August 6, 2024

13 expenses to budget for when buying a home

Buying a house or condo can come with various fees, such as one-off costs during the transaction or recurring expenses. Before jumping on the property ladder, it’s best to understand the real cost of becoming a homeowner. This detailed guide will help you see these expenses coming so you can get your budget in order before buying your new home.

1. Down payment

Average cost: 5–20% of the property’s value

While this is actually an investment rather than an expense, it is crucial to have enough funds for the down payment before buying the property of your dreams. This is the very first step in your real estate journey . Ideally, you should put down a 20% down payment so you can benefit from lower mortgage payments.

However, with the cost of buying a house becoming increasingly prohibitive, it is possible to put down only 5% of the value of the property. In this case, your financial institution will ask you to take out mortgage loan insurance with the Canada Mortgage and Housing Corporation (CMHC).

So, how do you save for a down payment? In addition to the traditional savings account, there are several ways to finance your down payment : The Home Buyers’ Plan (HBP), help from a family member, gift of equity, line of credit, personal loan, etc.

	Tips and tricks Learn more about the FHSA and the HBP , two government programs that help first-time home buyers finance their down payment.

2. Home inspection

Average cost: $750–$850 for a single-family home

Calling on the services of a building inspector is a must to avoid any potentially costly hidden defects a few months down the track. The price of a house inspection can vary depending on the city and the building’s features. In general, you should budget for between $750 and $850 for a single-family home.

3. Valuation cost

Average cost: $500–$900 for a single-family home

In some cases, your financial institution may require a real estate valuation to validate the market value of the house . The valuation is carried out by an independent professional appraiser who inspects the property and analyzes various factors, such as its size, condition, and location, as well as recent sales of comparable properties in the neighbourhood. The main objective of the valuation is to ensure that the loan amount corresponds to the real value of the property, thereby minimizing the risk to the lender.

4. Notary fees or closing costs

Average cost: $500–$1,500 or more

All real estate transactions include a visit to the notary to formalize the sale. The notary plays a crucial role in ensuring the legality and security of the transaction. You must therefore budget for notary fees when buying a house .

In addition to drafting and authenticating the deed of sale, the notary verifies title deeds to ensure that there are no mortgages or other charges that could affect the transfer of title. The notary also examines the certificate of location, which provides a detailed description of the property, including the boundaries, buildings and any easements. Finally, the notary checks the status of municipal and school taxes, confirming that they have been paid so that no debt is transferred to the new owner.

It is the notary who receives the down payment and deposits it into a trust account , either by electronic transfer, bank draft or certified cheque. This transfer is often done a few days before the appointment. This delay, known as the clearing time, is used to verify the origin of the money and avoid real estate fraud.

5. Title insurance

Average cost: $375–$500 or more

In certain situations, your notary may inform you of potential irregularities with title deeds. Title insurance offers protection against various risks, such as tax arrears, encroachments, violations of municipal by-laws, survey plan errors or the absence of a certificate of location.

Imagine buying a property with a shed that you believe to be located on your land but that actually encroaches onto your neighbour’s property. If your neighbour asks for the shed to be moved, this is where your title insurance comes in handy as it can cover the associated costs to resolve the situation. This insurance is not mandatory and can be taken out by both the buyer and the seller. The title insurance cost is about $375 or more.

6. Connection and moving company fees

Average cost: $100–$150 or more per hour for a moving company

A new home means moving! You can either take care of the move yourself by renting a truck, or save yourself some sore muscles by calling the professionals. Renting a truck costs $30 to $50 per hour, while the price of a complete move with two movers can set you back between $100 to $150 per hour.

You may also have to pay connection fees to install your new Internet or telephone service.

	Tips and tricks Some moving expenses may be tax deductible .

7. Welcome tax or property transfer tax

Average cost: varies according to property value and location

In Quebec, the welcome tax , also known as property transfer tax, is the provincial and municipal taxes that apply to the purchase of a property. The municipality will bill you for these taxes a few weeks or a few months after you purchase your home. This amount depends on the value of your property, with the amount used for calculating the tax being the higher of either the sale price or the municipal property assessment.

