With only 5% required for a down payment and banks practically giving away money, many people are rushing out to find their dream home. But are you really ready to buy a home? Have you considered all the costs of buying a home? Many of those extra costs don’t show up in affordability calculators so be prepared when buying a home.

overlooked costs of buying a home

Extra costs of buying a home to be aware of

Interest rates – The rates that we’re currently paying are at historic lows. Yes I realize the Bank of Canada just reduced the overnight rate but that was a surprise move– no one expected it. The rates we have now can only go up, so prepare for it.

Even when rates are cut it doesn’t automatically mean our monthly rates will go down. The cut only applies to those of us who have a variable rate or are currently in the market for a new mortgage. Those of us on a fixed rate will see no change.

Occupancy fees – Many of us don’t realize that when we buy pre-construction condos, there’s an “occupancy” phase where we have to pay “rent”. The reason for this is that we don’t own the actual property until the condo registers with the municipality’s Land Registry Office– which takes place a few months after the entire building is completed. As you can imagine, owners of units on lower floors could be paying these occupancy fees for some time.

[fusion_builder_container hundred_percent=”yes” overflow=”visible”][fusion_builder_row][fusion_builder_column type=”1_1″ background_position=”left top” background_color=”” border_size=”” border_color=”” border_style=”solid” spacing=”yes” background_image=”” background_repeat=”no-repeat” padding=”” margin_top=”0px” margin_bottom=”0px” class=”” id=”” animation_type=”” animation_speed=”0.3″ animation_direction=”left” hide_on_mobile=”no” center_content=”no” min_height=”none”][icon name=”share” class=””] Related: MoneySense: How to buy a condo

Property taxes – House hunters who are looking at new subdivisions need to be mindful of taxes. The taxes we pay at the beginning are calculated on the land value since houses can’t be assessed until they’re completely built.  When the house eventually does get assessed, we’ll get hit with a bill for the actual value of the last few years.

Cost of being a landlord – Being a landlord sounds great in theory; find a tenant and have someone else pay my mortgage right? One thing many of us fail to budget for is the time when our properties are vacant. Tenants come and go so there will be times where rental income won’t be coming in.

As landlords, we’re responsible for the maintenance and upkeep of the home. Electricity, plumbing, heating , lighting, locks, etc. those things all cost time and money for landlords. That’s just general upkeep, imagine having a tenant from hell who damages the property– we could up with huge repair bills. Yes we could take them to court but the odds are they would have disappeared by then.

Maintenance – As weird as it sounds, maintenance is one of the most overlooked costs of buying a home. With real estate being hot in Canada, many buyers waive the right to a home inspection. This is a huge mistake since there could be expensive repairs required in the near future that only a professional home inspector would catch. Homes are expensive to maintain, budget for repairs are bound to come up.

Condo owners pay monthly maintenance fees, this money goes into a reserve fund which covers the cost of common elements. Major repairs are expensive and if there’s not enough money in the fund– a special assessment will be issued to all the residents.  Getting hit with a big bill to pay for a leaky roof is painful especially if the condo board has been spending money on cosmetic upgrades.

costs of buying a home maintenance

House insurance – House insurance isn’t mandatory if you own your home outright, but if you need a mortgage, most lenders will expect you to have coverage. Insurance covers damages, fire/flooding, and personal property in the event of theft. Don’t be cheap, get insurance.

Life insurance – Life insurance isn’t mandatory but if we have dependents it would be pretty selfish of us to not get coverage. Think about the worst case scenario, if we die prematurely our partners would be left to pay for the mortgage on their own. Doing this on a single income income can be next to impossible which is why insurance offers some protection.

Your mortgage lender will likely offer you mortgage insurance as an alternative but getting life insurance is a better option. Mortgage insurance only covers the amount remaining on your mortgage; as time passes your policy is worth less. On the other hand, life insurance pays out a set amount as long as the policy is valid.

