10 Unexpected Home Ownership Costs

Buying a home is often the largest purchase people make during their lifetime. But what many homebuyers don’t realize is that there are a number of costs associated with buying and maintaining a home. These expenses can add up, so it’s important that a prospective buyer is familiar with the various costs before taking the plunge. Long story short – purchasing a home can be pricier than you think.

Let’s take a look at some of the costs you’ll encounter as you go through the process of buying a place to call your own.

1: Inspection Fees

Many experts recommend that you make any offer conditional on having (and passing) a professional inspection done on the home. An inspection can uncover deficiencies in a house or condo that you may not be able to spot on your own. Typically, an inspection costs around $500.

2: Appraisal Fees

Most lenders require an appraisal of a property before approving your mortgage (and if you’ve already decided to buy a home, make sure you get the best mortgage rate). By having an appraisal done, lenders have a sense of what the market value of the home is, which gives them a ballpark idea of its value. Appraisal fees run from between $250 to $350, but most lenders will cover this expense.

3: Legal Fees

If you’re buying a home, you’ll need a real estate lawyer to prepare the documentation and make sure that there are no competing claims on the title deed of the property. Legal fees for a home purchase will cost a minimum of $500 plus tax.

4: Mortgage Insurance

Mortgage insurance can be a significant expense, and the term itself is easy to misunderstand. If you can’t make a down payment of at least 20%, the government requires that you purchase mortgage default insurance. But this insurance doesn’t protect you, the buyer. Rather, it protects the lender in case you fall into default on your mortgage.

Mortgage insurance is calculated as a percentage of the property price. New rules introduced by the federal government mean that the premiums have gone up somewhat. For down payments of between 5% and 9.99%, the insurance costs 4% of the purchase price. If the down payment is between 10% and 14.99%, mortgage default insurance is 3.1%. And for a down payment of between 15% and 19.99%, you’ll pay 2.8%. Keep in mind it’s a one-time cost, so you won’t have to buy the insurance every year.

5: Land Transfer Tax

If you buy a home in Canada, you’ll have to pay the provincial government (and sometimes the municipal government), what’s known as a land transfer tax (LTT). The LTT is calculated as a percentage of the purchase price of the property, and it varies based on the region. Much like income tax, the LTT is progressive. You pay a marginal rate depending on the value of the home.

It’s important to note that some jurisdictions (Ontario, P.E.I., British Columbia, and the City of Toronto) offer rebates on the LTT to help buyers offset part of the expense for those who qualify as first-time homebuyers.

6: GST/HST

If the home you’re either buying or building is new (as opposed to a re-sale), you’ll have to pay GST or HST on the value.

7: Home Insurance

Every homeowner needs home insurance, just in case. Your premiums will depend on a number of factors, such as the location of the property, its contents, and the physical condition of the home.

8: Property Taxes

Once you own a home, you’ll have to pay annual property taxes. These are calculated as a percentage of the home’s assessed value, and typically range from 0.5% to 2.5%, depending on the municipality.

9: Maintenance and Renovations

All homes will need maintenance. And some will undergo renovations. One estimate is that you should set aside 3% to 5% of the home’s value each year for repairs and maintenance. Renovations, of course, can be very expensive (or not), depending on how extensive they are.

10: Condo Fees

If you live in a condo, this is one fee you have to pay. Condo residents all pay a monthly fee to cover repairs, maintenance and upkeep of communal areas. These fees are usually between $0.50 and $1 per square foot (although they can be even more).

The Bottom Line

A home can be expensive, especially when you consider all the additional costs associated with purchasing and living in one. To help estimate your monthly mortgage costs, use a mortgage payment calculator to see what buying a place will set you back.

RateHub.ca is a website that compares mortgage rates, credit cards, high-interest savings accounts, chequing accounts, and insurance with the goal to empower Canadians to search smarter and save money.