10 homebuying related costs

Most first-time homebuyers tend to underestimate the real costs of buying a property. However, by doing the proper calculations and setting aside some money for contingencies, you will certainly be able to purchase your home with peace of mind.

The process of buying a home involves several steps, most of which require a certain amount of money, hence the importance of planning a precise budget before you start. It would be a shame to realize halfway through that you had not planned enough to pay all the people who will contribute to your purchase project (building inspector, appraiser, notary, etc.).

In a home buying project, nothing should be left to chance! For this main reason, we have prepared an article that details 10 key expenses related to the purchase of a property.

1. Down payment 

One has to keep in mind that the down payment represents a significant portion of the costs associated with the purchase of a home. In Quebec, you cannot obtain a mortgage loan without a down payment. Therefore, if you plan to buy a property,  it is essential to have a down payment of at least 5% of the purchase price (i.e. $15,000 for a $300,000 house). To avoid paying mortgage insurance, you will need to provide 20% of the purchase price ($60,000 for a $300,000 home).

Not everyone who wants to invest in real estate has this kind of money on hand. For this reason, knowing that there are several alternatives to succeed in putting together a down payment can make a difference. For example, some municipal programs offer an interest-free loan of 5% of the purchase price of your home. You can also opt to use your RRSPs (HBP program), whose maximum withdrawal limit has increased to $35,000 in 2019, or choose to use a bank for a loan or a personal line of credit.

You want to know what is the minimum down payment for your real estate investment ?

2. Mortgage Loan Insurance

In Quebec, the Canada Mortgage and Housing Corporation (CMHC) and Sagen share the insurance market for mortgage loans. 

If your loan is greater than 80% of the amount needed to purchase the property, you must take out insurance. This insurance will be used to reimburse your lender in the event you are unable to pay your loan and you lose the house. This is an important part of the cost of buying a home that some buyers often overlook.

Actually, the mortgage loan insurance premium charged by CMHC is a percentage of the loan amount based on the size of the down payment. To get an estimate of your loan and the insurance you will have to pay, you can use this CMHC calculator.

Note that you may be able to get a premium rebate of up to 25% if you choose to purchase or build an energy efficient home.

The table below shows the percentage of the CMHC insurance premium applied to the total loan amount depending on your down payment:

Source: CMHC

3. House purchase notary fees

When you have finally found a property to buy, the serious business finally begins! This includes choosing a notary, whose job will be to ensure document conformity and security of the real estate transaction. 

Notary fees for the purchase of a house vary between $800 and $1,600. In addition, there are fees related to the processing of your file, which cost between $450 and $500 depending on the value of the property.

The notary is a public officer who operates impartially, ensuring that each real estate transaction is carried out in full compliance with the law. Of course, calling on a notary has a price, but this ensures that you will not have any unpleasant surprises, either on an administrative or financial level.

4. Pre-purchase inspection fees

As a buyer, you must ensure the house you are interested in is in good condition. The inspection stage usually comes after you have made a promise to purchase in order to demonstrate your interest. Once the seller has accepted your offer, you will need to hire a qualified home inspector to examine the house.

As for inspection fees, figure between $300 and $400 for a condo and between $450 and $550 for a single-family home. Prices rise to $650 for a duplex, $700 for a three-story triplex and can exceed $800 for a larger property.

Whatever the price you agree on with the home inspector, he will have to spend about 8 hours of work including travel, house inspection, photos analysis, additional research and inspection report writing.

5. Buying a home: the appraisal fee

In some cases, your financial institution will require you to obtain a house appraisal before agreeing to give you a mortgage loan. In other cases, the buyer will directly commission a professional appraiser to ensure that he or she pays the right price for the property.

Before providing an appraisal, the appraiser will visit the home to determine the dimensions, the materials used and the general condition of the house (depending on its construction year).  He will also take into account the location of the property as well as the economic situation in the desired area.

For a single-family home, the evaluation fees are usually around $500. Make sure you have this amount in your possession before going ahead with the purchase of your new home.

6. GST/QST (for new-build houses)

If you buy a new house, or one that has undergone major renovations, you will have to pay sales taxes (GST and QST). These amount to about 15% of the purchase price, which is still a significant amount in a transaction of a few hundred thousand dollars (about $45,000 for a $300,000 house).

