Budgeting for a home purchase ensures that you’ll be able to afford to pay for costs such as the down payment and monthly mortgage payments, but there are a number of other significant costs that many buyers often overlook. These include closing costs (land transfer tax, adjustments on closing, lawyer fees) and additional monthly costs (property tax, insurance, utilities, maintenance). All of these costs need to be taken into account so that you truly know if you can afford the home that you’re looking for.
Closing Costs
- Down payment: The down payment for a home is the lump sum cash amount that must be paid on closing. This is calculated as a percentage of the purchase price, and ranges anywhere from 5%-20% and above in some circumstances.
- Land transfer tax: Every time a home is sold the buyer is required to pay land transfer tax. This amount is usually calculated based on the purchase price of the property and can range anywhere from 0.5% to 2%. First time home buyers are eligible for a refund of up to $4,000 of the land transfer tax that they would pay with their purchase.
- Adjustments on closing: If the seller has pre-paid any expenses (property tax, utilities, etc.) for the year that you are purchasing the home in, you will be required to repay them for the portion of the year that you will own the home. For example, if you close on your new home on July 1st but the seller has already paid the property tax in advance for the full year, you will have to repay them for the remaining 6 months of the year that you will own the home for.
- Lawyer fees: You will need to work with a lawyer during the home purchase process from when you buy the home all the way until the closing date. They will ensure that everything is done properly so that the deal can successfully close and that you are protected legally. Lawyer fees vary, but are usually somewhere between $500-$1,500.
Additional Monthly Costs
- Mortgage: This is a monthly payment made to your lender, and it includes a principal amount (actual payment towards the amount owed on the home) plus interest (additional amount that the lender charges for lending you the money). You can find a mortgage calculator here.
- Property tax: Property tax is a significant cost that will need to be factored into your monthly budget when owning a home. Each municipality has it’s own property tax rate which is multiplied by the assessed value of the home to determine the yearly amount owed. It is important to find out what the yearly property tax amount is for the home that you are interested in so that you can break it down into a monthly number to add on top of your mortgage payment.
- Insurance: Insurance is another necessary item when owning a home. There are multiple factors that determine how much your house insurance will be, but you should be prepared to pay anywhere from $1,000-$1,500 per year. This should also be broken down into a monthly number and added to your other potential costs to make sure that you will be able to afford everything.
- Utilities: The main utilities for a home are hydro, gas, water, and internet. The monthly cost for these depends on many things including house size, family size, time spent at home, and how conscious you are of controlling your usage. Again, this should be combined with the other monthly costs to arrive at a grand total that you will be paying each month. You can then compare this to your monthly income and other personal expenses to determine if you will be able to comfortably afford everything.
Questions?
Questions? Interested in buying or selling? Please do not hesitate to reach out to me at any time:
My personal cell: 289-675-4882
Email: brad@braddornellas.com
Want to know how much your home is worth? Fill out my Home Valuation Form and I will send you a free CMA estimate within 24 hours.