youngandthrifty examines some closing costs (e.g. property taxes, home insurance, home inspection) to save up for when buying your first home in Canada.
There are lots of costs to think about when you buy your home (not just the down payment you have to worry about and the actual mortgage loan, but lots of other things that can add up).

Here are some of these costs (HINT: They include lots of taxes.  Awesome…):

Home Inspection

  • This can range anywhere from $400 to $1000 for a thorough home inspection
  • Make sure you don’t use the home inspector the selling realtor recommends (if you are using a dual agent, for example) because it could potentially be a conflict of interest (maybe..)
  • Go with recommendations and good referrals

Home Insurance

  • There are lots of different insurance companies, so make sure you go with an insurance provider who is willing to search for the best deal for you
  • The insurance amount depends on how old your roof is, what type of piping is used, whether you want insurance in case your house crumbles in an earthquake, where your house is etc.  Lots of factors that come into play
  • Some insurance providers have access to different insurance companies, so it doesn’t hurt to shop around
  • You will pay more for home insurance if you are buying a house, and are leaving the house unoccupied during renovations
  • You will pay more insurance if you plan to rent a part of your house out (makes sense: another stove in the basement can mean more chance of a fire being set off)

Property Transfer Tax

  • This number varies depending on fair market value of your home
  • In British Columbia (it varies from province to province), this tax is:  1% of the fair market value of your home under $200,000, and 2% on the remaining balance
  • For example, if you bought a home that was assessed at $500,000 fair market value, the tax you will have to pay to the government is:  $2000 + $8000
  • You may be exempt from paying this blasted property transfer tax if you are a first time home buyer and if the fair market value of the home is under $425,000.  They may be able to do an exception for you if your home is under $450,000 too.

HST

  • Thanks to our wonderful Provincial government, if you buy a new home, you will have to pay HST (that’s 12% over here in beautiful British Columbia)
  • If your home is less than $525,000 the government will rebate you back the 7% difference from the HST to the previous GST so you don’t have any additional tax burden (awe.. that’s nice of them, ain’t it?)

Notary/ Lawyer Fees

  • This is usually around $850 if you go with a Notary Public
  • It is likely more expensive if you do it through a lawyer, but you can always contact them to see how much they charge
  • They will help you with the Land Title Registration among other things

Life and Disability Mortgage Insurance

  • This is about $60-$100 a month and your bank/ mortgage provider will ask you to decide whether you would like life and disability insurance
  • For example, in case your partner dies (knock on wood), then the bank will pay $500,000 automatically
  • They have disability insurance too, but they will only offer to pay the mortgage for two years while you are on disability (it may vary between different providers)
  • Your work may have life insurance, but it may be insignificant (like $50,000 insignificant)

CMHC (Canadian Mortgage and Housing Corporation) Insurance

  • In the case where you are not able to provide at least 20% down payment, this insurance protects lenders against mortgage default
  • So it’s possible for those who want to put 5 or 10% down (though not recommended…) for a home
  • The amount pay depends on how much you put down.  Here’s a chart from CMHC explaining it all.

Survey Fee

  • This can cost about $250+ for a standard lot (30×122)
  • The lending institution will want a survey certificate presented to them
  • They want to know the formal boundaries of your land

Appraisal Fee

  • Often you can get this paid for by the lending institution (negotiate!)
  • It is an appraisal of how much your home is worth (they check homes sold near by etc.) before you are approved for the loan from the lending institution

Property Taxes

  • If the previous owner of the home had already paid the property taxes for the year, you will have to pay a portion of it back to them (organized through the Notary or Lawyer), and the portion depends on when you bought the home
  • Property Taxes are assessed once a year- a City assessor comes by and checks out how spiffy your home looks from the outside and gives it an approximate value
  • So it might help to make sure your home looks as run down as possible when they come around, so you can pay less property taxes (kidding!)

There you have it.  That was exhausting to say the least.

Any additional costs that I might have missed?  Readers, just for fun, which is your least favourite cost to incur?

Article comments

26 comments

I think is the equivalent, but in Quebec, most people refer to it as the Welcome Tax, which is a “funny” name.

In Quebec, we have the “Welcome Tax” that you pay your city when you move (even if you move in the same city!). Isn’t that a nice way to welcome new residents?! (sarcasm)

young says:

@The Financial Blogger- a Welcome tax, eh? I didn’t know Quebec would have such a thing… is this on top of the Property Transfer tax?