The good news is that you can get a partial GST and QST rebate, under certain conditions. Simply put, the maximum rebate amount is 36% of the Goods and Services Tax (GST) up to a maximum of $6,300. Another rebate amount is a maximum of 50% of the Quebec Sales Tax (QST) and cannot exceed $9,975.

Note that it is not possible to obtain a partial GST refund if the price of the house concerned exceeds $450,000. Similarly, you cannot obtain a partial QST refund if the value of your property exceeds $300,000. For more information on this subject, visit the Revenu Québec website.

7. Property transfer duties

The transfer duties represent a percentage of the purchase price of your home. This amount will be collected directly by the municipality in which your property is located. The invoice for the property transfer duties will be sent to you between 3 and 6 months following the completion of the real estate transaction at the notary's office. From the moment you receive this letter, you will have 30 days to pay the amount requested.

In Quebec, the property transfer duties are calculated as follows

• 0.5% on the first $51,700 ;
• 1% on the purchase price of a home valued between $51,700 and $258,600;
• 1.5% on the purchase price of a home valued at more than $258,600.

In Montreal, transfer duties are slightly higher for properties over $500,000:

• 1.5% on the purchase price of a home valued between $258,600 and $517,100;
• 2% on the purchase price of a home valued between $517,100 and $1,034,200;
• 2.5% on the purchase price of a home valued between $1,034,200 and $2,000,000;
• 3% on the purchase price of a home valued at more than $2,000,000.

Please note that since 2019, several cities have changed the percentage of the property transfer duties depending on the value of the property. Contact the relevant municipality directly to find out the exact amount to pay.

8. Municipal and school tax adjustment

The municipal and school taxes are amounts that must be paid annually as a homeowner. The seller of the house has most likely already paid this amount during the year, hence the importance of making an adjustment. The refund will be calculated by the notary and added to the total fees you will have to pay for the purchase of the house.

As an indication, this tax corresponds to $400 for a house worth between $200,001 and $300,000, and $530 for a house worth between $300,001 and $400,000*. After the purchase of the house, you will receive the municipal and school tax bills annually, generally within the first 3 months of the year. Several payment methods will be offered to you.

*This amount is provided as an estimate only as this tax varies from one municipality to another.

9. Buying a home: moving expenses

Did you know that moving is among the top 10 most stressful events you can experience in your life? Technically, it involves moving all your belongings from point A to point B, which is not always easy. If several of your friends and family members volunteer to help you on the big day, then all you need to do is rent a truck for your move.

On the other hand, if there are only a handful of you to move and you have several pieces of furniture and appliances to move, it would certainly be best to hire a moving company that will provide you with a team of movers (and reduce your stress at the same time).  If you are planning to move in the summer (especially on July 1st), make sure you book early. Also, prices are likely to be much higher during this time.

Some companies offer moving trucks (without movers) for $20 to $40 per hour. If you decide to use a moving company, expect to pay between $85 and $110 per hour for a truck and two movers. Usually, a flat rate will be charged depending on the number of rooms to be moved, the number of movers required and the distance to be moved.

10.  Home insurance, renovations, condominium fees and other related expenses

Keep in mind that this type of expense varies from one home to another. Your annual home insurance cost will depend on the surface area of the house, the value of the goods to be insured and the type of house you are buying. Other factors such as the proximity of a fire station may also be taken into account. 

To get an estimate of the insurance you'll need to pay, you could ask the seller, or get a quote online from an insurance company.

One of the key questions to ask if you are buying a condominium relates to condominium fees. Ask the seller to provide you with a copy of the condominium charter with the applicable rules and the amount of condominium fees.

Whether you decide to buy a single-family home or a condominium, you will also need to find out about the work to be done. A roof renovation in a condominium can cost between $3,000 and $10,000 to be divided among all the co-owners and you will not necessarily be willing to pay this amount when you move in, hence the importance of asking the right questions before committing yourself.

Are you planning to buy a property? Check out our, handy guide to buying a property which walks you through the various steps of the process.  

Photos: Deposit Photo

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