How to Determine a Budget When Buying a House
With interest rates near record lows and the Canadian housing market strong it’s an excellent time to consider getting on the property ladder. But before you buy a home, you need to set a budget and figure out how much of a home you can afford.
Budgeting for your home is crucial because it’s important to set a home budget before looking at houses so you can determine what kind of house you can afford to live in. That’s because there is more to setting a home-buying budget than just the cost of the home.
Below are a number of upfront fees you need to consider when setting your home buying budget.
How Much Are Home Appraisal Fees?
It’s important to do a home appraisal before purchasing your home. In fact, many financial institutions insist you have one done. That’s because they want to verify the value of the home to ensure that you’re not over-paying and over-borrowing.
The cost for a home appraisal can vary depending on the size of the home, but a residential home appraisal typically runs from C$300 to C$500.
How Much Does a Land Survey Cost in Ontario?
Homebuyers often forget to include land survey costs when setting a budget for their homes. Land surveys help determine the size of the property, the location relative to roads and adjacent properties, and other geographic and physical features. In Ontario, only a licensed Ontario Land Surveyor can provide you with this kind of information.
Your mortgage lender might ask to see an up-to-date survey prior to finalizing the mortgage. They want to ensure that the listing for the property and the survey match. If the seller does not have one or does not agree to get one, you will need to pay for it.
The cost of a land survey varies depending on the type of survey and the size and complexity of the property (location, terrain, etc.). While an Ontario Land Surveyor is the only person who can provide you with the exact price, it can cost between C$600 and C$2,000 This may sound like large sums, but they’re not if you’re going to spend hundreds of thousands of dollars.
Ontario Land Transfer Taxes
When you buy a home, condominium, or land in Ontario, you need to pay a land transfer tax which is due when you close on the property. The Ontario Land Transfer tax is a marginal tax, so as a result, each portion of your home’s value is taxed at a different rate.
In Ontario, 0.5% is charged on the first C$55,000; 1.0% is charged on C$55,000 to C$250,000; 1.5% above C$250,000 to C$400,000; and 2.0% above C$400,000 where the property contains one or two single-family residences.3
If you live in Toronto, you also need to consider the Municipal Land Transfer Tax, which is in addition to the Province’s Land Transfer Tax. In Toronto, 0.5% is charged on the first C$55,000; 1.0% on C$55,000 to C$400,000; and 2.0% over C$400,000
To top it off, there is now an administration fee of C$75.
CMHC Mortgage Insurance Rates
The Canadian Mortgage and Housing Corporation (CMHC) provides mortgage loan insurance to financial lenders for homebuyers who have a down payment of less than 20% and minimum of 5.0%.
If you have a down payment of 20% it means you were able to save a sizable portion and a lender will feel confident that you won’t default on the mortgage. If you pay less than 20%, the lender may worry that you will not be able to repay your mortgage. As a result, you pay for mortgage insurance to protect the lender from any potential default on the loan.
The CMHC Mortgage Loan premium is calculated as a percentage based on the loan and the size of your down payment. The lower your down payment, the higher the percentage you will pay in insurance premiums. The premium is based on the size of the mortgage.5
A 15% to less than 20% down payment requires an insurance premium of 1.8%
A 10% to less than 15% down payment requires an insurance premium of 2.4%
A 5.0% to less than 10% down payment requires an insurance premium of 3.6%
Closing Costs and Legal Fees
When determining a home-buying budget, you need to consider closing costs and legal fees. Closing costs and legal fees are paid when you close the purchase of your home. Fees vary from lawyer to lawyer.Â In addition to covering your lawyer’s time, your bill will cover expenses used for title insurance, registering the deed and mortgage charge, performing a title search, and preparing the tax certificate.Â
Your real estate agent should be able to provide you with the name of a good lawyer.
Your mortgage lender will insist that you have enough home insurance to cover the cost of the property since your home is the security for the loan. The price of your home insurance is based on the value of the home and how much it would cost to rebuild it.
Property Tax Adjustments
Nothing is free when you buy a home. You need to factor in reimbursements for pre-paid costs, such as property taxes, hydro and water, gas, and even filling the oil tank. With metered services (hydro, gas, water) the meters are read on the day you take possession. If your house is heated with oil, the seller will top up the tank and you, the buyer, will pay the buyer for one full tank.
Remember to factor in various adjustment costs when budgeting for your home.
Don’t forget about factoring in moving costs when you’re setting a budget for buying a home, as well. Moving costs will depend on who you hire, how far you’re moving, and how much you’re moving (how many kilograms). Get at least three estimates.
If possible, move during off-peak periods. It will cost less if you move in the middle of the month since movers are not as busy. And you might get a better deal.
Another hidden cost when it comes to determining a housing budget is maintenance. When moving into your home, it’s a good idea to set aside C$2,000 in case something unexpected occurs, such as a leak or a break. Or maybe you want to build a fence or landscape.
Once you’ve moved in, be prepared to set aside between 3.0% and 5.0% of your home’s value annually. If your home is worth C$400,000, you should expect to spend C$12,000 a year on maintenance.
It may not happen every year, but eventually, you will need money to replace the furnace, re-shingle the roof, pave the driveway, add a new septic system, replace the appliances, update the bathroom or kitchen, paint the walls, or refinish the hardwood floors.
Canadalend.com Helping Ontarian’s Set a Home-Buying Budget
There’s more to saving for a home than just the mortgage. In addition to helping you find the best mortgage with the best rates, the licensed, independent agents at Canadalend.com will also help you determine a home-buying budgetâ€”one that includes all the hidden costs. That’s because, at Canadalend.com, we want to help you meet your financial and long-term lifestyle needs.
If you’re thinking of buying a home and want to find out what kind of mortgage you qualify for and how to set a budget for buying a home, contact Canadalend.com today. Or apply o nline and a Canadalend.com lending specialist will help you set up an appointment for a free personal consultation at your earliest convenience.
- King, R. “9 tips for high value home appraisals,” Money Sense, February 15, 2012; http://www.moneysense.ca/columns/9-tips-for-high-value-home-appraisals/.
- Vaz-Oxlade, G., “Hidden Costs When Buying a Home,” GailVazOxlade.com, last accessed March 10, 2016; http://www.gailvazoxlade.com/articles/home_sweet_home/hidden_costs_when_buying_home.html.
- “Land Transfer Tax,” Ontario Ministry of Finance web site, last accessed March 10, 2016; http://www.fin.gov.on.ca/en/tax/ltt/.
- “MLTT Rates and Calculation,” City of Toronto web site, last accessed March 10, 2016; http://www1.toronto.ca/wps/portal/contentonly?vgnextoid=a690a58e82cc1410VgnVCM10000071d60f89RCRD&vgnextchannel=4f90ff0e43db1410VgnVCM10000071d60f89RCRD.
- “How Much Does CMHC Mortgage Loan Insurance Cost?” Canadian Mortgage and Housing web site, last accessed March 10, 2016; http://www.cmhc-schl.gc.ca/en/co/moloin/moloin_005.cfm.