Doctor Stock says:

It seems as if this list could go on and on and on… don’t forget utility transfers, mail forwards, etc. It all adds up quickly.

Money Rabbit says:

Also – in Toronto the land transfer tax is double what you’d expect to pay elsewhere. Our current mayor promised to get rid of it in his campaign strategy, but frankly, I’ll believe it when I see it.

Yet another reason why GTA real estate is lucrative in the long run … if you can afford it up front.

young says:

@Money Rabbit- Ouch! Interesting to see the drastic differences between the GTA and the GVR. I remember looking on MLS for townhouses and condos in Toronto and the maintenance fees were very very high! (Though the condo prices were cheaper and you get a pool and a basketball court with the Toronto condo).

Don’t forget septic, well or other environmental inspections. They will run you at least $400 each.

We know 🙂

Good post.

My Own Advisor

young says:

@Financial Cents- Thanks for sharing- good to be thorough (with septic and environmental inspections) 🙂

Echo says:

Remember, they don’t pay you if something happens…they pay themselves. There’s a big difference.

Echo says:

@young
Guaranteed it will be cheaper to top up your life insurance through work than to pay the mortgage life insurance through the bank.

Serf says:

Y&T, don’t get bank mtg insurance, it’s a ripoff. You pay premiums for a declining benefit.

Get term insurance to cover your mortgage instead…

It may seem expensive, but if owning a home, this will pale in comparison to all the other monthly expenses you’ll have…

It’s amazing how the Home Depot bills add up quickly.

Fox says:

Great post, well informative! When I purchased my condo, thankfully I had a great Realtor who outlined these, but if you run into the wrong realtor, chances are you can miss a lot.

Here’s one,
If you didn’t build the house yourself, chances are you will invest money in some areas of the house to fit your taste. It could be small stuff like painting or major renovations. Don’t forget the taxes here as well 🙂

young says:

@BeatingTheIndex- Hey Mich- thanks for that- I am indeed paying for some renovations, but it’s quite exciting to “make the house yours”, you know what I mean? I feel very creative, anyhow.

Alex C says:

A note about mortgage insurance. If you already have life insurance and disability insurance you should simply alter these amounts to reflect paying off the home or majority in the case of death/accident. It will be cheaper than having two insurance policies.

young says:

@Alex C- thanks for that tip! There’s definitely lots to learn as a first time home buyer.

Great detail as always Y&T! We went through all of this during the summer but being such a new blog we haven’t had time to write about it yet!

young says:

@Sustainable PF- Thanks SPF, looking forward to reading your post on closing costs too!

CreditShout says:

Great post – I’m actually in process of searching for a home right now and luckily I have a great realtor who outlined all of these costs during our first meeting. I think using an online mortgage calculator at first to figure out what you can afford can be a bit misleading because of the fact that they don’t include the initial closing costs which are actually much higher than someone new to the process would think – mainly because you have to prepay the property tax and all of the smaller initial fees that you mentioned really add up.

young says:

@CreditShout- sounds like you and Fox have really good realtors!

Echo says:

Mortgage life insurance is a rip-off. Think about it, you pay the bank $60 – $100 a month for the life of the mortgage, but the mortgage amount is decreasing over time, which means the pay-out is being reduced with every mortgage payment you make. But your premiums don’t change at all as the mortgage is being reduced.

Mortgage life insurance protects the bank, not you.

young says:

@Echo- Hmm good point. I guess it’s just peace of mind for $60 a month, eh? I suppose the easiest way to get through this is to pay your mortgage down ASAP. My life insurance policy through work doesn’t insure that much, unfortunately. It would be bad if one of us died and left the other with all this mortgage debt to pay off.

SavingMentor says:

I remember having to pay all of those additional fees when buying our first home. It sure adds up and puts a lump in your throat when you realize it is a fair bit more than you were expecting!

young says:

@SavingMentor- indeed!! Lump in my throat and palpitations lol.

Some other costs that are often overseen are moving expenses and utility connections.

young says:

@Lina Zussino- Thanks for adding that. Very good point- moving expenses- though they can be claimable if you’re moving closer to work according to CRA 🙂 (but I think it has to be a certain number of kilometres).