The Hidden Costs of Buying Your First Home

Are you buying your first home? If so, congratulations! This is a significant milestone for any family willing to begin the journey to homeownership. Many Canadians understand the benefits of owning a house, townhome, or condominium as you build equity and plant roots. As mortgage rates start to ease as the Bank of Canada (BoC) begins to cut interest rates in the coming months or years, more households are returning to Canada’s real estate market, be it major urban centres or rural communities.

However, many first-time homebuyers make the mistake of calculating only the purchase price and mortgage costs. In fact, there is an extensive list of costs that homebuyers need to know about when they initiate their home-buying adventure. Let’s take a look at some of these hidden costs.

The Hidden Costs of Buying Your First Home

Here are ten hidden costs of buying your first home:

Home Inspection

Home inspections are a vital tool for homebuyers. While it is optional, real estate experts highly recommend individuals hire an inspector to assess the property and determine if there are any defects requiring fixing or replacing. This could consist of mould in the basement or a hole in the rooftop. Home inspections are something that could potentially save you thousands of dollars.

Land Transfer Tax

The land transfer tax is a levy on your home purchase. Every jurisdiction, be it provincial or municipal, has its own set of rules and rates. For instance, Toronto homebuyers would be subjected to the municipal land transfer tax and the Ontario land transfer tax. Some places, such as British Columbia, will provide rebates for first-time homebuyers.

Legal Expenses

  • A real estate attorney is another critical component of the home-buying process. A lawyer in this field will help you complete much of the legwork involved with buying a home, whether establishing a contract or finishing the purchase transaction. The costs will vary by the attorneys, but you can expect to pay:
  • Flat fee for their services
  • GST/HST
  • Disbursements (office expenses, fees for title searchers, and costs for registration)

Title Insurance

Title insurance is coverage that gives you peace of mind. When you buy your new home in the Canadian real estate market, the legal ownership (title) will be transferred to you. Title insurance is coverage for potential mishaps related to your property, such as errors in official records and liens against your home.

Land Survey

Land surveys provide homeowners with information regarding the home’s boundaries. This will confirm where the property is situated, which can help you for various reasons, such as trees, renovations, or additions. Typically, sellers will give prospective buyers an up-to-date land survey. However, if no survey is attached to the property, you will need to conduct one and pay for the survey.

Condo Fees

Condo fees are monthly common expenses and maintenance costs that cover day-to-day caretaking (cleaning hallways, fixing elevators, or installing security cameras in the parking garage) and bolster the reserve fund in the event of emergencies. You will pay these fees throughout your entire time inside the condominium.

Industry experts suggest keeping track of condo fees when you are in the market to buy a unit. Sure, a couple of hundred bucks might be appealing, but this might not be a prudent amount in the future should a catastrophic event damage the building. At the same time, a high fee might require more due diligence and careful monitoring of the funds.

Hook-up Costs

From hooking up your utilities to connecting your cable and internet, these are costs that many first-time homeowners forget to include in their purchasing budgets. While the costs might pale in comparison to your other housing-related expenses, they are something you do not want to omit.

Moving Costs

Like hook-up costs, moving costs are other expenses you will inevitably endure. Whether hiring professional movers or ordering a moving van, your household must factor in these costs. Additionally, if there are any issues with moving into your new home, you might have to consider using a storage or paying a moving company extra to store your stuff.

Mortgage Default Insurance

Is your down payment less than 20 percent of the purchase price? If so, you are mandated to buy mortgage default insurance from the Canada Mortgage and Housing Corporation (CMHC) or a similar entity.

GST/HST

Sorry, homebuyers, be ready to pay an extra five to 15 percent of the final purchase price because of the sales tax on new construction. Like the land transfer tax, the sales tax rates will vary. For example, in Alberta, homebuyers will only pay five percent GST. However, in places like Ontario, homebuyers will have to fork over the GST and HST, meaning a combined rate of 13 percent. Or, in New Brunswick, the combined rate will be 15 percent.

Depending on your circumstances, you could receive a federal rebate.

Final Thoughts on the Costs of Buying Your First Home

Are there more hidden costs homebuyers need to be aware of? Most likely. However, these are the most common expenses associated with purchasing a property that you, your family, and your household budget need to financially prepare for moving forward. Ultimately, if you have a down payment, you should add as much as eight percent to the final tally to ensure you can cover these costs.

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