Understanding the Costs of Homeownership
Buying or refinancing a home involves many financial considerations. Some expenses are one-time costs while others are ongoing commitments. It’s important you take the time to factor these into your budget.
Here’s a list of some common costs/fees you should be aware of:
Lawyer (Solicitor) Fees – aka “Closing Costs”
Even a straightforward purchase or refinance may require the services of a lawyer (we recommend you engage the services of a Real Estate Lawyer).
A lawyer can review the Offer to Purchase, search the property’s Title, draw up the final mortgage documents, register the mortgage (with the land titles office) and tend to the closing details (exchange/distribution of the mortgage funds). Lawyer’s fees for a mortgage range widely and will depend on the complexity and type of mortgage (ie purchase vs refinance).
Tip: ask if the quote you are receiving is an all-in price (ie are disbursements included).
Note: be prepared to show you are able to cover this cost when applying for your mortgage loan. Many of our lenders use the following formula: 1.5% x purchase price = closing costs.
ie if you purchase a $350,000 mortgage you will be required to show you have access to $5,250. This is just a guideline; and varies from lender to lender. Ask us for more details.
Title Insurance and/or Real Property Report (RPR)
Title Insurance protects the insured (in this case the lender) against loss resulting from title and survey defects that would otherwise have been revealed by an up-to-date survey or RPR (Real Property Report). Title Insurance also protects the insured against losses associated with fraud and forgery as it relates to the title of your property. If your lender requires Title Insurance this is a cost that is passed along to you. Title insurance can vary but typically ranges from $200-350.
Tip: Ask your lawyer about being added to the Title Insurance Policy at the time of closing; while you can also be added after closing you may incur additional cost to do so.
In some cases your lender may require an up-to-date Real Property Report (RPR). Ask your Realtor to have the vendor (seller) to provide this as a condition in your Offer to Purchase, otherwise you will have to pay to have one done. The cost of a new survey usually starts at $500.
Realtor fees
In today’s ever-changing housing market, it is recommended you use the services of a Realtor. A realtor has the ability to search thousands of potential listings, he/she can save you time and money by pin-pointing desirable properties. They are the Real Estate experts. Fees are standardized and are paid by the seller of a property. If you are selling your property you should expect to pay 7% on the first $100,000 and 3.5% on the remaining balance of a sold property. When buying you will not pay your realtor; their portion of commission is paid by the seller.
Broker fees
Our service is almost always free. We do not typically charge fees to our clients when arranging a mortgage. It should be noted however, that in some instances mortgage brokers may charge a fee. This is dependent on your situation, as well as type and complexity of the mortgage. While fees could apply in some situations, they will always be disclosed and discussed in advance of placing your mortgage.
CMHC, Genworth, & Canada Guaranty (aka Mortgage Default Insurance)
If you have less than 20% down payment your lender will require mortgage default insurance.
This insurance is different from the home insurance which protects against damage to your property or contents within the home. Canada’s three default insurance providers CMHC, Canada Guaranty, and Genworth Financial, offer insurance to the lender to protect against the default of a mortgage loan. While this insurance protects the lender, the costs are paid by the homeowner.
The insurance will typically cost between 0.6% and 3.15% of the total amount of the mortgage, but can be higher in unique situations. This cost will be reviewed with you during the mortgage process.
Apraisal
If your loan is not CMHC/Canada Guaranty or Genworth insured, most lenders will require an appraisal of the property. The appraisal itself is a report designed to determine the current market value of a property.
While some lenders will pick up the cost of an appraisal, others will require the borrower pay. A basic appraisal for mortgage purposes will fall in the $300–$500 range (prices can vary based on the location and size of the property). Actual costs will be communicated to you should you be required to pay for this service.
Tip: Many lenders will only accept appraisals from their own approved appraiser list. It is important you allow your mortgage broker to arrange this on your behalf to avoid further cost and delay.
Home Inspection
A home inspection differs from an appraisal. A home inspection analyzes the structural integrity of a home (foundation, electrical, heating etc.) rather than determining the current market value.
Inspectors are unregulated in many provinces (ask for a referral/do your homework), and fees can range widely. You can expect an approximate cost of $250 – $450 for a home priced under $400,000. Larger, more expensive homes can come with a larger fee.
Property Taxes
You know what they say; there are only two certainties in life: death and taxes. Property Taxes are always a certainty. If you have an insured mortgage (less than 20% down payment), some lenders may require you to have your property tax paid monthly by way of instalments along with your mortgage payment. In some cases, your mortgage broker can request your payments be paid by you, this must be done directly to the municipality through a monthly installments payment plan (TIPP).
A good estimate of the annual property taxes due is roughly 1% of the total value of your home.
Utilities
Be sure to budget for heating, electricity and water. You can contact the local providers for pricing. Deposits may need to be paid on all new accounts being opened.
Condominium fees
Condominium associations charge monthly fees for common-area maintenance such as grounds keeping. Some Condo fees include your heat, electricity, cable etc. Fees range widely depending on the type of structure but will generally average between $200 – $600 per month.
Estoppel certificates
An Estoppel Certificate is a document that outlines a condominium corporation’s financial and legal state. The certificate and supporting documents will cost you about $50. Your lawyer will usually handle the acquisition of these documents. (Does not apply in Quebec.)