Q: What sorts of costs are associated with owning a home so I know if I can truly afford one?
*prices are approximate
*this list does not include everyday living expenses (e.g. food, clothing, etc.)
*total ownership costs (including maintenance, utilities, property taxes, periodic refurbishment) NOT including interest/principal mortgage payments is estimated to be around 4 percent of purchase cost (e.g. $20,000 for a $500,000 home)
- Home Inspection
- COST: $200-500 one time fee. Large or unusual constructions cost more.
- Home inspectors will verify the condition of the property before completing the purchase. They should detail specific problems and the cost needed to repair them. A written report should be provided to you by the home inspector. If the flaws are fixable, you can ask the seller to fix them or negotiate a lower price.
- Home inspectors are not licensed so you will need to talk to friends, relatives, real estate agents and/or lawyers for referrals to ensure that you find someone who is reputable. It is not uncommon to ask a home inspector for references and to see their credentials/training.
- If you want to be on the safe side (or if you don't fully trust the home inspector), you can hire a roof inspector in addition to your home inspector
- REMEMBER, not all home inspectors were created equal so make sure you put in sometime to find a reputable inspector. They will not be able to find out everything but should be able to give you information about the condition of the heating/cooling systems, electrical, roof, plumbing and foundation. They are also able to compare to other homes of the same age to determine if it has been maintained well.
- If you are buying a house in a rural area that has a well and/or septic tank, then you should consider getting certification that both of these systems are in good condition. This can cost an additional $50-100.
- You may wish to hire a home inspector even when purchasing a brand new house. If you are buying from a reputable builder then this may not be necessary, but once again it might be better to err on the side of caution. Regardless, it is important to go to the PDI (pre-delivery inspection) with someone who knows the procedure and has knowledge of building codes/regulations. During a PDI, the builder will take you through an inspection and it is up to you write down any issues (no matter how small, e.g. pain touch-ups) with your home inspector so that the builder has an opportunity to remedy them. You could also have an inspector check the condition of the house after occupancy (e.g. prior to the 30 day point since the Ontario warranty coverage provided by Tarion allows new homeowners to submit a list of deficiencies at this time) and after it has weathered all four season (e.g. prior to the 1 year point which is the second instance where Tarion allows deficiencies to be recorded and submitted to them) to ensure that any major issues are caught when under warranty.
- Closing Costs
- 2-3% of the purchase price (e.g. $8,000-12,000 for a $400,000 house). This includes:
- Legal costs (lawyer/notary provides the title search, title deed, mortgage preparation, etc.): This will likely cost around $2,000. It is recommended that you obtain quotes from a couple of different lawyers before settling on a price.
- Land transfer tax (aka municipal and provincial tax): 1.5% of purchase price is charged on $250,000 to $400,000 houses ($6000 for a $400,000 house) and 2% on anything over $400,000. Your lawyer should arrange for the LTT to be paid when the need for your newly purchased home is transferred into your name (happens on the closing day). This is a provincial tax charged to the purchaser of real estate. For example, Ontario Land Transfer Tax (LTT). HOWEVER, if you are a first-time homebuyer then you may be able to receive a refund on all or part of the LTT. First-time homebuyers in Ontario will be eligible to receive a refund for all or part of the tax up to a maximum of $4,000 as of January 2017. No land transfer tax needs to be paid by first-time purchasers on the first $368,000 of the value of the house. First-time purchasers of homes greater than $368,000 would receive a maximum refund of $4,000. For example a house that was purchased at a price of $450,000 would be subject to a $1,475 land transfer tax ($32,000 at 1.5% and $50,000 at 2%). The refund may be obtained from the Ministry of Finance, within 18 months after the transfer OR you can get your refund immediately if registering electronically (complete the required statements under the "explanation" tab of the land transfer tax statements). If you are a first-time homebuyer, your real estate lawyer should claim the rebate electronically when he/ she registers your transfer/deed. It is best to ask your lawyer to ensure that he/she does this!
- HST: 13% of the purchase price on a NEW home (GST of 5% and PST of 8%). In Ontario, you will be able to receive a refund of 6% of the purchase price up to $24,000 on the provincial part (8%) of the HST. A $400,000 house would provide a 6% rebate of $24,000, which is the maximum allowable. New homebuyers in Canada could also be eligible for the 'federal GST new housing rebate' which is 36% of tax paid on the first $350,000 of the purchase price. Homes that are priced above $450,000 will not receive this rebate.
