First-Time Home Buyer Costs: What to Expect

Buying your first home is a huge milestone. While many first-time buyers focus on their down payment and purchase price, there are actually plenty of additional costs that come with closing on a house. Planning ahead to schedule the necessary professionals and pay these fees can help ensure your transition to homeownership goes as smoothly as possible.

To help you out, we’ve put together a fun and easy guide to all the potential expenses you might face. From deposits to moving costs, we’ll look at what to budget for, and other relevant details to research as a first-time homebuyer:.

Home Inspection Fee

Cost Range: $300 to $1,000  

A home inspection is a must-do! It might seem like an extra cost, especially if you’re a first-time homebuyer purchasing a fairly new build, but skipping it could cost you more in the long run if there are hidden issues. An inspector takes the time to check everything from the roof to the basement to make sure your new home is in good shape, giving you a fully detailed report about potential concerns. Some sellers even have inspections done beforehand to speed things up, as sales may be contingent on the home passing inspection.

Deposit

Cost Range: 3 – 5% of the purchase price  

When your offer is accepted by the home seller, you’ll need to make a deposit within 24 hours. This shows you’re serious and goes toward your down payment. In Ontario, the typical deposit is 3 – 5% of the purchase price. If you have any questions about how to pay the deposit, your realtor or mortgage broker can help answer them and clarify any concerns you may have as a first-time homebuyer.

Appraisal Fee

Cost Range: $300 to $1000  

Your mortgage lender will want to know the market value of the home you’re buying, and for that, an appraisal is needed. This fee can vary but typically falls between $300 and $600 but can be higher based on property type and location. 

It’s important to note that appraisal fees are typically required for conventional mortgages, private sales, and unique properties. However, appraisals aren’t always required for high ratio insured mortgages (less than 20% down payment).

Land Survey

Cost Range: $1,000 to $2,000  

To avoid future boundary disputes, a land survey shows the property’s limits. This is especially crucial for houses (not condos). Costs vary depending on the complexity and timing. For example, it’s often more expensive to get a land survey in winter due to the challenges of reaching property boundaries in inclement weather.

Title insurance can eliminate the need for an up-to-date survey. In addition, a clause in the offer to purchase requires the seller to provide an existing copy.

Title Insurance

Cost Range: $200 to $500  

Title insurance protects against issues with the property title, like errors in public records or undisclosed heirs. The cost depends on the property’s value and location, and it’s usually required by lenders. This means that it applies to first-time home buyers, and any subsequent properties you may purchase.

Legal Fees

Cost Range: $900 to $2,000  

A real estate lawyer or notary is essential to handle all the paperwork and ensure there are no claims against the property. These are the professionals to which you will pay legal fees. Fees vary by location, with urban lawyers typically charging more. An important note for first-time home buyers, whether in Ontario or another part of Canada, these costs usually don’t include GST or HST.

Land Transfer Tax

Cost Range: 0.5% to 2.5% of property value  

Most provinces charge a land transfer tax when you buy a property. This tax is tiered based on the property’s value. For example, in Ontario (excluding Toronto), a $500,000 home incurs a tax of $6,475. Some places like Alberta and Nunavut have no land transfer tax, but a small fee might still apply. As a first-time home buyer, your mortgage broker can help you to understand the applicable land transfer tax for your new home.

New Home Warranties

Cost: Varies  

If you’re buying a newly built home, certain provinces require a new home warranty. This covers defects and structural issues and is mandatory in B.C., Ontario, and Quebec. The cost is usually passed from the builder to you. Ensure that you review the paperwork thoroughly and account for any areas that the warranty may not cover.

Mortgage Default Insurance

Cost Range: 2.8% to 4% of mortgage value  

If your down payment is less than 20%, you’ll need mortgage default insurance. This protects the lender if you can’t make your payments. The premium varies based on your down payment size. For example, a 5% down payment on a $500,000 home results in a $19,000 premium, typically added to your mortgage.

Mortgage Life Insurance

Cost: Varies  

First-time homebuyers can also account for another insurance cost with mortgage life insurance. This covers your mortgage if you pass away, ensuring your family isn’t left with the debt. However, the payout goes to the bank, not your loved ones. Consider term life insurance as an alternative for more flexibility and better family protection when reviewing your insurance options.

Home Insurance

Cost: Varies  

Home insurance  (often referred to as fire insurance) is essential to protect your property and is often required by lenders. Costs vary based on your home’s features and coverage amount. If you have car insurance, you may want to request a quote from your current insurer to see if bundling your premiums is an economical option. Otherwise, you can shop around and compare coverage from other providers.

Sales Tax

Cost: Depends on the province or territory  

As a first-time home buyer, it’s essential to consider potential sales tax on the various closing costs you’ll have to pay.

1. New homes are subject to GST or HST, adding up to 15% to the purchase price in some areas. 
2. Resale homes usually don’t have this tax. 
3. Services like legal fees and moving costs also incur sales tax.

Utilities and Property Taxes

Cost: Varies

You might need to reimburse the seller for any prepaid utilities or property taxes for your new home. These adjustments ensure both parties only pay for their period of ownership.

Moving Costs

Cost: Varies

Moving costs can vary widely whether you are a first-time home buyer or a seasoned homeowner. DIY moves with rented trucks and free boxes are a cheaper option, while full-service moving companies will cost more but require less effort on your part. Choose based on your budget and needs, or consider combining some DIY efforts with dedicated movers.

Other Costs

There are plenty of closing costs to consider as a first-time homebuyer. While the above is not an exhaustive list, the professionals you work with, including your lawyer, real estate agent, and mortgage broker, can help you plan for these fees accordingly. 

In addition, review potential additional expenses like new appliances, renovations, service hook-up fees, condo fees, window treatments, and even seasonal needs like snow-clearing equipment.

How Can I Save as a First-Time Homebuyer?

While the first-time home buyer incentive has been discontinued by the Government of Canada, there are still many other resources you can use to save for your down payment. This amount is a critical piece in understanding the potential monthly mortgage payments you can expect and, thus, homes you can afford.

Home Buyer’s Plan (HBP)

First-time buyers can withdraw up to $35,000 from their RRSPs tax-free for a home purchase through the Home Buyer’s Plan. Couples can withdraw up to $70,000. You must repay the amount over 15 years, starting two years after the withdrawal.

First Time Home Buyer’s Amount

This non-refundable tax credit lets you claim up to $10,000. To qualify, neither you nor your spouse can have owned a home in the past four years.

First Home Savings Account (FHSA)

This new account combines the benefits of RRSPs and TFSAs. You can contribute up to $8,000 annually, and withdrawals for a home purchase from the First Home Savings Account are tax-free.

Land Transfer Tax Rebate

First-time buyers may get a rebate on land transfer tax, depending on the province. In Ontario, for example, you can get up to $4,000 back.

Final Thoughts

Buying your first home is an exciting time, but it comes with plenty of expenses and various types of closing costs. Being prepared for all the extra fees will help you avoid financial surprises and best prepare for all the relevant paperwork you need. By understanding these expenses and exploring available savings options, you can make your dream of homeownership a reality without breaking the bank. If you need a hand in understanding any of the above costs while house hunting, connect with us at The Mortgage Advisors! We’re happy to help.