Can You Afford to Buy a Home? Part One: The Upfront Costs

So you’ve considered it and decided that buying a home fits with the lifestyle that you want. But can you afford it?

Before you start seriously looking, make sure you have an accurate budget so you have a realistic idea of what your current monthly expenses look like. Once you have that as a starting point, you are ready to develop a budget for your home purchase.

When preparing that budget, don’t forget that there are also a number of upfront costs involved with purchasing a home that go beyond the down payment.

Typically, the rule of thumb is to estimate between 1.5% to 4% of the purchase price of the home for your closing costs, but be sure to look at each upfront cost and do a bit of digging to figure out just how much you can expect to fork over.

Down Payment

Depending on the purchase price of the property you want, there is a minimum down payment amount required:

Purchase PriceMinimum Down Payment
Under $500,0005%
$500,000 - $999,9995% of first $500,000 +
10% of portion above $500,000
$1,000,000 or over20%

You may also be required to pay a deposit when you make an offer on a home, which is a percentage of the purchase price up to 5%. This does count toward your down payment though.

It’s not enough though to save the minimum and call it a day, because your down payment is more than just an entry fee into home ownership.

What you put down also impacts how high a purchase price you can afford, what your monthly mortgage payment will look like, how much interest you’ll pay over the course of your mortgage, and the amount of mortgage insurance you’ll need to pay.

If those amounts are too high, you can either increase your down payment or find a less expensive property.

Caution! While you need to do what is right for you, I strongly suggest not looking for homes at the top end of your mortgage loan amount, particularly if you’ve received that number from a mortgage advisor. It is usually in their best interest to have you sign up for a bigger mortgage. Just because you qualify for it, doesn’t mean you can afford it.

(I don’t have anything against mortgage advisors; we went through a broker and had a great experience, but we did our research and knew what to look for. We ended up paying much less than what we qualified for and never looked back.)

Me and my mortgage broker IRL.
Me and my mortgage broker IRL

Further reading: check out Half Banked for Desirae’s post on why you shouldn’t put only 5% down.

Mortgage Insurance (CMHC Fee)

If your down payment is between 5% and 19.99%, this is considered a high-ratio mortgage, and you will require mortgage loan insurance to protect your lender if you default on your mortgage. The lower your down payment, the higher your premium will be. I’ve included this in the list of upfront costs because you can choose to pay the full cost on closing, but you also have the option of adding the premium to your mortgage so that it is included in your monthly mortgage payments.

You can find out what your CMHC fees will be by using this CMHC insurance premium calculator.


Appraisal Fee or Survey

In some cases, your mortgage lender may require you to have the property appraised to make sure the purchase price isn’t artificially inflated. The fee is typically between $150 and $200.

You may also be required to do a property survey to confirm where your property begins and ends. This depends on the size of the property and where it’s located, but these typically cost between $750 and $1,500.

Home Inspection Fee and/or Water Quality Fee

If you’re thinking of buying a previously owned home, it’s in your best interest to do a home inspection to get an expert opinion on the state of the house – are there bugs, mold, leaks, etc? All of that is costly to fix after the fact, and more importantly, it’s gross.

The cost will vary depending on where you live, how old the house is, how big the house is, and how the inspector charges (i.e. by the square foot, or by the hour) but typically, you can expect between $350 and $600.

If your home is on a well-water system, you may also need to have the water tested for quality to ensure it’s safe to drink. You can typically negotiate this cost at the time of offer or require the seller to have it done, but the cost can range anywhere from $50 to $400.

Land Transfer Tax

Land Transfer Tax is a required fee in Canada with the exception of Saskatchewan and Alberta. How much your Land Transfer Tax will cost depends on the price of your home and what province you live in. In Ontario, for example, the rate is 0.5% up to the first $55,000; 1% on the portion above $55,000; 1.5% above $250,000; and 2% above $400,000.

There is good news though if you are a first time home buyer in Ontario, British Columbia or Prince Edward Island, you are likely eligible for a refund of all or part of the tax up to a maximum of $2,000.

