Going from renter to homeowner: How much does it cost?

Have you outgrown your apartment? Becoming a homeowner might be the solution. But you should be aware that this change will require a certain investment.

“Before starting to look for your dream property or thinking about a possession date, you’re better off looking at your financial situation,” suggests Martin Desfossés, real estate coach at DuProprio. “It will help you decide whether you’d be better off saving a little more before making the jump, or whether you’re ready to start your search!”

1. Mortgage

Your first stop, before house shopping, should be a visit to your mortgage advisor. That’s where you’ll get preapproved for a mortgage, which will let you know what your borrowing capacity is. That will tell you what price range to target in your search for a new home.

Down payment

To get a mortgage, you’ll have to make a down payment of at least 5% of the property’s selling price. For example, if you buy a condo for $225,000, the minimum down payment will be $11,250.

Mortgage loan insurance

Unless you have the resources to make a 20% down payment, you’ll have to get mortgage insurance, for instance from the Canada Mortgage and Housing Corporation (CMHC). For down payments under that percentage, you can expect your insurance premium to be between 2.4% and 4.5% of the amount borrowed.

2. Inspection

You’ve found the perfect home and they’ve accepted your offer? You’ll no doubt want to get the property inspected to make sure it’s in good shape. The services of a building inspector are generally $500 or more.

3. Notary

The transaction must be carried out by a notary, whose duties include writing up the bill of sale and the mortgage deed, and recording the sale with the land registry. It’s generally the buyer who chooses the notary and pays for the notary fees. You’ll need at least $1,200 for this step.

To read: Who pays for what at the notary’s?

4. Municipal and school taxes

The notary will also prepare the adjustment and apportionment of municipal and school taxes as of the transaction date. As the new owner, you will then be responsible to pay those taxes to the municipality every year.

N.B.: Some financial institutions offer a monthly withdrawal service to ensure you have the amount on hand at the yearly deadline.

5. Transfer tax

Commonly called the “welcome tax,” the transfer tax will generally be charged by the municipality a few weeks to a few months after the bill of sale is signed. This tax varies according to the price of the property. Note that it is calculated using the higher of two amounts: the purchase price paid or the municipal assessment. For example, the welcome tax on a home valued at $280,000 will be approximately $2,700.

Find out more about how to calculate the transfer tax (site in French only).

As you can see, it’s better to work out your budget in advance to avoid any nasty surprises. And don’t forget to plan for the cost of moving and of any work needing to be done on your new property (e.g., painting), as well as possible increases in your power bill and your home insurance cost.

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