Home Buying Costs Explained
Below are the typical costs of buying a home explained. These are estimates but will give you a good idea of how much it will cost you to purchase that home you have been considering.
1) Down Payment- minimum 5% of the purchase price to be insured by CMHC. This goes to the principle. So if you purchase a home for $200,000 and put a 5% down payment on it you will owe $190,000 on the mortgage. Some lenders may offer creative financing solutions but that will not be covered in this article.
2) Home Inspection- recommended for any home you buy. Cost Range: $300-500
3) Lawyer fees- Lawyer acts for you when transferring title and arranging the mortgage. As a guarantor, they legally make sure all money is properly transferred and such. Cost Range: $700-1000 for a typical transaction
4) Title insurance- This will cover you and the lender if there was a mistake with the Land Survey. Cost of title insurance: Approx $300
5) Ontario Land Transfer tax- the buyer is responsible for paying taxes on the land transfer. The tax is progressive, meaning on the first $50,000 you pay 0.5% and then from 50-250,000 you pay 1% on that money. For a $200,000 home you will pay $1725.00 in Land Transfer tax. Click here to use the Land Transfer Tax Calculator to calculate the tax you will have to pay on your new home. If you live in the city of Toronto there is an additional land transfer tax you have to pay.
Note to First Time Home Buyers, the Ontario government gives a rebate of up to $2000 for first time home buyers.
Land Transfer Tax explained http://www.rev.gov.on.ca/english/taxes/ltt/rates.html
6) Adjustments- The lawyer will pay on your behalf everything that you owe on. For example, if you move into a house August 15th, the home owner may have already paid the bills for the month of august. In that case the lawyer will calculate how much of that bill is yours and pay it to the seller. Another common cost is property tax. The cost varies (depending on how much the owner paid) but it I would recommend you set aside $500 to $1000 just to be safe. The good news is that this is not a fee, it is normal costs you would have to pay anyway but the seller already paid them in advance.
7) Property appraisal- there is a possibility that the lender may request an appraisal on the property. It is up to them but if they do it will cost approx $200.
8) CMHC insurance premium- If you put less than 20% in cash down on a home the mortgage must be insured by CMHC. The amount of premium you pay goes down the more $$ you put towards the purchase. This premium can be paid upfront in cash or you can add it to your mortgage (what most people do.) For example, if you buy a house for $200,000 and put 5% down ($10,000) you will owe $190,000 on the mortgage. CMHC insurance on this will be 2.75% which will equal $5,225. So when it is all said and done your mortgage will be for $195,225. Click on the CMHC link below to get a more detailed explanation.
http://www.cmhc-schl.gc.ca/en/co/moloin/index.cfm
9) Miscellaneous costs- such as moving costs, food and puchases for the new home.
As a good rule of thumb you should have about 2-3% of the purchase price available to cover all the purchasing costs and any other unexpected circumstances that may come up.
Disclaimer- GST may or may not be applicable to your home purchase- obtain expert advice on all tax matters. This article is for informational purposes only and it is not intended to give actual costs. For actual costs, it is advised that the person check with the provider of the specific service.
