The true cost of buying a house

By FCT

Buying a house is a costly endeavour, but it’s not just the price of the home to consider.  According to Canadian Real Estate Wealth Magazine, closing costs (mandatory costs related to the purchase in addition to the down payment) can range from 1-4% of the purchase price. For a $400,000 house, that means an additional $16,000 in closing costs! In addition, there are other associated expenses that you need to factor in when deciding on a house you can afford.

While actual costs of the following items vary by province and service provider, here are some things, including closing costs, to account for:
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  • Legal fees and disbursements: While your realtor walks you through the Agreement of Purchase and Sale, you need a real estate lawyer or notary to do their due diligence before closing. You will need to pay their fees and whatever disbursements they incur to close your deal, including registration fees and municipal fees to answer letters. This also includes buying title insurance and any payments they need to make on your behalf such as bills and taxes.
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  • Title insurance: This is an important addition to your real estate deal as a few hundred dollars on closing can save you thousands in the future. Title insurance protects you against title fraud, as well as survey and title issues.
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  • Land transfer tax: This payment is part of the closing costs and is usually a percentage of the price of the house.
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  • Property taxes: When looking at home listings, you usually see the annual property taxes of the house. Based on your closing date, some part of this payment may be due. If your sellers have prepaid their taxes, you will have to reimburse them as well.
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  • Prepaid utility bills: Similar to the property taxes, if your sellers have already paid their utility bills, you will reimburse them as part of your closing costs.
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  • Common expenses for a condo: Same as above.
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  • Mortgage insurance: If your down payment is less than 20% of the purchase price, you will have to get mortgage insurance through Canada Mortgage and Housing Corporation (CMHC) or one of the other mortgage insurance providers.
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  • Home insurance: Your lender will usually require you to get home insurance as part of your deal.
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  • Mortgage life insurance (optional): If you are buying property with a partner or spouse, you can choose to get mortgage life insurance that will cover the mortgage in the event that one of you dies.
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  • Status certificate: If you are buying a condo or townhouse, you will need to see a status certificate. Depending on where in Canada you live, either you or the seller will have to pay for this. Make sure you ask your realtor about it.
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  • Home inspection: It’s good practice to make a home inspection a condition of your purchase.

In every real estate transaction, you will likely be interacting with a realtor, lawyer or notary, and mortgage broker or lender. Any of these parties will be able to help you estimate your additional costs. It’s important to know your budget (and get pre-approval) before you start looking at houses, so you can save yourself the heartache of falling in love with a place you can’t afford.

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