Home Buying Costs
In preparing to buy your first home, you need to budget for expenses that will be incurred up-front in the process including:
Deposit. This is part of your down payment and must be paid when you make an Offer to Purchase. Deposits are usually around 1% but can be as high as 5% of the purchase price depending on the area. Sellers may request that the deposit be increased once all conditions have been satisfied.
Down Payment. At least 5% of the purchase price is usually required for a high-ratio mortgage and at least 20% of the purchase price is usually required for a conventional mortgage.
Mortgage Loan Insurance Premium. If yours is a high ratio mortgage (less than 20% down payment), you may need mortgage loan insurance. To get this insurance, you will be asked to pay the required insurance premium. Your lender may add the mortgage insurance premium to your mortgage or you can pay it in full upon closing. Mortgage loan insurance helps protects lenders against mortgage default, and enables consumers to purchase homes with a smaller down-payment — with interest rates comparable to those with a 20% downpayment.
CMHC Mortgage Loan Insurance. The amount of the premium varies and can range between 0.65% and 2.75% depending upon how much of the purchase price/home value is financed with a mortgage loan.
Appraisal Fee. Your mortgage lender may require the property be appraised at your expense. An appraisal is an estimate of the value of the home. The cost is usually between $250 and $350 and must be paid when you contract for those services. Some banks will waive this fee in return for your mortgage which is another reason to shop around.
Home Inspection Fee. A satisfactory home inspection is often an important condition of the Offer to Purchase. A home inspection is a report on the condition of the home and generally ranges around $500, depending on the complexities of the inspection. Larger or older homes may cost more, especially if there is any suspicion of latent defects.
Land Transfer Tax. You have to pay this provincial tax upon closing. The cost is a percentage of the property's purchase price and varies by province. Use our calculator on www.remax-western.ca .
Property Transfer Tax
Property Transfer Tax is a provincial tax applied against purchases of real estate in the province at the rate of 1% on the first $200,000 of the purchase price and 2% on the balance. The tax is submitted at the time of registration of the transfer in the land title office and the amount required must be provided to your lawyer or notary.
There is a full or partial exemption for “first time buyers”. There are number of criteria to qualify for the exemption and the purchase price determines whether or not it is a full or partial exemption. The main criteria are that buyers must be Canadian citizens or permanent residents of Canada; have resided in B.C. for a least 12 months or filed income tax returns as a resident of B.C. for 2 of the 6 taxation years immediately prior to registration of the transfer; and never previously owned a principal residence anywhere in the world.
The full exemption is available for properties with a purchase price of $425,000 or less and a proportionate exemption is available for properties with a purchase price between $425,000 and $450,000. There is no exemption on properties with a purchase price greater than these thresholds. (For a comprehensive discussion see The First Time Buyers’ Guide.)
Prepaid Property Taxes To reimburse the vendor for pre-paid costs (if any).
Property Insurance. The mortgage lender requires this because the home is security for the mortgage. This insurance covers the cost of replacing the structure of your home and its contents. Property insurance must be in place on closing day.
Survey or Certificate of Location Cost. The mortgage lender may ask for an up-to-date survey or certificate of location prior to finalizing the mortgage loan. If the seller does not have one or does not agree to get one, you will have to pay for it yourself.
Water Quality Inspection. If the property has a well, you will want to have the quality of the water tested to ensure that the water supply is adequate and the water is potable. This should be a condition on your Offer to Purchase.
Legal Fees and Disbursements. Must be paid upon closing and cost a minimum of $500 (plus GST).Your lawyer will also bill you for any disbursements they incur such as land titles costs to check on the legal status of the purchased property.
Title Insurance. Title insurance covers loss caused by defects of title to the property and may be recommended by your lawyer.
Costs After Possession:
Home Buyer’s Plan
The Home Buyers’ Plan is available to “first time buyers”. Unlike the Property Transfer Act, a purchaser can qualify as a “first time buyer” more than once if they or their spouse have not owned a principal residence for approximately four years. The Home Buyer’s Program allows a first time buyer to withdraw up to $25,000 without paying tax on the withdrawn amount. The home being purchased must be a principal residence, can be existing or being built and the RRSP must be repaid within 15 years with minimum payments of 1/15th of the withdraw amount. (For a comprehensive discussion see Home Buyers’ Plan.)