Click here to see Ratehub’s awesome summary of Land Transfer Tax details.


Property Tax

You might need to reimburse the seller of your home for prepaid property taxes. For example, if you take ownership of a home in February, but the property taxes have already been paid for the first quarter by the previous owner or by the home builder, you will likely owe them the pro-rated amount from the day you took possession to the end of March.

If you built new, like we did, be prepared to have your property value reassessed – you may need to pay additional back taxes if your property value is deemed to have gone up (which is typically the case when you go from empty lot to fully built house – no kidding!)

Many communities list their property tax rates online or have property tax estimators like this one in Ottawa. However, for those calculators,  you will need to know the assessment value of the property; it is not based on the purchase price of your home.

Math (2)

Sales Tax

If you purchase a newly built home, you may be required to pay sales tax. Sales tax is generally factored into the purchase price of the home and not an additional upfront cost, but before you sign an agreement with the builder, check to see if this is included.

If you do have to pay the sales tax, you can get a tax rebate of up to $8,750 from the government if your purchase price is less than $450,000. If this sales tax is included in the purchase price, the rebate will go directly to the builder.

Home Insurance

You have to have proof of home insurance to get a mortgage, which means you need to buy home insurance before you take ownership. Check with your provider to see if there are any discounts for combining home insurance with your existing insurance.

 Legal Fees/Disbursements

This is the cost associated with having a lawyer do various things for you, like review your offer, coordinate your mortgage registration, complete a title search and title registration, and do up all of the documents related to your home purchase.

Disbursements refer to the office supplies required for the transaction, like photocopies and postage. You can ask your lawyer what they estimate the fee will be, but generally, you can expect between $1,000 and $2,500.


Title Insurance

Title Insurance protects the homeowner and the mortgage lender from any losses against your property’s title (that means who legally owns the property). Losses include things like fraud, liens against the property from the previous owner, and encroachment issues such as having a shed that sits on part of your neighbour’s property. This isn’t a requirement, but if you do choose to purchase it, it typically costs around $250.

Condo or HOA Fees

If your new home is a condo or part of a Home Owners’ Association, you will likely be required to pay fees in return for service and maintenance. These will vary widely so be sure to ask about this when you are shopping for a new home.

Estoppel Fee/Status Certificate

This is only applicable if you are buying a condo. The certificate comes from the seller or the condo corporation and includes the condo corporation’s financial statements, reserve fund balance, fee schedule, status of the condo seller’s payments and other legal or financial information about the condo. The fee for the certificate typically costs about $100.

Utility Transfer or Install Fees

Depending on what utilities or services the previous owner held, you may need to pay a transfer fee to move the services (like electricity or gas) into your name. You may also need to pay to have your own services installed – for example, most cable, internet or phone providers charge a one-time installation fee above the regular monthly payment.

Moving Expenses

Whether you’re renting or buying, you will generally always have moving expenses such as paying for movers or moving supplies like boxes and tape. However, moving into a new home – particularly if it is your first home – also brings with it the need to purchase things like furniture, appliances, cleaning products, window coverings, yard equipment, or snow removal equipment. The one purchase my husband and I didn’t factor in to our budget when moving into our first home was lightbulbs – they cost more than you think when you’re buying in bulk.


SO MANY NUMBERS. I know, it’s a lot, it’s exhausting to keep track of so many fees.

Remember too that none of the costs above are exact because of all the variables, so do your research to find out what the numbers will look like in your region for your house budget.

Once you plunk them into your budget and get to a place where you can comfortably afford paying them, you will feel so much better for having been prepared and not being surprised by hidden costs.

I learned this the hard way by underestimating the legal fees by about half. Our lawyer was not pleased when I asked him to justify his rate. #loveyoulawman

You’re not done though – there’s more! Next week’s post will cover how to calculate your projected monthly costs to see if you really can afford your dream home on your income. Can’t wait? Me neither ; )

Are there any costs here you would add? (#mathpun) Anything that surprised you? Let me know in the comments!

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