The fees related to buying a home represent between 2% and 3% of the property's value, on top of your down payment, your regular mortgage payments and major renovations if needed. To avoid unpleasant surprises, be prepared to pay these 9 fees:
1. Property appraisal fees
Cost: from $350 to over $800 (paid immediately)
Property appraisal fees vary greatly depending on the property and where it's located. This cost can be included in your financing agreement if your financial institution requires a property appraisal as a condition of mortgage financing.
Why have the property appraised?
The appraisal determines the property's market value and is often a requirement for getting a mortgage loan. It takes into account the quality of construction and the current housing market. Basically, it ensures that the price you're paying is fair.
2. Building inspection fees
Cost: $500 or more (paid immediately)
These fees vary based on the size, age, and type of property.
Why have the property inspected?
It's strongly recommended you include an inspection as a condition of your offer to purchase. It helps you detect potential problems and provides a certain degree of legal protection should any latent defects, such as water leaks or the presence of asbestos, be discovered later. An inspection can also tell you if repairs or renovations will be needed, so you'll know to include them in your budget.
Pro tip: It’s best to do business with a certified inspector who’s a member of an association or professional order so that in case of malpractice, you'll have legal recourse. These professionals will also have liability insurance.
3. Legal fees
Cost: between $1,500 and $3,000 (paid immediately)
Fees for a notary or specialized real estate lawyer are honorariums, and since there are no laws regulating them, they can vary.
Why do you need a notary or lawyer?
These legal experts prepare and supervise the signature of a number of important documents (such as the deed). They are also responsible for title search and registration.
In Quebec: All real estate transactions must go through a notary. The buyer, not the seller, is responsible for paying the notary fees.
In the rest of Canada: Using a legal professional is not mandatory, but it's strongly recommended. A notary or specialized lawyer will protect you when you're buying a home.
4. Mortgage loan insurance premium
Cost: The premium is calculated as a percentage of the mortgage loan amount and is added to your mortgage payments.
Example: If you buy a property for $375,000 with a 5% ($18,750) down payment, the amount of your insurance premium will be $14,250. This amount is divided and added to your mortgage payments.
Is insurance mandatory?
You must take out mortgage loan insurance if your down payment is less than 20% of the property's purchase price.
Ontario, Quebec and Saskatchewan
In these three provinces, the provincial sales tax is added to the premium and must be paid when you purchase the home.
Example: Quebec sales tax on a $14,250 premium (for a $375,000 property) is $1,389.38.
5. Sales tax on new properties
Cost: Between 5% and 15% of the price of the property. This tax is an integral part of the property's final purchase price that will be financed by the mortgage loan.
Why do the percentages vary?
It all depends on your province or territory. In Alberta, home buyers only have to pay the 5% federal tax (GST). Elsewhere, provincial taxes are added to the GST, for example:
- British Colombia: the combined rate of the two taxes is 12%
- Ontario: 13%
- Quebec: 14.975%
- New Brunswick: 15%
Sales taxes apply only to new properties or houses purchased from a builder. Under certain conditions, you can get a rebate from the federal government for these taxes.
Foreign buyer's tax
In an attempt to calm the current real estate frenzy, some cities like Vancouver have imposed an additional 20% foreign buyer's tax on a property's purchase price.
6. Welcome tax or land transfer tax
Cost: A percentage (often progressive) of the price of the property or its municipal assessment.
This tax is a significant source of revenue for municipalities and provinces, and you'll have to pay it within weeks or months of closing the sale. Depending on where you live, this tax is paid to the province, the city, or both.
In some provinces, like Ontario and British Colombia, first-time homebuyers may be eligible to have this tax refunded.
Costs: Vary depending on the type of work and materials used
- At least $10,000 for a full bathroom reno
- Between $25,000 and $75,000 for a new kitchen
So, which paint colour will you choose? Kermit-the-Frog green or African-sunset orange?
Renovating is sure to update your house and make it feel more like a home. Renos can also increase your home's value. Grants are available for home renovations, especially if you’re planning on boosting your home’s energy performance.
Pro tip: Live in your new home for at least a few months before you start renovating. This will give you a better idea of which renos need to be done and the order in which to do them.
8. Moving and decorating costs
Cost: Movers charge between $50 and $250 an hour (paid immediately)
This will depend on the moving company you choose and the season. If you decide to move yourself, renting a truck can cost up to $300 a day (and don't forget pizza and beer for the friends who help you out).
In addition to moving costs, you'll need to include a budget for furnishing your new home.
Tax advice: If you move for work, you may be able to claim certain moving expenses on your income tax return.
9. Annual fees
Don't forget that there are recurring fees associated with becoming a homeowner. Here are some examples:
- Heating, electricity, gas
- Internet, cable, telephone
- Home insurance
- Co-ownership fees, also called condo fees (if applicable)
- Property taxes
- School taxes
Tip for peace of mind
Avoid unpleasant surprises and unnecessary stress by adding these annual expenses to your budget. By planning and saving, you can make sure you'll have the funds you need to cover your payments when the time comes.
Example – taxes:
- Add up your payments as shown on your property and school tax bills.
- Divide the total into a predetermined number of payments between now and the due date of your payments. You could choose to make payments every pay period, or once a month.
- Set up systematic savings to transfer the amount into a bank account, such as a savings account. This will automate your payments.
- Remember to check how much you'll need to save when you receive your new tax bills each year.
Would you like to discuss this with us? Contact your National Bank advisor or your wealth advisor at Financial National Bank for more info. Don't have an advisor? Schedule an appointment in just a few minutes.