For a property sold for $260,000, your property transfer tax will be:

0.5% on the first $50,000; $50,000 x 0.5% = $250
1% on the portion between $50,000 and $250,000; $250,000 - $50,000 = $200,000 x 1% = $2,000
1.5% on the portion exceeding $250,000; $260,000 - $250,000 = $10,000 x 1.5% = $150
2% for the portion exceeding $500,000 (for Montreal only)

The total amount will therefore be: $250 + $2,000 + $150 = $2,400. This welcome tax calculation is approximate as property transfer tax differs among municipalities.

	Tips and tricks Use online welcome tax calculators to easily calculate the welcome tax for your future property.

8. Mortgage interest

Average cost: depends on the loan amount and mortgage rate

Like any loan, a mortgage has interest that you will pay throughout your repayment period. These fees are calculated according to the interest rate (fixed or variable) on the mortgage that you take out. Financial institutions consider several factors when setting the interest rate for your mortgage: the length of the term, your credit history, the current prime rate, etc.

Each time you renew your mortgage term—usually every five years—you renegotiate your mortgage interest rate. Use the Government of Canada Mortgage Calculator to calculate the interest payable based on the mortgage amortization period.

	Tips and tricks Making accelerated mortgage payments can be a good way to save on mortgage interest. By paying your mortgage bi-weekly or weekly, you save the equivalent of one mortgage payment per year, resulting in substantial savings over the total term of the loan.

9. Mortgage insurance

Average cost: 1.75–2.95% of the mortgage loan amount

If your down payment is less than 20%, your financial institution will require mortgage insurance to protect its investment. This insurance is therefore mandatory. Provided by the CMHC , the insurance is calculated as a percentage of the loan amount and is based on the size of the initial down payment. The greater the gap between the loan amount and the property’s purchase price, the higher the percentage of the premium will be.

Your lender pays the premium on your behalf and then adds this amount to your mortgage. You therefore repay the premium over the same amortization period as your loan.

	Tips and tricks Use the CMHC Mortgage Calculator to find out the premium you will need to pay depending on your situation.

10. Municipal taxes or property taxes

Average cost: 0.4–2.0% of the property’s value

Each year, your municipality issues a notice of property taxes to be paid in one or more instalments on set dates throughout the year. The municipality needs these funds to provide services such as public safety, road maintenance, park management, and many more. The amount of tax is calculated by multiplying the tax base, i.e., the property value of your home, by the current tax rate.

Each municipality sets its own tax rate, which generally varies between 0.4% and 2%. Keep an eye on these rates as municipalities review their rates each year . The city may charge additional fees to cover infrastructure or development expenses. This is especially the case for new properties in growing neighbourhoods.

	Tips and tricks You can ask your financial institution to collect the taxes with your mortgage payments and remit them to the municipality. Sometimes, the financial institution may even ask to manage these payments itself to ensure they are paid on time.

11. School taxes

Average cost: $0.09152 per $100 of a property’s municipal assessment

Once a year, in July, you will receive a school tax bill. School taxes help fund the public education system, paying for building maintenance, energy consumption, school transportation, etc. These taxes are calculated as a percentage of the property’s value, with the rate set by the Government of Quebec for all homeowners. The school tax bill must be paid in one instalment, except for bills exceeding $300.

12. Home insurance

Average cost: depends on property type and value

Just like when you are a tenant, home insurance is a must. You want to protect your investment as much as possible. Home insurance generally offers you protection against damage or loss, theft of personal property from the home or car, injury to people visiting your property, and damage you may accidentally cause to someone else’s property.

Note that if you buy a condo, the condominium syndicate is responsible for insuring the building, and common areas. However, you still need to get home insurance for your unit.

	Tips and tricks If you rent out your property, you must notify the insurance company to make sure you get the right coverage. Home insurance for owners of income properties not only covers the building but also protects you in the event of loss of income following a disaster.

