There are plenty of hidden costs when buying a home in Ottawa. If you’re saving for a home but are only thinking in terms of the down payment and monthly mortgage fee, we have some crucial information that will save you from making the same mistake Anne did.
Let me tell you a story about a woman who moved from Scotland when houses were only $12,000. Mind you, that was 54 years ago, so prices have shifted since. But what hasn’t – the shock of closing costs if you aren’t prepared.
Anne saved with her new husband while they temporarily rented an apartment, waiting to purchase for their growing family. They finally had the exact dollar amount they knew they needed for the down payment and were eager to buy a new home. They put the offer in, crossed their fingers, and their real estate agent called with excitement – it was accepted! What the agent failed to mention beforehand were closing costs.
Anne will tell that story to this day about how her mother had to send money overseas so she could buy curtains and a frying pan. That’s all they had for quite some time until they could build up their savings again!
If you’re budgeting to purchase a home, that’s amazing! Congratulations on your journey. Just remember to save that little extra for your typical closing costs. Generally speaking, you’ll want to budget between 3% and 4% of the purchase price of a resale home to be covered. So, on a house that costs $600,000, all the closing costs could run anywhere from $18,000 to $24,000.
That’s on top of the hefty down payment.
As an Ottawa seller, you don’t have to worry about nearly as much on your end, aside from the commission and lawyer fees. But if you’re buying something, whether it’s brand-spankin’ new or resale, there are a few extra price tags attached that won’t be on the MLS.
1. Land Transfer Tax and Property Taxes
We’ll start with the good news. First-time home buyers get this back in the form of a land transfer tax refund! In order to claim it, you (or your spouse) cannot have owned a home anywhere in the world.
However, if this isn’t your first rodeo, this is a closing cost you can’t avoid. There are lots of free resources (such as a closing cost calculator) to figure out the amount based on your home purchase price, and we can help you calculate it too.
To give you an idea, on a $600,000 purchase, that adds up to $8,475. Double if you’re buying in Toronto.
Another tax to keep in mind is your property taxes. These range from several factors, but you’ll know what you’re getting into because the information will be on MLS. Often, these can be monthly fees built into your mortgage amount, but you can choose to pay separately as well.
Your property tax is not, as some believe, based on your home’s purchase price, but is instead based on the market value of your home. The property tax is calculated once a year by the municipality in which you live, and typically is in the range of 0.5 to 2.5%.
2. Home Inspection Fee
Unless you’re waiving a home inspection condition, this typically costs $500+. This is one of the best investments a home buyer can make, as it could save you from even higher bills in the future. Older homes have all sorts of hiddens costs, and the previous property owner may not be aware of them, or choose not to disclose them if they are.
Your inspector will tell you what needs to be done now and what can wait. With that knowledge, you can decide how you want to budget for these upcoming maintenance items or if it’s better to move onto the next home. If you’re buying a home with a septic tank, you’ll need to pay extra for the septic/water testing.
3. Home Insurance, Title Insurance, and CMHC Mortgage Insurance
Most lenders require proof of home insurance before agreeing to lend you a chunk of change. They want to ensure the loan will be paid back if something were to happen. Before finalizing the deal, ensure you have the extra set aside. You can compare rates online ahead of time or ask your Realtor or real estate lawyer for some fantastic options.
Some, but not all, lenders require Title Insurance. Even though it’s not always mandatory, it’s a $400 fee for a lifetime of peace of mind. Well, the lifetime of you with that property anyway. The last thing you want is to find out there is a lien against the home or losses due to title defects. This could mean the lot size or even that you own the home at all. Did you know Wasaga Beach is one of the most noted towns for real estate fraud? It really happens!
If you plan on putting more than 20% down on your home, you can skip to the next part. Putting anything less, CMHC insurance is going to be a part of your plan. It’s insurance for the lender, so if you ever default on your mortgage, they can still get paid. While this could look like thousands of dollars, it’s built into your mortgage and paid off over the term of your loan.
The not-so-wonderful part of it – you’ll need to pay Provincial Sales Tax (PST) on these premiums. Usually, only 8% of that insurance fee.
4. The Legal Stuff
Don’t forget about the legal and administrative costs! Legal fees vary, and are another closing cost that can catch home buyers by surprise. Working with a real estate lawyer that knows the area inside and out is ideal.
Processing the sale and ensuring everything is done correctly can cost $700-$1500+ in some cases. On or near closing day, your real estate lawyer will also go over your Statement of Adjustments. This is basically going over money that has been paid already by the seller, so you need to pay them back.
For example, if the previous property owner paid the property taxes for the year, but your closing date is September 1st, you’ll need to pay them from September-December for the fee they already covered. This could also apply to utilities and rental items in the home.
5. GST/HST on New Builds
One closing cost that may not be apparent is the GST/HST. Buying a new build home or condo will need to have federal goods and service tax (GST) paid on the purchase price—in Ontario this will be a harmonized sales tax (HST) of 13%.
You can either pay this closing cost with cash on closing day, or through your mortgage. If the builder has included the GST/HST in the purchase price, it will automatically be included with your mortgage.
The good news is that if your new home is priced below $450,000 before HST, you may be eligible for the New Housing Rebate, which changes on a sliding scale.
6. Other Costs to Consider
These are a few additional closing costs that you should factor into your savings plan to make that home YOURS!
- You may need an appraisal, depending on the cost of the home and your lender! These are typically between $150-$500.
- Land Survey Fee. Your lender may ask for an up-to-date survey. If the seller doesn’t have one handy, the fee could be anywhere from $600-$900+ to get a land surveyor to the property for measurements and writing the report.
- Utility initialization fees. Sometimes they can be waived if you get a letter from your previous utility company expressing your good standing and payment history.
Reach Out To A Paul Rushforth Real Estate Agent
Are you thinking about making a move but need help with the bigger-picture finance planning? Worried about having to pay closing costs that you don’t even know about? I would love to help you prepare by showing you different options within your budget. Reach out to the Paul Rushforth team, and let’s make a plan to make your real estate dreams a secure reality.
