When it comes to material possessions, nothing will be more important than your very own home. The price tag on the house you can afford, however, is only the start of costs you’ll be expected to roll out.
To start with the bottom line first, most financial institutions recommend setting aside roughly 1.5 to 2.5 per cent of your purchase price to cover closing costs, such as $6,000 on a $400,000 purchase. While that percentage might give home-seekers momentary pause to which they’ll likely find a solution, the double-digit accrual on a house priced over a million dollars could potentially throw one’s purchasing power out the window. Total closing costs will depend on where you live (in the burbs or rural setting as opposed to the City of Toronto, for example), the type of home you’re buying, and whether the home is a resale or a new construction.
Closing costs, to be clear, are not ‘hidden’ costs; instead, they are costs for which home-seekers need to prepare. To avoid unpleasant surprises, therefore, put all charges, especially those that are wince-worthy, into a spreadsheet, and either budget accordingly for them or set your sights on a home you can truly afford. This will help you prepare to meet all expenditures means home-ownership success.
So what are the closing costs? Basically, they include legal and administration fees, home inspection costs, land transfer and property taxes, property/title insurance, moving costs and utility hookups.
Prospective home buyers should also expect to add maintenance and utilities, as well as one-time fees associated with buying a home, such as inspection fees and land transfer costs, to their savings plans. According to a recent TD homeowners’ survey, many former first-time buyers admitted that they hadn’t budgeted beyond the down payment and monthly mortgage payment; if they had, they would have avoided much needless stress and disappointment.
Major closing costs overlooked:
Many sources, including the TD survey, agreed that the most overlooked costs for first-time buyers are:
- land transfer taxes
- general closing expenses
- legal fees
After the mortgage, this taunting trio of expenses is the costliest, and, because it’s often not factored into the budget, causes buyers to scramble for extra cash to close the deal.
Take note that if you’re buying into a new construction, GST/HST/QST applies. A GST rebate might be available, however, for first-time buyers. Ask your lending institution or real estate lawyer for details.
Land transfer taxes will no doubt be the largest upfront expense for homebuyers, which are charged in most jurisdictions across Canada whenever a property is transferred to another owner. In most cases the tax is tiered. One source notes that in Manitoba, for example, you pay zero per cent on the first $30,000; 0.5 per cent on the next $60,000; 1.0 per cent on the next $60,000; 1.5 per cent on the subsequent $50,000; and 2.0 per cent on the remaining value in excess of $200,000. To take the guesswork out of how big a hit you can expect from taxes, depend on handy online calculators to tally your total, depending on your province.
First-time buyers should know that provinces and some municipalities offer rebates that can greatly reduce the amount of land transfer tax you owe. Additionally, an income tax credit is available for qualifying first-time homebuyers in Canada, which can be worth up to $750 in tax relief.
If homeownership is within your grasp, ensure your research is thorough and make sure you know as much as you can about the process and ongoing commitment by adhering to these top three recommendations to aid you in your house-hunting:
- Be more thorough when budgeting and accounting for all of costs of home ownership
- Make a bigger down payment than 20 per cent if you can
- Buy a home sooner, rather than later
Zoocasa.com is a leading real estate resource that combines online search tools and a full-service brokerage to empower Canadians to buy or sell their homes faster, easier and more successfully. Home buyers can browse Toronto real estate listings, to find the perfect Toronto townhouse, condo, or detached home.