- Property survey (can be requested by the lender): $1,000 to $2,000. Verifies the properties boundaries, measurements and structures, easement, encroachments, etc. Seller may have one, but if not, you will have to obtain your own. This is important as what's in the real estate listing may not be true.
- Title insurance: $300 one-time cost (less for new homes). This is to cover you against anything that could threaten your title to the property and covers legal expenses in restoring the title (e.g. an existing claim by someone that they have the right to possession of the property, stolen/fraudulent title transactions, inability to live in the home under zoning bylaws) and would be arranged by your lawyer. This is not a substitute for an up-to-date survey even though it can provide coverage for losses if you don't have a survey. New homes can also use title insurance for the potential that a builder failed to pay a subcontractor or existing claims on the land occupied by your house. Native land claims are not covered. *you can also get Mortgage Default Insurance if you feel as though there is a chance that you will default on your insurance
- Property appraisal (often required by a lender): $175 to $275. This will ensure that the lender is not giving out more money then they should in regards to the property's actual value. The more money you have to put towards the down payment, the greater the chance that the lender will overlook this fee.
- Water quality inspection: If you are buying a house that gets its water from a well, then you will need to do a water quality inspection (including after heavy rain). You can also check with neighbours in the area prior to buying a house with a well to ensure that it is safe to drink. The cost of this can be negotiated with the seller.
- Keep in mind that if you buy a newly built home from the developers, many closing costs (e.g. development fees, fees for gas and electricity meters, etc.) will be included in the purchase agreement for your new home. These costs are estimates and you may wish to ask for a 'cap' on some of these costs in case there are major adjustments later on.
- Appliances, furniture, window coverings, light fixtures, locks:
- Determine what will be left behind and what will be taken prior to purchasing the home and ensure what you want is included in the offer. You will also need to change the locks and obtain new keys.
- Hook up fees
- COST: $200
- This may or may not have already been done by the previous owners for telephone/internet service, electricity, gas, etc.
- Moving costs:
- COST: $3,000-$5,000
- Cost is for professional movers but save a significant amount of money by doing it yourself and renting your own truck
- Mortgage payments
- Includes principal (paying back a loan) and interest (paying a fee to the lender for borrowing money).
- Ratehub.ca has an excellent mortgage calculator that allows you to find out what kind of mortgage you can afford with all costs of buying a home laid out for you. You can play around with the mortgage calculator to see how your monthly mortgage payments will be affected (e.g. change the size of your downpayment, mortgage term, amortization, asking price of the house, etc.).
- Property Taxes
- COST: $3000-$4000/year for a $400,000 house
- You may have to pay the previous owner for any prepaid taxes (as well as utilities) on the house at closing.
- Electricity: $125/month in winter, $200/month in summer with A/C. The average Ontarian uses 'hydro' for their electrical needs at about 900 kilowatt-hours per month and costs around $140/month
- Natural gas: $125-$150/month in the winter (includes furnace, stove, dryer). This is generally the cheapest home heating option.
- Water, sewage: $40/month
- Telephone, television and internet: $120-250/month ($40-60/month for cell phone with data, $50-80/month for high-speed internet, $50-100/month for TV) *can cut costs here by $30-70/month by replacing cable with Netflix which is only $10/month
- Home Insurance
- COST: Average Canadian pays $840 per year for home insurance and homeowners in Ontario pay around $900.
- This ensures that you will be reimbursed in case you house is completely destroyed (e.g. fire).
- COST: Put aside around 3% of the value of your home for maintenance per year IF you buy a new home and 5% IF you buy an older home (e.g. $10,000-15,000 per year for a $300,000 house). Have at least $3000-5000 set aside for any immediate repairs. Maintenance costs can include:
- Landscaping/lawn maintenance: $500/year
- Repairs: Examples include furnace servicing/replacement, cleaning ducts/gutters/downspouts, roof re-shingling, driveway repaving, appliances replaced, walls repainted, refinishing hardwood floors, etc.
- Maintenance products (e.g. furnace filters)
- Cleaning supplies
Q: What if I decide to buy my home outright with cash (no mortgage)?
If you are lucky enough to be in a situation in which you forego the bank lenders and can pay cash for the entire house to the seller, then it could be very advantageous. It is always the right choice, in my opinion, to buy outright rather than take a chance on mortgage rates and investments. It is a good feeling when your money is not going to the bank through interest payments on your mortgage. It is possible that you could negotiate a better deal on the price of the house if the seller knows this is the case as it makes the buying/selling process quick and easy.
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