What Does it Cost to Buy a Home? 

As well as the actual purchase price of the home, you should expect to have to spend some money to pay for the costs of the purchase of it.  It is recommended that you have approximately nine percent (9%) of the purchase price available at the time you make your offer.  This includes the 5% down payment with the remaining 4% to be used to pay for such things as the home inspection, legal costs, deed transfer tax, etc.  The following is an explanation of some of these costs.  See Appendices C-1 and C-2 for example breakdowns of the costs of purchasing and maintaining a detached, two-storey home and  an apartment-style condominium.

 Deposit (usually $1,000 – $2,000)

 The deposit forms part of the purchase price of your home and will be shown as a credit against it on closing.  You must have the funds available when you make your offer, as your cheque must accompany the offer and the cheque will be negotiated as soon as the offer is accepted.  The purpose of the deposit is to show the sellers that you are serious about wanting to purchase their house.  The higher the deposit the more it appears you are apt to follow through with the purchase since, if you fail to proceed through some fault of your own, your deposit is forfeited.  Therefore, sellers look more favourably on an offer that is accompanied by a higher deposit.  On some new construction, once the offer becomes unconditional, an increase of deposit is required.  This is because the builder is usually allowing you to customize your home to a certain extent, ie. Choice of flooring, paint colour etc.  At this point they are making the home specific to your tastes and if you defaulted on the purchase it may not be quite as marketable as it would have been if completed with standard materials and colours.

 Home inspection (approx. $325. 00 plus HST) 

This is the best money you can spend on the purchase of a home.  I strongly recommended that you make any offer subject to you having the home inspected by a qualified home inspector, and that you are satisfied with the inspector’s report.  This is your best protection against purchasing a property with a hidden problem that may cost you money.  It also protects you from nasty surprises if, sometime down the road, you go to resell the home and the new purchasers have a home inspection done.

 For another view of home inspections, see Joey Fitzpatrick’s article, "Qualified Home Inspection Buys You Peace of Mind". 

Mortgage default insurance (up to 3.25% of purchase price)

If you mortgage more than 75% of the purchase price of the home then the mortgage loan must be insured by CMHC or GE Capital.  It insures your lender against the risk of loss if you default on your mortgage.  This is a one-time fee, which is added to the amount of the mortgage and is paid off over the amortization of the mortgage.  You do not need to have this amount on hand in order to purchase.  For example:

                        Purchase price                                              $100,000.00

            Less:   5% down payment                                              5,000.00

                        Mortgage                                                       $  95,000.00

            Plus:    Mortgage default insurance (2.5%)                  3,087.50              

                        Total mortgage                                              $  98,087.50

Legal fees and disbursements (variable)

The costs of legal fees and disbursements vary, depending upon how complicated the purchase is, whether you have your lawyer review the Agreement of Purchase and Sale, and whether any complications arise.  Generally, you should expect to pay approximately $600-$900.00 for legal fees plus $150-200 for disbursements, such as document registration fees, etc.  You can “shop” for legal fees by contacting several lawyers who do real estate work.  Fees vary from firm to firm. 

Water tests (approx. $80-100)

If the property is in a rural area and is on a well, your offer should be subject to your having the water tested for bacteria and mineral content, and that the test results be satisfactory to you.  Your bank will require satisfactory test results before approving your mortgage. 

Land survey and/or location certificate ($300 for location certificate)

A location certificate will show the dimensions of your lot and the location of any buildings on it, as well as whether there are any encroachments, easements, etc.  Your bank will normally require a location certificate but, in any case, for your own protection you should obtain one.  You wouldn’t want to discover at some later date that your house is not, in fact, located on the land you purchased.  There may be a pre-existing location certificate – if it is fairly recent, you may be able to obtain a copy from the sellers. If it satisfies the bank, this could save you some money.  Ask your lawyer if the property qualifies for title insurance, it could save the costs of obtaining a new location certificate.

Deed transfer tax (in HRM 1.5% of the purchase price)

This is a one-time tax payable on the purchase of a property and must be paid before the deed can be registered at the Registry of Deeds, and therefore must be paid at the time of closing.  For example:

            Purchase price                                              $100,000.00

            Deed transfer tax payable                                  1,500.00

Tax adjustment

You will be required to reimburse any taxes paid by the seller for the portion of time in the current year that you will own the property.  For example, the taxes on a property for the year were $1,200.00 and the seller has paid the taxes for the entire year.  If you purchase the property on October 31^st, then you must reimburse the seller for two months, ie. $200.00.  Alternatively, if you purchase during the early part of the year and the seller has not yet paid the first instalment of taxes, then the seller will reimburse you for the length of time during the year that they have owned the home. 

Fuel adjustment 

You will be expected to reimburse the seller for any fuel remaining in the tank on the date of closing.  In this area, this is usually home heating oil and the most accurate way to do this adjustment is for the seller, at his expense, to have the oil tank topped up on the day of closing (most home oil tanks hold 908 litres of oil).  You will then reimburse the seller for a full tank of oil on the date of closing.  If the price of oil on that day is $.70/litre, then the adjustment would be:  908 X $.70 = $635.60. You will begin ownership of the home with a full tank of oil, which you have already paid for.  

Home insurance

You must have home insurance in place before the closing.  Your bank will require that you provide proof of insurance and that the policy shows the bank as loss payee on the policy.  Usually, the cost of home insurance can be paid by monthly installments, which means that you don’t need to have that money up front for closing. If there are deficiencies that show up in the home inspection, ie that the oil tank needs replacing or the electrical service needs upgrading, your insurance provider may require that it be done before closing or require your undertaking that it be done within a certain length of time before agreeing to provide fire insurance.

HST (Harmonized Sales Tax)

This is only payable on new construction, not on re-sale homes.  Usually, the tax is included in the purchase price of the home, with the proviso that any rebates available from the government be assigned by the purchaser to the contractor.  In essence, they’ve already done the calculations and adjusted the purchase price to take the HST and rebates into account.  You will also pay HST on your legal fees, surveyor’s fees (if applicable) and home inspection. 

Bank appraisal and/or application fees

Banks are entitled to charge you these fees, but many banks will waive them, particularly if they are interested in getting your business.  If they do not automatically waive these, be sure to ask them to – or try another bank.  There will be instances where an appraisal is warranted, depending upon the property you purchase, so it is not always possible to get that fee waived. 

Change of service charges and moving costs

Disconnection and reconnection fees for electrical service, telephone, cable TV, etc., should be taken into account when moving to a new residence.  Whether you engage the services of a moving company or just rent a truck and do it yourself, you should be considering how much you will need at the time to move.  Many of these costs may be claimable against your income – check this out with Canada Customs and Revenue Agency (formerly Revenue Canada) for particulars.

Appendix “A” 

Property:  two-bedroom, apartment-style condominium 

(Asking Price:   $129,900.00)            Purchase price:                    $125,000.00 *

5% down payment  **                                                                         $    6,250.00

Balance to mortgage                                                                        $118,750.00

3.25% CMHC mortgage insurance fee                                          $__3,859.00 **

Total Mortgage                                                                                 $122,609.00

Mortgage payments:  based on  5.25% interest,

amortized over 25 years = (per month)                 $  730.65                            taxes                                                                           $  110.00

heat                                                                            $    incl.

lights                                                                          $    incl.

water                                                                          $    incl.

home insurance                                                        $    20.00    

Other:  condo fees                                                   $_251.06

                                                             Total:              $1111.71 per month