It's easy to get swept up in the excitement of buying a home. And while you can't compare two homes based on price alone, it's important to calculate all important expenses to create your budget. This goes beyond the number on the price tag – remember to include the cost of fees you will need to pay when you close on your new home. The following are expenses you can expect to help you prepare for homeownership and choose a home that will be affordable in the long run.
When you buy a brand-new condo or home, you will need to pay the federal goods and services tax (GST). This tax will be paid on top of your purchase price. The good news is you can qualify for a housing rebate when you need to pay GST/HST. The new housing rebate of 36% of the GST is available to all homebuyers and it's worth up to $6,300 if your home is priced at $350,000 or less.
Land Transfer Tax
A land transfer tax is charged in some provinces when a property changes hands. The tax is based on the home's purchase price.
Alberta is one of just two provinces with no land transfer tax, but there are two other fees instead. When you buy a home in Alberta, you will pay a property registration fee and a mortgage registration fee. The first fee is $50 plus $1 for every $5,000 in home value while the mortgage registration fee is $50 plus $1 for every $5,000 you are borrowing. On a $400,000 home with 20% down, the property registration fee will be $130 and the mortgage registration fee will be $114.
Home Inspection Fee
A home inspection costs around $500 and it ensures the major systems and structures of your home are sound. Home inspections are not required, but they are often a condition of a purchase offer. You may not need a home inspection if you are buying new construction as the major systems have already been inspected by the city.
Property Appraisal Fee
This fee is part of your closing costs and it's charged to determine the value of the property for mortgage purposes. The property valuation will not necessarily be the same as the purchase price. Lenders use this valuation to make sure the home is worth enough for the requested loan amount.
A Real Property Report is used to verify the measurements and boundaries of the property and the positions of structure, driveways, and encroachments. When you buy a new home, a survey was done during the construction. RPR's are usually only needed with older homes when there have been changes made to the property. When a survey is needed, it can cost $750 to $1,000.
Legal fees may cost anywhere from a few hundred to $2,000 and may include attorney services and notary fees.
If you don't have 20% or more to put down on your home, you will need to buy mortgage default or CMHC insurance. This is not an upfront cost, but it can add thousands to your loan amount. Borrowers in Quebec, Ontario, and Manitoba must also pay provincial sales tax on the CMHC insurance that's due at closing, but PST is not required in Alberta.
This form of insurance is essential when you become a homeowner. Home insurance protects your belongings as well as the home itself from risks like flooding, fire, and theft. On average, home insurance in Alberta costs $900 per year.
Utility Hook-up Costs
When it's time to move into your new home, don't forget you still need to get utilities connected. It's a good idea to plan for a few hundred dollars to hook up cable, Internet, electricity, and other utilities.
As a homeowner, you will also want to budget for home maintenance moving forward. If you buy a house, plan for 1-3% of your home's value in maintenance every year. This is only an average over decades, not what you will spend every year. With a new home, maintenance costs will be very low for several years, while an older home may have high maintenance costs right away.
These extra costs associated with buying a home can feel a bit overwhelming, but they may not be as much as you think. Many fees are also optional, especially when buying new construction. As a general rule, plan for 1-4% of your purchase price in miscellaneous closing costs.