Today we’re talking about 12 hidden costs associated with buying your first home and getting a mortgage in Canada. Everything from the smallest cost to the biggest, and I think you’ll be surprised what the biggest costs are when comes to buying a property in Canada. And if it’s something that you aren’t thinking about early on, it can come back to haunt you.
Let’s talk about the cost of purchasing a property and getting a mortgage in Canada. Some of these are going to apply to you, some of them aren’t. But from this article, you will have a full understanding of the potential costs of getting a mortgage and buying that property so there are no surprises.
GST is something that most homeowners and most homebuyers aren’t going to get affected by. However, if you’re buying a new home, you will have to pay GST. Now there are GST rebates out there. But if you are buying a brand new property, know that GST is something that you’re going to have to account for. Now it’s going to be included in the purchase price of the property, so in a lot of cases, you aren’t going to be out of pocket for it. It just makes up the total value of the property. But know that buying a new property costs a little bit more than purchasing one that has already been lived in.
2) Default Mortgage Insurance
This is for people who are putting less than 20% down, and it can be the single biggest cost for most homeowners. What default mortgage insurance is, is protection for the lender when somebody is putting less than 20% down in case you don’t pay your mortgage.
Because if you’re putting less than 20% down and you end up not paying your mortgage, it’s probably because the value of the property has gone down and something has happened in the economy. So what mortgage insurance does, it protects lenders from the eventuality of not being able to foreclose and sell the property to make their money back.
Now, this is an upfront cost that you pay for. However, it is typically added to your mortgage, so you aren’t out of pocket for it. So if you have a $350,000 mortgage and $10,000 in mortgage insurance, you end up with a $360,000 total mortgage. And basically, your payment just goes up by $45 per month to pay for that mortgage insurance.
Once you’ve paid it, you can’t get it back, but mortgage insurance is portable. So if you purchase another property in the future, you can potentially move your mortgage insurance from the property that you bought now to a new property down the road.
3) Legal Fees ($500- $2500)
You will need a title insurance company to make the transaction happen for you or a lawyer. And those fees can range anywhere from $500 to $2500 depending on where you are. Typically, it is a higher cost for a higher value property and a lower cost for a lower value property.
We recommend that when you go to purchase a property or get a mortgage that you call two or three lawyers around town and get quotes to see what they’re charging. Don’t go necessarily with the cheapest one, but go with the one that has the best combination of a great reputation and a good cost.
4) Appraisal fee ($70 – $500)
Now in the event that you aren’t getting mortgage insurance because you’re putting more than 20% down will often you are going to end up having to pay some sort of an appraisal fee.
There are two types of appraisal fees.
The first type of appraisal is automated appraisal fees, which typically cost between $70 and $100. Basically, the lenders use the insures’s systems to bounce the value of the property that you’re buying off of their valuation systems and see if the value makes sense. If it doesn’t, they’ll send out a normal appraiser. And if it does, you get charged $70 to $100, and it comes off of the mortgage at the beginning.
The Second type of appraisal is a full appraisal and this costs anywhere between $300 and $500 depending on where you are in the country. If you’re buying an extremely high-end property, they can be even higher than that. And what a full appraisal does is, has an appraiser go through take pictures, measure the property, and make sure that the value of the property is 100% what it is supposed to be. Now a lot of people when they get the bill from an appraisal, they go, “Oh, that’s a huge cost.” But when you compare it to a $10,000 insurance premium, it isn’t.
The only difference is an appraisal is typically not something that gets added to the top of the mortgage. In most cases, if you’ve got a 20% down payment, you can afford the $315 to $500 to have the appraisal done but know that, that could be a potential cost for you if you are making that bigger down payment. And again that’s all to do with making sure that the lender knows the value of the property and that eventually down the road if for whatever reason you don’t make your payments that they’re going to be able to get their money back by foreclosing and selling the property.
5) Land Transfer Tax (1% -2%)
Every province but Alberta and Saskatchewan, there’s what’s called land transfer taxes. They can range anywhere from 1% to 2% and they can be quite a substantial amount of money depending on where you are in the country and what type of property you’re buying.
Now in Alberta and Saskatchewan, there are land transfer fees but they are considerably less than a land transfer tax, and they are purely for the purposes of paying for your title to be transferred from one person to another.
