So you are thinking of buying a home?
This is a huge and exciting milestone, but it is important to find a balance between a home that meets your needs and budget.
Be prepared by going through all the possible expenses ahead of time, and do not only consider purchase price but factor in closing costs, monthly expenses, and other general expenses that may await you.
What can I expect to spend on closing costs?
- Plan on spending about 2% of your purchase price on additional costs.
- If you have a down payment of less than 20%, another 1.25–3.15% of the mortgage amount will be added to your costs for mortgage insurance, although this is usually clumped together with your mortgage.
General Closing Costs:
- Legal fees – (approximately $1200-$1400) this covers all the paperwork, title transfer, Estoppel, etc. for the purchase.
- Adjustment costs – You may have to cover prepaid property taxes or utility costs from previous owner, this is usually discussed at the lawyers.
- Moving expenses – If you are moving into a condominium this could include the hire of the elevator which some buildings charge for, others only require a deposit.
- Utility service charges – Utility providers often set up a service fee to set up new utilities. Check with your provider on the amounts so you can budget for it.
- Mortgage Penalties – If you also sold a home and have another mortgage, there might be possible penalties or costs to transferring the mortgage.
Other Costs Associated with Buying:
- Condo Document Review – buying a condominium? It is important to have a professional review all the documents, financial statements, and meeting minutes to give you an idea of how the building is ran and if they have enough funds for repairs etc.
- Home Inspection – an important part of the buying process, it is recommended to get the home inspected as part of your conditions if you have the opportunity. A home inspection will set you back $400-$600.
Monthly Costs / Affordability
When talking about affordability and monthly budgeting, keep in mind other expenses that are in addition to your mortgage you might not have thought of.
- Condominium Fee – what is the condominium fee and what does it include? Does it cover some utilities or just the basics? Will it lighten some of your recreation costs because it includes fitness facility access? As a light rule of thumb for every $40 in condo fees you could add around $10,000 to your mortgage (payment wise monthly based on 2.8% + 30 year amortization). Balance the cost of condo fees vs. purchase price of property.
- Utilities – don’t forget to account for tv, internet, etc.
- Insurance – very important to have your home insurance ready and set up prior to possession day. The cost will vary based on the age of home, size, and condition.
- Property Taxes – varies from neighbourhood to neighbourhood, as well as land size, home size, home age etc.
This guide is meant as a general outline to prepare you for expenses tied to buying a home. Of course, check with your agent and mortgage broker if there might be other costs to consider. It goes without saying – this is also location dependant.