The deposit and down payment what else could there be?
Where you land in that range will depend on the home you choose to purchase, your mortgage, and whether you’re a first-time buyer. Let’s look at those expenses and ensure you are fully prepared.
The Deposit
The deposit is normally paid to the seller’s brokerage. The amount and when it is due is laid out in your accepted agreement of purchase and sale. Usually, it is required within 24hrs of the offer being accepted. The amount may be specified by the listing agent / listing brokerage. This is an important part of the purchasing process, and you need to have quick access to the funds. This will be applied as a portion of your downpayment. In other words, you do not have to provide the deposit amount ON TOP of the downpayment.
Before Your Offer is Firm – Inspections and Appraisals
A home inspection is a condition in an offer and when it will be done is agreed to between the buyer and seller, but a good rule of thumb is 5 Business Days. Also, your mortgage lender may require an appraisal at your expense. Add this to your list of questions for your mortgage representative.
Also, there are some additional inspections that may be needed.
- Well water testing to make sure the water is safe to drink. This test is free in Southwestern Ontario and your agent will know how to do this.
- Septic inspection worth the investment of an inspection because septic replacement costs are high. It is also your right to ask that the septic be pumped out before closing at the seller’s expense AND if you are so inclined you can be there to ensure it is done.
- WETT (Wood Energy Technology Transfer) inspection If there is a wood burning fireplace / stove on the property you are purchasing your insurance provider will require this certificate.
The Down Payment
The down payment is a requirement of your mortgage lender. The minimum downpayment is 5% of the purchase price up to $500,000 and 10% on the amount above $500,000. If your downpayment amount is less than 20% of the purchase price mortgage insurance is required through companies like CMHC, Sagen, or Canada Guaranty.
For example:
Purchase price is $450,000 @ 5% is a $22,500 down payment.
Purchase price is $550,000 would be $500,000 @ 5% is $25,000 PLUS $50,000 @ 10% is $5,000 for a total of $30,000 down payment.
Land Transfer Tax
In Ontario, land transfer tax is paid by the buyer when the title of the property changes, from one owner to another, from the seller to the buyer. It is due on closing day and is calculated in tiers. The higher the purchase price the higher the land transfer tax. A few examples:
- $500,000 = $6,475.00
- $550,000 =$7,475.000
- $600,000 =$8,475.00
You can see the pattern here that for each additional $50,000 above the $400,000 price point the land transfer tax increases by $1,000.
If you are a first-time buyer you can qualify for a refund of up to $4,000 and, as a first time buyer, if the purchase price is $368,000 or less, you pay no land transfer tax at all. Your lawyer will account for this on your statement of adjustments. Using the examples above, a qualified first-time buyer purchasing a $550,000 home would pay approximately $3,475.
Speak with your lawyer to determine if you meet the criteria to qualify.
Legal Fees and Title Insurance
You will need to hire a lawyer to assist you with your purchase. Their bill typically covers their fees plus “disbursements” also known as “out of pocket expenses”. These are the searches, registrations, administrative costs, etc., involved in transferring the title or ownership of the property from the seller to you. Your lawyer will also discuss title insurance with you as a safeguard for what is one of your biggest investments. This will be added as well. You should know, mortgage lenders may deem this as a requirement. The purpose of title insurance is to protect against issues like title fraud or problems with the property’s history.
Mortgage Insurance
If your down payment is less than 20%, your mortgage will require you to purchase mortgage insurance (default insurance). This insurance is provided through Canada Mortgage and Housing Corporation (CMHC), Sagen (formerly Genworth Canada) or Canada Guaranty. The premium itself can be rolled into your mortgage but, in Ontario, the 8% PST on that premium cannot and has to be paid, in cash, on closing.
Closing Day Adjustments – Proportionate Share
Your lawyer will calculate certain items on the statement of adjustments that will be credited to the seller for things they have paid up to the date of closing. The best example of this is property taxes. A “per diem” amount is calculated and then multiplied by the number of days the seller has paid. The seller will get credit for this on the statement of adjustments. Think of it as if you are prepaying this amount now and your next payment will be delayed until it comes due again.
For example: Your closing date is October 15th. The Seller has paid their taxes through to the end of the year. The buyer takes over responsibility for bills effective the day of closing. In this scenario that would mean 17 days remaining in October, 30 days in November and 31 days in December for a total of 88 days credited to the seller.
Home Insurance
Your lender will require proof of insurance before they release funds. This is called a Binder Letter. Make insurance a condition of your offer and do your due diligence to get insurance quotes before your purchase is firm. You want to make sure the insurance company doesn’t have any specific requirements to approve your insurance. This is particularly important for older homes or properties with older wiring, plumbing or even if they are heated by oil, since these items can affect your premium. In some instances, to be insured the company will insist replacement as a condition of insurance.
Some Additional Costs to Factor
- Moving truck, movers and moving supplies
- Utility hookup and/or deposit fees
- Changing the locks
- Items needed to take care of a home like tools, lawnmower, shovel, salt for a water softener, etc.
- A small cushion for unexpected costs should something need replacing
Quick Note on New Builds
Buying a new build comes with its own set of costs, including HST considerations, possible rebates, and builder charges like development fees or utility connections. The landscape has been evolving and changing here so best to speak to your lawyer. Also, make sure you read the fine print to know if you will, in future, be responsible for paving your driveway, or fencing, etc. so you can prepare for those costs down the line.
Stay in the Black
Outlining these costs are not meant to deter or scare you. They are the reality of buying a home. Knowledge is power. Now you know. Now you can plan better and when you do buy, there should be no surprises!
Of course, I am not a mortgage specialist nor am I a legal representative. You should always speak to these professionals to further explain these items. The information I provide is always intended to inform to prepare you for the discussions you have with these representatives. Of course, if you need a referral to a trusted professional let me know as I am happy to connect you. AND if you are ready to start your search, give me a call! I would love to help you find your home.