The True Cost of Buying a Home

Mortgage Fees

Most home buyers, especially first-time home buyers, underestimate the true cost of owning a home. The biggest assumption buyers make about the cost of home ownership is that a down payment and a mortgage are the only costs to prepare for. However, that is not the case.

In this article, we will discuss eight other costs that could come up when buying a home. Purchasing a home is often the largest financial decision you will ever make, so it is important to do it right.

Before you start looking for your home, it is important to remember that you will incur additional costs once you become a homeowner. Here are a few costs to keep in mind:

Appraisal fees

An appraisal is an estimate of a home’s market value based on factors like location, the property’s condition and the age of the home. It is usually conducted by a third-party professional, an appraiser, to keep things fair.

Appraisals are primarily requested by the lender (your mortgage provider) in order to ascertain the actual value of your property in the current market.

In Canada, you can expect to pay between $300 to $500 or more for a home appraisal. Despite the cost, an appraisal can protect you, especially as a first-time buyer. It is one way to check the value of the property you are purchasing.

Inspection fees

Though there is an upfront cost, getting a home inspection can save you a lot of money in the long run. An inspection ensures that there are no serious defects with the property you want to buy.

You may be able to catch some defects on your own, but a trained home inspector will be able to catch issues that may otherwise go unnoticed and provide a rough estimate of the cost of repair.

A home with serious defects such as major foundation issues or wiring that is not up to code can be extremely expensive to repair and may not be worth the hassle and expense required.

On average, a home inspection can cost about $500, though it can vary depending on the size of the home being inspected.

Mortgage & Home Insurance

Mortgage default insurance is mandatory when your down payment is less than 20% of the purchase price. It is also referred to as the CMHC mortgage loan insurance. The coverage pays off your lender in the event something happens while your mortgage is still outstanding.

The advantage of mortgage insurance is that it allows you to buy a home even if you have less than 20% of the down payment saved. This makes homeownership more accessible to people from all walks of life.

The cost of mortgage default insurance is dependent on the value of your home. It can range between 0.6% to 4.5% of your home value. You can decide to pay it upfront or have it added to your mortgage loan. In Manitoba, you must also pay provincial sales tax (PST) on this insurance, and this can not be added to your mortgage loan.

Home insurance covers expenses if something accidental or unexpected happens. It protects your property and its contents in case of theft, loss or damage.

Home insurance premiums vary based on locations, size of your home, age of your building and type of insurance you get.

Closing Costs

Closing costs include land transfer tax, legal fees, property tax adjustment and a 30-day interest adjustment.

The mortgage default insurance and associated taxes are also included as part of the closing costs if your down payment is less than 20%.

We recommend that you budget an additional 2% to 4% of the purchase price on top of your down payment to cover closing costs.

Moving, furnishing and interior decor costs

Congratulations! You have finally closed on your home and are excited to start living in your new property. Now the hassle of packing, transporting and unpacking your belongings begins.

Whether you plan to use a reputable moving company or gather some friends and family to help you out, you must prepare for the moving costs you will incur. The distance and quantity of belongings you have are the most significant factors in determining your moving costs.

After moving, you can decide to hire an interior decorator or purchase new furniture for your new place. Unfortunately, these costs also add up. If you are moving from a one-bedroom apartment, for example, to a three-bedroom home, you will most likely have to spend more to furnish your home since you now have a bigger space.

Ongoing costs and emergency fund

After you move into your home, you will have ongoing costs such as electricity, water, heat, sewer, yard maintenance and more. Most of these costs depend on the size of your home and family, as well as the home’s features, such as insulation.

You should also budget for condo fees if you have purchased a condo. Most condo owners already pay for some of the utilities and other ongoing costs through their condo fees.

We also recommend setting aside a small emergency fund. Access to savings can come in handy when an unexpected home repair or income loss occurs. Aim to have at least three to six months of your expenses saved up and a little extra for unexpected repairs like plumbing or roofing.

Homeownership can be expensive, but the benefits far outweigh the costs. Contact a mortgage specialist to get started and learn more about owning a home.