Buying a home will likely be the biggest financial decision you’ll ever make.
If you’re like most Ontarian s, the purchase will consume most of your savings, and your mortgage payments will eat up much of your take-home pay in the years ahead. Done right, it’s a worthwhile investment, but there are pitfalls along the way, especially for those going through the process for the first time. Any one of them can be costly. Below, I’ve put together a list of the most common home-buying mistakes and some pointers to help you avoid them.
Incomplete Budgeting
Home-buyers, especially first-timers, are often so focused on the list price of the properties they’re touring that they forget about the other costs involved in making a purchase, taxes, insurance, legal fees, moving expenses, and so on. These additional expenses can reach into thousands of dollars, meaning a failure to plan for them can lead to problems down the road. In Toronto and GTA, these extra costs include:
Property tax: This is calculated as a sliding percentage of the home’s fair market value. The province has provided a calculator to help you do the math.
Deposit: This will generally be 5% of the purchase price, payable within 24 hours of an accepted offer. It’ll be held in trust until completion, at which point it will be rolled into your down payment.
Mortgage Insurance: Under Canadian law, you have to insure your mortgage if you your down payment is under 20%. This added cost is equal to as much as 4% of the value of your mortgage, usually paid by the lender as a lump sum to CMHC and then billed back to you on to your monthly mortgage payment. It’s a not-insignificant added monthly expense. CMHC’s mortgage calculator will give a more precise estimate.
Property insurance: This is usually required by lenders. It’s applicable to the whole property in the case of detached homes.
Legal fees: While your real estate agent (paid by the seller), will write up your Contract of Purchase and Sale (your offer), you’ll likely have to pay a lawyer or notary public to finalize the property transfer process and ensure you’re legally protected. This will generally cost around $800-$1,600.
Title insurance: This protects you against challenges to the ownership of your home. It will usually run you a few hundred dollars and will likely be rolled into your legal fees (your lawyer can provide more details).
Property tax adjustment: This is reimbursed to the seller for any property taxes they prepaid to the July year-end. It varies by municipality, property value and time of year.
Home Inspection: This will usually run you $300-$600, but it’s well worth the investment to ensure you know what you’re getting.
Site Survey: This is sometimes required by lenders; particularly on detached homes. Expect to pay $600 or more.
GST: This tax, equal to 5% of the purchase price, applies only to new homes (and may be subject to a partial rebate under certain circumstances).
Foreign Ownership Property Transfer Tax: This is a big expense; equivalent to 20% of the home’s fair market value – but only applicable if the home is in Toronto (or another designated area of Ontario – GTA), and you’re planning to transfer it to a foreign entity.
Other expenses: These can include a host of costs that arise after you take possession, including moving expenses, renovations, redecoration, repairs, new furnishings, and utility connections fees.
Make sure you factor all of these in when budgeting for a home purchase. The final total can land substantially above the sticker price.
Contact me today to talk about your needs, by emailing me at mian@adnans.ca or calling us at 647.545.1174
