Buying Your First Home in Canada? Make Sure You Budget for These Extra Costs
You already know that buying your first home in Canada is going to be one of the biggest purchases you’ll make in your lifetime, but most people tend to focus solely on the purchase price.
The truth is there are several additional costs associated with your home purchase, and if you don’t plan for them, you could quickly find yourself struggling financially.
We’ve broken down some of the most common costs you’ll have as you purchase your home so you can start planning now.
Save Up for a Down Payment
Now, it’s unlikely you’ll forget about making the down payment because you won’t qualify for a mortgage without it, but new Canadians may face more stringent down payment rules. Typically, a Canadian who has good credit can buy their home with a 5 percent down payment. New immigrants, on the other hand, don’t have a history of using credit in Canada, so they’ll have no or low credit scores. This means lenders will be looking for higher down payments.
If you’ve been living in Canada for a few years, and you’re now ready to buy your first home, your credit score may be good enough for you to qualify for a mortgage with just a 5 percent down payment. Those who are more recent immigrants may need to have enough saved for a 20 percent down payment.
Home Inspection Fees
If you’re buying a resale home, you’ll want to pay for a home inspection before you finalize the purchase. This is where you hire a professional to thoroughly inspect the home. They’ll tell you about any major or minor problems with the home to help you make your decision. Your report should tell you about issues that need to be repaired right away as well as some issues you might need to budget for fixing in the next few years.
Typically, a home inspection costs around $200-500, depending on the size of the home. There may be additional fees for time-intensive inspections and/or tests.
This isn’t something you want to skip when it comes to a resale home. Professional home inspectors are trained to look for things most people don’t think to look for, and signs of possible problems to come.
With a new home, inspections aren’t necessary as there are specific guidelines a home builder needs to follow. These guidelines must be met to code before the home can move onto the next stage.
Don’t Forget the Closing Costs
When you finalize your mortgage, there are closing costs you’ll need to budget for, on top of the down payment. This is a catch-all phrase for costs that include things like legal fees, taxes, and land transfer fees, among other things.
In general, you can expect to pay about 2-3 percent of the cost of the home in closing cost fees, and you’ll need to pay these fees with cash or a cheque before you can take possession of your new home.
Property Taxes and Homeowners’ Insurance
Property taxes are an annual fee that all homeowners pay to the city they live in. You’ll also need homeowners insurance to protect your home against damage. These fees can be a bit of a double-whammy.
First, you will probably need to pay a year’s worth of those fees upfront in the closing costs. Then, you’ll need to pay one-twelfth of the payment with each mortgage payment for the next year’s annual payment, which the mortgage lender will handle for you. When the lender tells you how much they’ll approve you for each month, you need to factor in this amount.
For instance, if the prorated amount of your taxes and insurance comes to $250 per month, and the bank has told you that they’ll allow you to take out a mortgage with a $3,000 monthly payment, this means that the total cost of your home loan can’t exceed a monthly amount of $2,750.
Hook Up Fees and Utility Payments
As a homeowner, you’re responsible for paying all of the utilities, including gas and electric, waste removal, water, and possibly more. You need to factor the cost of these services into your monthly budget plan or you could find yourself coming up short each month.
Additionally, utility companies sometimes charge hookup fees to start up in a new home or deposits for those who do not have a good credit score. This could mean your first monthly bill for these services is higher than normal.
Furniture and Other New Items
Once you move into your new home, you’ll want to set it up just the way you like it! Even if you already have some furniture from your current home, there’s a good chance you’ll want or need a few new items for the space.
This might include purchasing decorative items that go with a new colour scheme or buying big-ticket items that you didn’t need at your rental, like a lawnmower or snowblower. Even small, inexpensive items can quickly add up, so make sure that you’ve set aside some money for these purchases.
With proper planning, you can purchase and move into your new home without feeling stress on your bank account. Come talk to us about how affordable your new home can be.
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