If you’ve been around the home-buying block before, you’ve probably learned a few things after the first time – the hard way! But for first-time home buyers, here’s a little-discussed secret that you may not be aware of: Home buying costs aren’t just restricted to the down-payment and monthly mortgage installments.

Read on to learn more about the TRUE cost of buying a home!

Complete Cost of Buying a Home

Reality Check

You’ve been renting for many years, and finally saved enough to make that down-payment for your new home. You ran the numbers and thankfully, between you and your spouse, you have more than enough to make the down payment and cover the monthly mortgage. And there’s where you need a reality check!

You are about to move from renting to owning. The transition, from a mindset of a renter into that of a homeowner, requires a rethinking of your financial obligations too. As a renter:

  • You likely just paid a flat sum of money as rent each month
  • You had no “skin in the game” when it came to the home’s upkeep and maintenance
  • Other than (an optional) legal fee to review your rental contract, you probably had no major legal challenges to navigate
  • Your rental home came “as is” – so you had to live with what the landlord had to offer you. You couldn’t make any major structural renovations
  • If there were major issues (leaky faucets or clogged drains!), it was not yours to fix. The landlord dealt with it all
  • In most cases, if you cranked the heat up as high as you like in winters and turned the AC as low as you wanted in the summers – it was okay. No stress on your pocketbook!

Well, here’s the reality check: As a homeowner, all of these challenges become a reality for you, and you need to go into the transaction with eyes wide open. The complete cost of buying a home doesn’t stop with the down-payment and mortgage alone. It goes way beyond that.

Complete Home Buyers Guide to Costs

As alluded to earlier, homeownership is a seismic shift from home renting, and that includes the financial impact of owning a home. While most of the literature focuses on down payments and mortgage installments, buying a home entails many more cost elements than just those two.

Let’s break down the complete cost of buying a home for you:

  • Your mortgage: Of course, this is the one most talked about, so we won’t delve deeper on it. Suffice to say however, it is one cost element that requires significant attention – similar to your monthly rental payments
  • Legal Costs: These costs will likely vary by province. Legal fees related to homeownership include paying for services such as Title Search, Title Deed and Mortgage Registry, and other associated services to ensure your home is free from any other legal claims. Remember to include “disbursements” into the mix, and not just the quoted fee. Estimate: $500-$1,000
  • Appraisal Fee: If you intend to get a mortgage, your mortgage lender will insist on a mortgage appraisal of the property. Most lenders pass this fee to the borrower. Estimate: $300-$500
  • Land Survey: This survey clearly demarks your property from that of other structures in the vicinity, such as a neighbour’s boundary wall, or external features, such as a driveway or common elements. Estimate: $1,000-$2000
  • Home Inspection Fee: Before you buy, you should have the home thoroughly inspected. Sometimes, especially if there are major, albeit “fixable”, issues, the home inspectors report could result in significant reduction to the asking price. Estimate: $350-$600
  • New Home Warranty: If this is a new home, you’ll likely need to pay for defect protection or warranty for the home’s electrical and mechanical systems (AC, Furnace etc.). Estimate: $175-$200
  • Land Transfer Tax: This tax is imposed by cities and municipalities whenever a home changes ownership. If you are a first-time homebuyer, some jurisdictions will grant you a rebate on some/all of that fee. Estimate: Between 0.5% and 2% of the property value
  • Title Insurance: While not a mandatory cost, this service can protect you against fraud, forgery, identity theft or errors and omissions from title searches conducted by your lawyer prior to finalizing the sale. Estimate: $250-$300
  • Home Insurance: Unlike renters, homeowners have a vested interest in protecting the property, and all their belongings within. Home insurance is a recurring (monthly, annual) expenditure that affords you such protection. Estimate: $750-$950 per year
  • Mortgage Insurance: If you buy a home using a “high-ratio mortgage” (i.e. if you make less than 20% down payment), then you will be required to take on Mortgage Insurance. You can either pay this as a one-time payment, or you could ask it to be lumped with your mortgage installments (paying interest on the sum). Estimate: 25%-3.85% of your Mortgage value
  • Utilities and Taxes: Unlike renters, when it comes to utilities like heat, electricity and water, home owners must pay per use. Estimate: This varies depending on your consumption habits
  • Harmonized Sales Tax: Again, this is a revenue item for provincial governments, and depends on the value of your property. In rare cases, the property might be GST/HST/Sales tax exempt – so it might be worth inquiring. Estimate: 13% of the purchase price

It is important to understand that the estimates provided here are just that – they are estimates. Actuals may vary depending on the value of the property, type of home, its age, the state of the structure, its location, and many other variables.

And the List Goes On!

While the above are the most common cost elements of buying a home, there could be others too, that you need to factor into the equation. This guide to the complete cost of buying a home wouldn’t be “complete” without mentioning a few other items, including;

  • Realtor commissions
  • Adjustment Costs (where you need to reimburse a seller for any pre-paid costs, like utilities or taxes)
  • Renovation costs to make your house “move-in ready”
  • Moving costs

Many of these costs are one-time items, like Legal Fees or Home Inspection costs. Others, like the Mortgage Insurance, may be dealt with as a one-time outlay, or added into your list of ongoing payments. Additionally, not all of these items are mandatory. For instance, you may opt to forego a home inspection (at your peril!) and save some money.

Finally, while not all of the items listed here might be applicable to you, the objective of listing them here is so that you might actively investigate whether you need to plan for them. Now that you know about them, you’ll be able to more fully work out the complete cost of buying your new home.