Buying a house is an extremely exciting time in life, and it deserves to be!
With the excitement can come some overwhelming trials, and I am a firm believer in making yourself aware of anything that can get rid of that feeling of excitement as soon as possible. That way, when you do actually buy your next house, you can keep that feeling of excitement and really get to enjoy it.
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What are the REAL Costs of Buying a House?
Oftentimes, people look at the purchase price of the home as the only factor when buying a house.
In reality, it’s an equation with many moving parts that all depend on your specific situation – there is no one-size-fits-all when buying a home.
For instance, closing costs when buying a house can change if you buy in Markham or if you buy in Toronto. Even legal fees when buying a house can differ from person to person, and house to house!
When working with clients, my answer is always different, and it’s that way to give the most accurate answer possible. With that said, let’s look at the math behind buying a house.
Working out the Numbers
Let’s set the scene:
You’re buying a house in York Region for $1,500,000. The house has no title issues, the seller has no mortgage issues, and we’re focusing on the real meat and potatoes of purchasing the house, not a nuanced situation.
How Much is a Down Payment on a House?
Your down payment is a crucial part of the process to know if you can afford to buy the house you’re looking at or not. It acts as your initial equity in the home, and is the first step in getting a mortgage approval.
It’s the amount of money you have available to you to put into your purchase, and it will need to be liquid and available at the time of closing, and in some instances, at the time of your lender providing you with the go-ahead on your financing.
For most, the first question would be “how much is a down payment on a house?” The answer to that question is very personal, but 20% is always a safe number to use when doing the math.
How do Mortgages Work in Canada?
In Canada, there is something called the Canadian Mortgage and Housing Corporation. As Canada’s national housing agency, they’re focused on providing improvements to affordability, stability and access.
One facet of their duty is to provide Mortgage Loan Insurance, often referred to simply as Mortgage Insurance, and there’s a set of rules that guides homeowners on whether Mortgage Insurance is mandatory or not.
Taken from canada.ca, they are as follows:
| Purchase price of your home | Minimum amount of down payment |
|---|---|
| $500,000 or less | 5% of the purchase price |
| $500,000 to $1.5 million | 5% of the first $500,000 of the purchase price10% for the portion of the purchase price above $500,000 |
| $1.5 million or more | 20% of the purchase price |
With that said, for the purpose of our scenario, we need a minimum of 20% down for our purchase price of $1.5 million.
20% x $1,500,000 = $300,000
Now that we know our down payment amount, let’s take a look at some of the other costs associated with purchasing a home.
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What are Closing Costs when Buying a House?
Closing costs can be categorized as the money associated with the successful purchase of buying your house, which aren’t associated with the actual purchase price you and the seller have agreed upon.
These numbers do not show up on an Agreement of Purchase and Sale, and if they are not planned for, can be a bittersweet surprise when closing day comes around.
There can be some surprises, but the ones I typically like to prepare for are:
- Title Insurance
- Legal Disbursements
- Adjustments
- Moving Costs
- Insurance Policies
- Condominium Fees/Status Certificate Fees
- Legal Fees
There may be more, and there may be less – although this covers much of what I see most consistently, every purchase is unique and may be subject to different costs.
Each of these items are nuanced in and of themselves, but to give you an idea of their price and costs, I typically tell clients to budget an additional $5,000-$10,000 just to prepare themselves in the instance it could get a bit more expensive than usual (these are always subject to change, and I would highly advise always speaking to the appropriate party well in advance to prepare yourself on the cost).
Legal Fees themselves could range from $500-$5,000, it all depends on which lawyer you use!
Sidenote: I will always recommend using a lawyer you have confidence in – if something happens, you need someone who will fight tooth and nail for you and make sure that you are protected as best as possible throughout the transaction!
What is Land Transfer Tax?
Land Transfer Tax is a mandatory fee that is typically provincially mandated only, except purchasing in Toronto (Toronto has its own, additional Land Transfer Tax that needs to be paid in combination with Ontario’s).
This fee is always paid for by the Buyer, and is typically calculated as a tiered percentage of the final purchase price of the property.
On the example of $1,500,000 in York Region, your land transfer tax cost would be $26,475.
If you’re looking for a great tool to give you a better idea of what your land transfer tax cost could be, I have a fantastic calculator built into my website – you can get an idea of mortgage costs, and you can even put in your own calculations for closing costs as well!
How Do I Buy a House?
If you or someone you know is looking to purchase a house in the near future, you’ve come to the right place: we specialize in providing personalized service when buying a house – even selling, too!
We love helping educate our clients and helping them through all steps of the transaction, and would love to work with you as well.
If this is something you’ve been thinking about, it’s never too early to have a conversation – simply reach out by filling out the contact form on this page, and we’ll be in touch with you shortly!
Need an expert York Region Realtor? Get in touch at christian@naccaratogroup.ca or call (647) 492-6508.
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