The Hidden Costs of Buying a Home
Buying a house can be a rewarding experience and a great investment. It can also be quite stressful if you have not budgeted properly for some of the expenses that come with home ownership, and specifically, the expenses associated with closing your purchase transaction. Most people are aware of obvious expenses, such as land transfer tax and legal fees, however, there are other less commonly known expenses that you should be aware of when budgeting to purchase a property. I have listed five that people often miss.
1 – Closing adjustments – Your purchase price is always adjusted on closing for various items
- property tax pre-paid by vendor
- propane or oil if the house heated by fuel and tank rental
- pre-paid condominium fees
- other pre-paid utilities
Although these are expenses that you owe anyways as an owner, if they are prepaid, you are expected to come up with funds to compensate the Vendor in full on closing, as opposed to spreading the cost over several months.
2 – PST on CMHC Fees
Your lender will lend you the money to pay for CMHC, but you are responsible for the tax payable on the amount loaned, as the lender deducts the cost from the amount advanced to your lawyer on closing. Ex – $8,000 in CMHC means an additional $640 payable on closing (8%)
3 – Like many municipalities, the city of Ottawa charges a fee to you of $39 when the property tax account is changed to you name. This will be billed directly to you shortly after closing.
4 – If you have never had a utility account, some utility companies will require an up-front deposit when you open your account with them, which can be several hundreds of dollars.
5 – If you purchase from a New Home Builder, there will be additional potential costs you will incur over and above the ones set out above.
- Typically you pay a fee to the builder on closing to cover the cost of the builder’s lawyer preparing the deed to the property (typically around $200);
- The Tarion Warranty for your home;
- LSUC levy charged to builder’s lawyer
- You may pay utility meter installation costs
- HST is typically included in the price of a new home. However, normally any HST rebate that can be claimed by the buyer is assigned to the builder, and the price of home reflects this assumption.
Important to note that if the property you are buying is a rental, this assumption no longer applies and so you will be charged the rebate amount on closing and an adjustment. You may be able to claim the rebate after closing, but you will responsible for coming up with the additional cash, which could be thousands of dollars, on closing. Your mortgage company will typically not cover this cost.