The Hidden Costs of Buying a Home

Learn about the out-of-pocket expenses that come with buying a home in Canada.

By Emily Southey | 8 minute read

Buying a home is likely the biggest purchase you’ll make in your life. As such, it’s important to be aware of all the costs associated with doing so. To prepare yourself for the financial realities of homeownership, it’s vital to have a clear picture of all fees associated with buying a house in Canada. From the home inspection and appraisal fees to the legal fees and sales tax, buyers, especially first-time buyers, should make sure they aren’t blindsided by out-of-pocket expenses such as these. To learn more about the hidden costs of buying a home in Canada, keep reading. 

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Hidden Housing Costs First-Time Buyers Should Be Aware of

There are lots of fees associated with buying a house in Canada, beyond the initial deposit or mortgage repayments. Canadian buyers should allocate part of their budget to paying for some of the “hidden” costs of buying a home. We’re talking about home inspection fees, legal fees, new home warranties, mortgage insurance, land transfer tax, home insurance, moving costs, and more. Some of these costs will need to be paid upfront, such as the home inspection fee, while others may arise in the future, such as renovations or repairs. To properly budget for the out-of-pocket expenses that come with buying a home in Ontario, check out the exhaustive list below.  

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Fees Associated With Buying a House in Canada

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Down Payment

The first and most obvious fee associated with buying a house in Canada is the down payment. In Canada, the down payment must be a minimum of 5% of the purchase price if the price is $500,000 or less. For homes between $500,000 and $1,000,000, a 10% down payment is required. Finally, for homes priced over $1,000,000, as many are in popular metropolitan areas such as the Greater Toronto Area (GTA), you will need to put down 20%. These rules apply nationwide and are applicable to all types of homes, whether you’re buying a condo, townhouse, or detached home. Before you start house hunting, we suggest making sure that you have enough money in savings to pay this significant fee.

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Home Insurance

Home insurance is not mandatory in Canada, however, most banks and mortgage lenders require buyers to show proof of home insurance before being granted a mortgage. Home insurance protects your home against the cost of damages, such as fire, flood, theft, storm, or water damage. The cost of home insurance varies depending on your personal circumstances, the size and features of your home, the location of your home, and how much coverage you wish to include in your policy. Many insurance companies and brokers in Canada provide free home insurance quotes to homeowners.

Deposit

The deposit is not to be confused with the down payment. When you put in an offer to buy a home and that offer is accepted, the buyer is often expected to make a deposit within 24 hours. The typical deposit is 5% of the purchase price. When the sale is finalized, the deposit is credited in full and put toward the cost of the home. During this interim period, the deposit is often held by a third party, such as the buyer’s real estate agent’s brokerage, until the completion date when it then becomes part of the down payment. The deposit is a small show of good faith from the buyer to the seller; the down payment is the total amount of funds the buyer is required to pay toward purchasing the property. 

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Property Transfer Tax/Land Transfer Tax

The Property Transfer Tax (PTT) or Land Transfer Tax (LTT) is a tax that must be paid to the province or territory in which you reside. All provinces and territories except Alberta, Saskatchewan, Nunavut, and Yukon have this tax, though the rates differ depending on the location. Certain municipalities, such as Toronto, have an additional municipal land transfer tax. For example, Ontario uses a multi-tiered system to calculate LTT. On a $500,000 home in Ontario (located outside the municipality of Toronto), 0.5% is paid on the first $55,000, 1% on the next $195,000, 1.5% on the next 150,000, and 2% on the final $100,000. This equals an LTT of $6,475. 

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Sales Tax

Buyers are required to pay sales tax when they purchase a home in Canada. The amount of sales tax and which kind depends on the province or territory. For example, in Ontario homeowners must pay the applicable 13% in harmonized sales tax (HST). By contrast, Quebec homeowners must pay both the goods and services tax (GST) and the provincial sales tax (PST). 

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Home Inspection

Hiring a professional to conduct a home inspection is a wise decision. After all, the cost of the inspection could be minor compared to the cost of the necessary repairs that the inspector uncovers. For this reason, many Canadian buyers will make their offer contingent on a home inspection. While home inspections are not mandatory, they do have many benefits. However, they are paid for by the buyer not the seller, so the cost of the home inspection is yet another expense to prepare for.

Legal Fees

During the home-buying process, you will need to hire a property lawyer to review all legal documents, such as the agreement of purchase and mortgage. Legal expenses typically also include ordering a title search and registering a title. The cost of working with a lawyer can be hefty depending on which part of the country you live in, so it’s important to budget for it.

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Moving Costs

Moving can be expensive, though costs vary widely. You could save on moving costs considerably If you decide to spearhead the move yourself by renting a truck and packing your own boxes. However, if you hire a professional moving company and/or are moving from another province or country, it will cost more. 

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Interest Adjustment

Buyers are responsible for the cost of interest accrued between your first mortgage payment and your closing date. The percentage of interest you’ll be charged varies based on the payment frequency and the closing date. 

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New Home Warranties

If you bought a brand new property, then you may be required to purchase a warranty depending on the Canadian province or territory you live in. Currently, new home warranties are mandatory in British Columbia, Ontario, and Quebec. Warranties typically cover structural abnormalities, building defects, and material defects, and range in price from a few hundred dollars up to $2,000. 

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Mortgage Default Insurance

Mortgage default insurance is another hidden expense that you are responsible for paying if you make a down payment of less than 20%. This type of insurance is required for all down payments below 20% and is issued by the Canada Mortgage and Housing Corporation (CMHC), Genworth Canada, or Canada Guaranty. It is commonly referred to as CMHC insurance. The premium you pay varies depending on how large your down payment was.