6) Home Insurance ($50 – $500/ month)
Obviously, when you go to purchase a property, you need to have some sort of insurance. Typically fire insurance is mandatory if you are buying a house. If you’re purchasing a condo, you aren’t necessarily required to get insurance, although we highly recommend that you get some sort of condo ownership content insurance, because if you don’t have it and something happens or if something happens in your property that affects other units, you can be on the hook for the deductible of the condo corporation’s actual insurance policy or the costs yourself, depending on what happened.
So make sure that you always have some sort of insurance. Whether you’re buying a house or buying a condo, you wanna make sure that you’re protected.
7) Moving Costs
It can be as little as nothing if you do it yourself, to $1000 to $2000 if you get professional movers. We find a lot of people these days are paying the cost of pizza and beer for their buddies in order to move, and that’s a pretty budget-friendly way to making a move. However, if you own a big property or you have a lot of things or a lot of valuable things to move, you definitely wanna consider professional movers.
Because once you start to accumulate things once you’ve been living in a house, it becomes a pretty big pain in the butt to move them yourself. So having professionals who can lift those heavy things and get things from point A to point B without them breaking, and can stack a truck because you wouldn’t believe how hard it is to make sure that everything’s stacked in a truck in such a way that it isn’t going to break. Well, that’s worth every single penny for a professional mover.
8) Condo Fees
If you’re buying a condo, you’re going to have condo fees. You wanna make sure that you know what those are upfront and make sure that they’re accurate. Condo fees cover things like maintenance expenses, cleaning, snow removal, and landscaping of the property. And then in certain provinces, what’s called a reserve fund, which is the amount of money that is put aside by all the condo owners for future needs and future renovations, and future maintenance of the property.
9) Home Inspection($300 -$500)
Now when you’re buying a home, you’re also wanna make sure that you get a home inspection done. Because home inspectors are worth every single penny. They typically cost between $300 and $500, and they’re able to find the things in a property that you may not recognize are a potential issue. And a lot of them nowadays carry infrared cameras so they can find leaks that wouldn’t otherwise be visible.
They know their stuff when it comes to hot water heaters and when it comes to furnaces and lifespans, and they can potentially save you a ton of money down the road, and they can also be used as a really great tool to help negotiate the price down if there is anything that is found to be wrong with the property.
10) Well/Septic Report ($300-$600)
If you purchasing real property or acreage, you may have septic or a well inspection that is needed to be done. Sometimes that is paid for by the seller. Sometimes it is paid for by the buyers. But understand that it could be a cost associated with purchasing the property. You could also have to pay a survey fee. Now, typically at least in Alberta, survey fees are paid for the sellers. It’s what’s called a real property report, and it’s part of the Alberta Real Estate Association’s contracts.
I’m not sure about the rest of the country but at least here in Alberta that is the responsibility of the seller. Now that is as long as you’re buying a property that is not being sold as-is because if you’re buying a foreclosure or a bank-owned property, then all of those costs are going to be your responsibility. And the same thing with condo documents. In most cases, that is the seller’s responsibility.
11) Property Taxes
In a lot of cases, the previous owner may have already pre-paid taxes. So what you’re going to have to do is you’re going to have to pay them back for those. And the lawyers will take care of calculating what you owe the seller if they pre-paid the taxes, but know that there is a possibility that you may have to come up with the money to reimburse the seller for taxes that they’ve already paid.
12) Bank’s Penalty
When you go to purchase a property, depending on the mortgage you get at the beginning, you are either essentially agreeing to pay an interest rate for an extended period or a penalty should you decide that you wanna make a change. And 60% of Canadians don’t make it till the end of their term when it comes to getting a mortgage.
So if you’re getting a five-year fixed mortgage at a big bank, the single biggest expense you’re going to have in all likelihood, and there’s a 60% chance of this, so 6 out of every 10 people are going to get stuck with a penalty, is the mortgage penalty.
So need to be thinking about the long-term strategy when you are getting your mortgage and buying a property, and making sure that you’re minimizing your risk for a penalty because the single fastest way that somebody gives their equity back to a bank when they go to make a change to their mortgage or when they sell their property is through penalties. And by the way, the single easiest way to avoid giving your equity to the bank is to always take a variable rate mortgage.
So these are the 12 hidden costs that might surprise you to buy a house in Canada. If you found this article useful, and the information is honest and transparent then share the article or leave a comment if have any question.