Determining Your House Hunting Budget

When preparing your budget, you will want to discuss what resources you can allocate to mortgage payments, living expenses, and other financial situations. Your real estate agent can either help or recommend you to a financial professional who can assist with establishing a budget and reviewing your financial position. In addition, they may suggest some alternative methods to obtain financing, either through traditional lenders or other institutions.

To purchase a home, a down payment of as little as 5% down is required. Fortunately, Canada Mortgage and Housing Corporation offers a federal insurance program designed to help Canadians purchase their first home at an affordable cost. If you choose to put down 20% or more, you will not be required to have any CMHC insurance. Your Realtor or Mortgage Broker can provide additional details on this program.

To prepare a budget, collect the following:

• Credit card statements.
• Monthly rent or mortgage payments.
• Utility payments, including gas, water, power, and telephone.
• All other monthly expenses such as food, child care, dues, etc.
• Annual or semi-annual expenses such as insurance, car repair, and taxes.
• Allow for unexpected items such as medical emergencies, travel and education.
• Non-fixed expenses like medical expenditures for the last year. This will give you an estimate of average expenses of this type.
• Records or an estimate of personal expenses including entertainment, travel, etc.

Once you subtract your expenses from your total income, the amount left over is called your net worth. This will give you an estimate of your financial situation at present and will help you determine how much you can afford for a down payment. There are two types of costs in buying a home — the initial down payment and the ongoing monthly mortgage payments. The largest one-time cost is the down payment.

When purchasing a home, there are also many one time costs and monthly expenses that you will need to budget for.

Typical One-Time Expenses

• Mortgage application and appraisal fee.
• Property inspection, due at time of inspection.
• Legal fees, due at the time of closing.
• Legal disbursements, due at the time of closing.
• Property survey, sometimes provided by seller, due at the time of closing.
• Land transfer, deed tax or property purchase tax, due at the time of closing.
• Mortgage interest adjustment, if applicable, due at the time of closing.
• Home and property insurance, at closing and ongoing.
• Moving expenses, due on the date of move.
• PST (if applicable in your province) on high ratio mortgages.
• Realty Tax Holdback

Typical Monthly Expenses

• Mortgage payments.
• Maintenance, possibly in the form of condo fees.
• Property and content insurance.
• Property taxes.
• Utilities.

 

Those interested in purchasing Kitchener-Waterloo real estate are advised to visit a local Kitchener-Waterloo Realtor to get advice on how to create a reasonable budget for their house hunt.

Other Costs of Buying a Home

While the mortgage and down payment are the single biggest prices to look at when buying a home, there are lots of other upfront costs associated with buying real estate, and it’s very important that first time home buyers also have money put away to cover these “closing costs”. Some of these are one time costs, while others are ongoing expenses such as condo fees, property taxes, and home insurance. Not all of these may apply in your particular case, but some of them definitely will.

Sales taxes
The 7% GST applies to all new housing. However, there is a rebate that applies to a maximum of 2.5% if your home costs less than $450,000. There is no GST payable on resale housing unless the home has been substantially renovated, and then the tax is applied as if it were a brand new home.

Appraisal fee
Your lender may require a property appraisal at your expense. A basic appraisal for mortgage purposes will probably cost between $150 – $250.

Property taxes
Taxes are always a certainty. If you have a high-ratio mortgage, your lender may require that you have your property tax instalments added to your mortgage payments.

Survey fee
Your lender will require an up-to-date survey. Ask the vendor to provide one as a condition of your Offer to Purchase, or you will have to pay to have one done yourself.

Property insurance
This insurance covers the replacement value of the structure of your home and its contents. Your lender will insist on this because your home is the security for your mortgage.

Prepaid taxes or utility bills
You will have to reimburse the vendor on a prorated basis if some bills have been prepaid beyond the closing date.

Land transfer tax
This applies in most Canadian provinces. It varies as a percentage of the property’s purchase price, and is usually around 1% to 4%.

Service charges
You’ll be charged a fee to hook up new services and utilities such as your telephone at your new home.

Lawyer and notary fees
Even a straightforward home purchase requires a lawyer to review the Offer to Purchase, search the title, draw up mortgage documents and tend to the closing details. Lawyer’s fees for a mortgage range widely depending on the complexity of the deal, but will probably be at least $500.

Mortgage insurance premium and application fee
If you have a high-ratio mortgage, your lender will require mortgage loan insurance. The insurance will cost between 0.5% and 3.75% of the amount of the total mortgage and can be included in the mortgage. The application fee is around $75 if a valid appraisal is provided, otherwise it will be around $250.

Mortgage broker’s fee
A broker may charge a fee to find you a lender, usually around 2% of the total mortgage. In many cases, however, the brokers are paid by the lenders.

Moving costs
The cost of a professional moving company or a rental truck if you move yourself. Fees for a professional mover can range from $50 – $100 per hour for a van and three movers. These costs may be 10% – 20% higher at the end of the month and in the summer, when more people are moving.

Estoppel certificate
A certificate that outlines a condominium corporation’s financial and legal state. The certificate and supporting documents will cost you up to $50.

Condominium fees
Condos charge monthly fees for common area maintenance such as groundskeeping and carpet cleaning. Fees range widely depending on the type of structure but will probably be at least a few hundred dollars.

Home inspection fee
Inspectors are unregulated in many provinces, so fees range widely, from about $150 – $350 for a home priced under $300,000. Larger, more expensive homes cost more to inspect. A two hour inspection carried out by an engineer who provides a written report will cost closer to the upper limit. Municipalities can also supply any available inspection reports on the property for a fee.

Renovation and repairs
A home inspection may indicate that the home needs major structural repairs such as a new roof. Don’t forget to factor these costs into the price of the home.

Water quantity and quality certification
If you’re buying a home with well service, you’ll have to pay a feww from $50 – $100 to certify the quantity and quality of the water.

 

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