[icon name=”share” class=””] Related: 5 Must have insurance policies

Capital gains taxes – Capital gains made on the sale of our primary residences are completely tax free, however if we own an investment property– we’ll need to pay taxes when we sell it. Condo sales have been so hot that the CRA has been paying extra attention to the sector. Don’t try to hide your gains, that’s tax evasion.

Final word
Homeowner ship is attainable, just be realistic of your costs. As Preet Banerjee explains, renting isn’t always a waste of money.

– –
Image courtesy: Chester county, Alan L / Flickr[/fusion_builder_column][/fusion_builder_row][/fusion_builder_container]

12 Comments

  1. simplecheapmom on March 2, 2015 at 7:28 AM

    I remember the first time I saw a real estate show where the buyers were encouraged to waive their home inspection that I was floored! Here in Ottawa it’s still very much a thing! The Toronto market is pretty crazy.

    As far as other costs, shovels, lawn mowers, extension cords, Christmas lights, those little costs really started adding up over the first year.

    • Barry Choi on March 2, 2015 at 8:48 AM

      Simple Cheap Mom,

      It’s definitely a Toronto thing. If you want a home you need to do a home inspection on your own before making a bid, that can be an expensive process especially if you don’t “win”.

  2. Potbelly on March 2, 2015 at 8:02 AM

    When we bought our new construction townhouse, we didn’t get our first property tax bill until the second year. That was a big shock because it was a really substantial amount. I think really changed our monthly budget for that year. You really have to be prepared for it.

    • Barry Choi on March 2, 2015 at 8:49 AM

      Potbelly,

      Yes new construction homeowners tend to get a huge shock when it comes to property taxes. You would think that it wouldn’t be that hard for them to give you an estimate on the taxes.

  3. Virna on March 3, 2015 at 4:25 PM

    I live in Oakville and I can’t believe how ridiculous the house prices are! It’s still cheaper than Toronto but it’s crazy expensive. I plan to sell our house when we retire and just rent an apartment…no more shovelling snow and mowing the lawn.

    • Barry Choi on March 3, 2015 at 4:48 PM

      Virna,

      Solid plan assuming that your home isn’t your only investment. Many people put all their money towards their homes and don’t save for anything else. That’s just bad planning.

  4. Our Big Fat Wallet on March 3, 2015 at 10:57 PM

    The big one for us when we bought our current home was the legal fees. They would have been $1,500 and it was something we budgeted only $500 for. When you buy a house you’re trying your best to save everything to go towards either moving costs, buying stuff you need for the new place or of course the mortgage. I negotiated with the builder to use their lawyer so we ended up paying $0 on legal fees

    • Barry Choi on March 3, 2015 at 11:12 PM

      Our Big Fat Wallet,

      Good point, when purchasing a condo your lawyer should put in a clause to cap fees otherwise the developer will try to pass on the extra “fees” to the new homewoner.

  5. Stephanie on March 5, 2015 at 6:57 PM

    Also quite overlooked, the “Land Transfer Tax” that exists in most provinces. This one can be quite a shock too! In BC, if you are a first-time home buyer, you are exempt, otherwise it is 1% on the first 200K and 2% on the remaining amount. It adds up, particularly here, in the Lower Mainland.

    • Barry Choi on March 5, 2015 at 7:27 PM

      Stephanie,

      I can’t believe people overlook the land transfer tax, I just assumed that was common knowledge. That being said in Toronto there is a double land transfer tax.

  6. Sean Cooper, Financial Journalist on March 7, 2015 at 7:02 PM

    Home renovations are a big thing for me. Right now I’m dealing with a cracked foundation. I can just see the dollar signs! At least with a condo, you don’t have to worry about costly repairs like that.

    • Barry Choi on March 7, 2015 at 10:30 PM

      Sean,

      Condo owners have to worry about special assessments in the event a major repair comes up. Although not as expensive as some house renovations, some condo owners might not be prepared for those one time costs. I always advise new condo buyers to beware of buildings offering a lot of amenities because that just means higher maintenance costs.

Leave a Comment