Many first-time home buyers are surprised to discover all of the fees involved in purchasing a home. If you're expecting to buy a home in the near future, take a look at some of the expenses you'll likely incur when you finally take the plunge:
The larger the down payment, the less you will have to pay back in the long run. A larger down payment means a smaller mortgage which in turn, will result in lower interest payments. Over time, this will significantly reduce the cost of borrowing. For conventional mortgages, usually a down payment of 25% or more of the sale price is required. Zero percent down is now permissible through CMHC.
The provincial government imposes a one-time property purchase tax which must be paid before any property can be legally transferred to a new owner. The tax is 1% on the first $200,000 of the sale price and 2% on the balance of the sale price. However, there are exemptions available, one of which is the first time home buyer's exemption. First time buyers* eligible for this exemption must meet ALL of the following criteria:
Note: the maximum limits include all regular and lump-sum principal payments.
* First time home buyer, as defined for the purpose of the Property Tax Exemption is "a person who has never, at any time, held a registered interest in a principal residence anywhere in the world (a principal residence is defined as the usual place where an individual resides) and a person who has not previously obtained a first time home buyer's exemption or refund."
Fees vary so be sure to shop around. Fees for a transaction usually range from $1,000 - $1,500.
It is highly recommended to have a proper inspection performed on the property by a professional inspector. Doing so will reduce your chances of unexpected problems in the future. And remember to ask for a written report if your inspector does not provide one.
Some financial institutions will charge a mortgage application fee for processing your application.
Some financial institutions will cover the appraisal fee so be sure to ask. If you have to pay for this fee yourself, you can expect to pay between $200 - $400.
All homes must have adequate insurance coverage against fire, other risks or loss, theft and liability before the financial institution will lend you money. These rates vary depending on coverage options so speak to your general insurance specialist for more details.
Your mortgage payments are calculated based on the amortization period, interest rates and amount of the loan. Larger payment amounts mean a shorter amortization period and usually a lower interest rate. Of course, it's important to factor in your regular monthly expenses to ensure that you don't stretch yourself too thin.
The monthly mortgage payments are not the only periodic payments you will have to make. Property taxes and other taxes such as school taxes, due once a year, should also be taken into account in your budget. The amount of tax you will have to pay will depend on the assessed value of your property.
Other monthly fees may include utilities and maintenance fees, if you're buying a strata property (i.e. townhouse, apartment, condo). Again, these fees vary depending on your usage and size of property.
Renovations may be something you'd like to do in the future. If you plan to stay in your home for the long-term, you may want to update your property so make room in your budget for these occasional expenses.