If you’re buying your first home, you’re probably focusing on saving enough money for the downpayment. That’s a great start, but you should know that there are many other fees and expenses that come with buying a home.
Depending on who you ask, it is recommended that you have somewhere between 1% and 3% of the purchase price set aside for closings costs. Some of the items you need to save for aren’t that expensive, but it can add up pretty quickly.
For example, your lender or mortgage insurer may require a professional to assess the value of your home before lending you the money. This is called an Appraisal. The fee for this is usually around $150. If you hire a professional to inspect the home for the Home Inspection, that can cost anywhere from $300 to $600.
Other smaller items include any service fees for setting up or installing utilities (gas, phone, internet, etc.), moving supplies like boxes or bins, a moving truck if necessary, and any new decor pieces for your new space.
When spending hundreds of thousands of dollars on a home, these expenses are considered nominal, but let’s take a look at three big ticket items that will take a good chunk out of your savings.
1) Land Transfer Taxes
If you’re buying a home in Toronto, this is a big one. Most provinces in Canada have a Land Transfer Tax, but Toronto also has its own (TLTT). For example, if your home costs $350,000, then you will pay approximately $3,725 in Provincial Land Transfer Tax and $3,225 in TLTT (according to the Toronto Real Estate Board (TREB)). That’s a total of $6,950. The taxes are based on the purchase price.
There is some good news for first-time buyers though. TREB states that first-time buyers are eligible for a rebate of up to $2,000 for Land Transfer Tax, and a maximum rebate of $3,725 for the TLTT. So in the scenario above, a first-time buyer may only have to pay as little as $1,725.
2) Legal fees
There’s a good chance that the first time you buy a home will also be the first time you deal with a lawyer. Even if you have never paid for legal services, you know that this is expensive. While this is a pricey stage of the homebuying process, it is also necessary.
Your lawyer will provide many services, such as conducting a title search, preparing the mortgage, taking care of registration fees, and drafting a title deed. You may not understand it all and some of it (most of it) will be written in legalese, so don’t be afraid to ask questions if you’re confused about something. Just remember that lawyers are always on the clock! Expect to pay anywhere from $1,500 to $2,500 for legal fees when buying your home.
3) Mortgage default insurance
If you’re putting down less than 20% on your home, expect to pay mortgage default insurance. The only good thing about default insurance is that you don’t need to have all the money right away. It can be added onto your mortgage. The amount is determined by the purchase price and how much you are putting down. Expect to have another 1% to over 3% of your home price added to your mortgage.
The new mortgage rule that just kicked in actually affects you in this area as well because it applies to all insured mortgages. If you put less than 20% down on your home, then your application will undergo a “stress test” to ensure you can still afford your mortgage if interest rates go up. This isn’t really a surprise expense, but you will likely qualify for less than you expected.
So, if you’re saving to buy your first home, start thinking beyond the downpayment and ensure you will be able to close when the time comes!