13. Maintenance/renovation costs and co-ownership fees

Average cost: 1–3% p.a. of the property’s value for maintenance

With home ownership comes home maintenance responsibilities! Snow removal, lawn mowing, minor repairs… Preserving and enhancing your property requires regular maintenance and well-planned renovations. House maintenance costs can vary and be difficult to predict accurately. As a general rule, you should budget for 1–3% of the property’s value per year for routine maintenance work.

Renovation costs depend on several factors, such as the nature of the work, the size of the rooms and the quality of the materials used. For major renovations such as a bathroom, the price can be less than $14,000. For a kitchen, you will be looking at $18,000 or more. As for the exterior, the cost of replacing the roof is at least $7,000, while the price for changing the exterior cladding or replacing the windows can easily exceed $14,000.

These investments can be essential for maintaining your home’s value and ensuring your long-term comfort. Make sure you check out the renovation subsidies available .

	Tips and tricks If you buy a condo , the maintenance costs and the costs of renovating the common areas will be covered by the co-ownership fees and the contingency fund required by law. Additional costs may arise. During the purchase process, find out how much is currently in the contingency fund !

Other possible expenses or fees related to buying a home

We have gone over the essential fees and expenses when buying a property. However, your specific situation may incur other costs.

Specialist tests

When buying a property, there may be risks associated with the presence of pyrite, vermiculite or other contaminants. If the property has a private well , or if the water smells or tastes funny, you should get the quality of the water tested .

It may be necessary to call a qualified specialist to eliminate or measure the extent of any risk. These tests ensure that the property is safe, protecting you from potentially costly repairs or long-term health problems.

Capital gains tax on secondary residences

If you purchase a property that you do not intend to live in as your primary residence, such as a chalet, you do not have any extra costs per se, but there is a tax impact when selling it. The capital gain realized on the sale will be added to your income earned and taxed in the year of sale.

Life, illness or disability insurance

You can obtain life, illness or disability insurance to help you with your mortgage payments or full repayment in certain specific cases.

GST/QST

When buying a new build, you have to pay GST and QST on the sale price. You may also have to pay a fee for connecting to municipal services, such as water, sewer and electricity networks. These additional costs should be included in your budget when buying a newly constructed home.

Additional guarantees

Some associations, such as the ACQ, offer additional guarantees to protect you from hidden defects , ensure that the condo you want to purchase has been built to current standards, and provide a quality guarantee for renovations. These guarantees provide extra peace of mind by ensuring that your property investment is protected and meets the required quality standards.

Broker remuneration

If you use the services of a real estate broker , you may have to pay brokerage fees , depending on your contractual arrangement with the broker. The remuneration may also be paid by the seller and distributed between the two brokers.

Know the costs associated with buying a home to budget effectively and avoid surprises

No more hidden fees! You now know all the costs associated with buying and owning a property. You are ready to draw up a budget and calculate your borrowing capacity. While the costs may seem high, you needn’t worry, there are many programs, grants, and tax credits designed to help first-time buyers , families, and other groups realize their dream of home ownership.

Take advantage of the support available to reduce your financial burden and help you buy your new home !

FAQ

1. What are closing costs?

Closing costs refer to the various fees and expenses incurred during the final stages of a real estate transaction. Ranging from 1.5–4% of the purchase price, these costs include items such as legal fees, property transfer fees, title insurance, welcome tax, as well as other miscellaneous expenses related to the transfer of ownership.

2. What taxes do I pay when buying a house?

When buying a house, you have to pay the welcome tax (property transfer tax) once. In addition, each year, the homeowner must pay municipal taxes, which include property and school taxes.

3. Who pays the notary fees—the buyer or the seller?

It is common for notary fees to be shared between the buyer and the seller, unless the promise to purchase stipulates otherwise. For example, the buyer may bear the costs of buying the property, while the seller may cover the fees for discharging their mortgage.