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For many recent newcomers to Canada, buying a home is a big step towards feeling settled. It’s exciting to be buying a new home in your new country. As a Canadian immigrant, you’ve likely been thinking about how much home you can afford. But the cost of a new home in Canada goes beyond the home’s purchase price.
Here are 10 “hidden” new home costs you may not know about as a newcomer to Canada.
1. Land transfer tax
Land transfer tax is payable on any purchase of property in Canada. Each province has its own rules for determining the amount payable. And some municipalities also levy their own land transfer tax. For example, Toronto home buyers have to pay a Municipal Land Transfer Tax in addition to Ontario’s land transfer tax.
The good news for first time home buyers is that in some provinces when you buy your first home you may be eligible for a rebate. British Columbia, for example, offers a land transfer tax rebate for first time home buyers who meet certain conditions.
2. Legal fees and disbursements
Your real estate lawyer has probably given you a flat fee quote for their services, plus GST/HST and disbursements. It’s easy enough to calculate the GST/HST, but what about the disbursements?
A disbursement is any cost or fee that your lawyer incurs while working on your purchase transaction. These disbursements include fees for searches and registrations, as well as office expenses, such as photocopies and courier costs. For example, your lawyer will need to do a title search, and that fee is included in your disbursements.
The disbursements you’ll be charged will vary depending on your lawyer. Also, some lawyers include land transfer tax as part of a transaction’s disbursements, while others list it as a separate item. To help you budget for your disbursement costs, it’s always a good idea to ask your lawyer for an estimate.
3. Title insurance
When you purchase your new home in Canada, the title to the property — its legal ownership — is transferred to you. Title insurance provides coverage for any issues affecting your property’s title.
For example, title insurance would provide coverage for any liens against the property, such as unpaid utility bills. It would also protect you against any errors in official records that might affect your ownership of the property. While title insurance is optional, it’s often recommended for first time home buyers.
4. Land survey fee
A land survey provides information about the property’s boundaries and shows where buildings are situated. Most Canadian mortgage lenders require an up-to-date land survey of the property being mortgaged.
Many properties listed for sale will already have an up-to-date land survey, but if the property you’re purchasing doesn’t, and your lender requires one, you’ll need to commission and pay for a survey.
5. Appraisal fee
An appraisal confirms that a property is worth the amount for which it’s being sold or mortgaged. Your mortgage lender might also require a home appraisal. In Canada, an appraisal is performed by a licensed professional who assesses the home and provides you with an estimate of its market value.
If your lender requires an appraisal, they may ask you to obtain one, or they may get one done themselves, but typically the buyer is expected to pay the fee.
6. Home inspection fee
A home inspection is another recommended but optional cost when buying a home in Canada. A professional home inspector may turn up hidden problems even if your new home looks defect-free. For example, the roof might need to be replaced in a couple of years or there may be a slow leak hiding behind a wall. This could influence your decision to buy — or the amount of your offer.
As the buyer, you’re responsible for paying for the inspection. But if the seller has already obtained a home inspection, you will need to decide whether you want to get your own as well.
7. Canada Mortgage and Housing Corporation (CMHC) costs
If your down payment for your new home is less than 20% of the purchase price, you’re required to have a mortgage loan or mortgage default insurance, which is typically obtained from CMHC. Usually, your mortgage lender pays the CMHC premium and then passes the cost on to you.
If you haven’t applied for a mortgage yet, you can check CMHC’s rate chart to get an idea of the costs before you apply. Keep in mind, too, that if you’re buying a home in Ontario, Quebec, or Saskatchewan, you’ll also pay Provincial Sales Tax (PST) on the CMHC premium.
Looking to buy a home as a newcomer to Canada? Make an appointment with a RBC Newcomer Advisor and see how they can help.
8. Property insurance
If you’re getting a mortgage, you’ll need property insurance in place before you close on your new home. But even if you’re purchasing a house without a mortgage, property insurance can be important.
This type of coverage insures against the risk of damage to your property and provides you with the funds to replace your home — and its contents — if necessary. In Canada, you can obtain property insurance from most insurance providers.
9. New home warranty costs and GST/HST
If your home is a newly built home, the builder or seller must provide you with a new home warranty that protects against certain construction defects. While builders pay the fee for this warranty, they often pass this cost along to the purchaser.
New homes are also subject to GST/HST. Your builder may have included this amount in your purchase price, but if not, you’ll need to pay it at closing. There is some good news here, as well, as you might be eligible to get some of it back through the federal GST/HST new housing rebate.
There are two types of adjustments you may need to budget for when buying a home in Canada.
First, there are closing adjustments that represent your reimbursement of any property taxes or utility fees that the seller has already prepaid.
The second type of adjustment has to do with your mortgage interest. If your closing is mid-month, your lender might ask you to pay an interest adjustment on the first of the following month, even though your first mortgage payment isn’t due until the middle of that month.
It’s exciting to be buying a new home in your new country. Some of these costs are optional, depend on the type of property you’re purchasing, or may be required by your mortgage lender. But as a first time home buyer, it’s important to know about potential costs so you can factor them into your new home budget.
This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.