Understanding The Costs Of Buying A Home: From Down Payments To Closing Costs, And What To Expect During The Homebuying Process
While owning a home can be a great investment, the process of buying one can be overwhelming, especially for first-time homebuyers. Understanding the costs associated with buying a home is crucial to avoid surprises and ensure that you are financially prepared for the home buying process. To ensure you are in the know, us experts at Keith Uthe Demystifying Mortgages have prepared a list of five points for understanding the costs of buying a home.
1. Down payment
In Canada, homebuyers are required to make a down payment on their property. The minimum down payment is 5% of the purchase price for homes valued under $500,000, and 10% for homes valued between $500,000 and $999,999. For homes valued over $1 million, the minimum down payment is 20%. When calculating your down payment, it's important to factor in other expenses such as moving costs, furniture purchases, and renovations. These expenses can quickly add up, so it's important to budget accordingly.
2. Closing costs
Closing costs are the expenses associated with finalizing the purchase of a home. These can include legal fees, home inspection fees, land transfer taxes, title insurance, and other expenses. Closing costs can add up to 1.5 to 4% of the purchase price of the home, so it's essential to budget for these costs in addition to the down payment. It's important to note that closing costs do vary from province to province, so getting a quote from your lawyer is very important so you can be prepared.
3. Mortgage insurance
If your down payment is less than 20% of the purchase price of the home, you will be required to pay mortgage insurance. This insurance protects the lender in case you default on your mortgage. The cost of mortgage insurance varies based on the size of your down payment and the value of the home. It's important to note that there are two types of mortgage insurance available in Canada: CMHC (Canada Mortgage and Housing Corporation) insurance and private mortgage insurance. CMHC insurance is offered by the government and has more strict eligibility criteria. Private mortgage insurance is offered by private insurers and may be required if you don't meet the CMHC eligibility criteria.
4. Property taxes
As a homeowner in Canada, you'll be required to pay property taxes. The amount of property tax you pay will depend on the value of your home and the location. Property taxes can be a significant expense, so it's essential to budget for these costs when purchasing a home. Additionally, some homebuyers may be eligible for property tax rebates or reductions based on factors such as age, income, or disability status, so it's worth exploring these options to potentially lower your property tax burden.
5. Ongoing maintenance and repairs
Beyond the initial costs of purchasing a home, it's important to budget for ongoing maintenance and repairs. As a homeowner, you're responsible for the upkeep of your property, including repairs to the roof, plumbing, and other systems. It's a good idea to set aside a portion of your budget each year for ongoing maintenance and repairs to avoid unexpected expenses.
If you’re looking for a mortgage broker, consider reaching out to Keith Uthe Demystifying Mortgages. Unlike an agent in the bank, we represent you the client to many different lenders to find you the best terms for your mortgage and make sure you understand what those terms mean. This should be as important as the rate when making your borrowing decision. As a home buyer, this is the single largest investment and borrowing decision you will make at any one time and you should have someone independent of the lender in your corner looking out for you. This is why you need to be considering more than just the mortgage rate ensuring your mortgage offers you flexibility and freedom at minimal cost for those unexpected moments that happen in life.
Whether you are a First-Time Home Buyer, Buying your next home or seeking to Refinance our Calgary Mortgage Broker has many Mortgage Solutions to consider. Serving clients across Calgary, Red Deer, Lethbridge, Edmonton, and Medicine Hat in Alberta.