the most significant chunk of your transaction, you’ll have to cover a few more expenses throughout the buying process.
We believe educating our clients is key to stress-free purchases and positive real estate experiences worth talking about. So, to avoid unwelcome budget surprises, here we explain everything you need to know about the other costs of buying your home.
Deposit and Down Payment
It’s common to be confused between a deposit and a down payment. Your down payment is the amount of money due on closing day. The government of Canada determines the minimum amount required based on the price of your home:
• $500,000 or less 5% of the purchase price
• $500,000 to $999,999 5% of the first $500,000 of the purchase price and 10% for the portion of the purchase price above $500,000
• $1 million or more, 20% of the purchase price
Deposits, on the other hand, are typically 5% of the purchase price and provided at the time of your offer being accepted to secure your commitment. Your deposit ultimately goes toward your down payment. However, your deposit must be accessible within 24 hours of your offer acceptance. To avoid missing out on your dream home, it’s best to have at least 5% of the asking price ready when you start your search (his means, ensuring it’s “liquid” and easily accessible, and not locked in savings or investment accounts).
Closing Costs
Closing costs are typically between 1% to 2% of your purchase price. They cover your land or property transfer taxes and lawyer fees. As the name suggests, they are due at the time of closing.
Lawyer
You will need to enlist the services of a legal professional to close your purchase. This can be anywhere from $500 - $2000 depending on your situation.
Land Transfer Taxes
On closing in Ontario you will also need to be prepared to pay Provincial Land Transfer Taxes. If your purchase is in Toronto, you will also pay municipal Land Transfer Taxes on top of the provinces’ rate. You can calculate what to expect based on your purchase price: here. First-time home buyers will get a rebate for a portion of these costs.
Home Inspection
We rarely, if ever, advise our clients to purchase a home without a home inspection. Although this can cost up to $500 for a typical Toronto home, it ensures you avoid costly surprises once you move in. A good inspector also offers insights about future issues. For example, they might recommend a roof replacement in five years or point out potential plumbing or foundation issues you’ll have to deal with in the future. Therefore, we always think of home inspections as a worthwhile investment.
Appraisal Fee
Most lenders cover the appraisal fee, but not always. If you are taking a mortgage, often there will be an appraisal conducted to confirm that your home is worth the purchase price. The appraisal is carried out by a professional appraiser commissioned by the lender.
Mortgage Insurance
With Toronto housing prices well above $500,000, it is less likely that you will need mortgage insurance. Mortgage insurance protects the lender from higher-risk mortgages with less than a 20% down payment. Many lenders also require mortgage insurance if you are self-employed or have a poor credit history. Because insurance premiums are rolled into your mortgage payments, be sure you understand the total amount you’ll be paying each month. You can also use an online calculator to figure out mortgage insurance premiums.
Property Taxes
Property taxes are paid by the seller from January 1 of the current year until the closing date. However, as the buyer, you are responsible for property taxes from the day after the closing date to December 31 of the year. As a result, the amount you cover depends on the time of year you purchase your home. Your lawyer will figure out if you or the seller are entitled to any credit.
Moving Costs
Don’t forget to factor in the costs of packing, truck rentals and/or movers! While unique to your situation, having funds aside will minimize stress during this time.
Although seeing all these costs might be overwhelming, knowing what to expect allows you to plan accordingly and enjoy a stress-free closing.
Got more questions about the buyer process? Shoot us an email and a North Group Team Partner will be happy to help.
