So you’re all ready to buy a house. Are you REALLY financially ready?
Many eager buyers ready to purchase their first home forget to plan for all the expenses and end up facing unpleasant financial surprises.

Having a pre-approved mortgage from your bank and a down payment is not sufficient… many other things should be taken into account.Planning ahead is crucial: You avoid facing unnecessary financial stress and you feel more confident as to what to expect as a homeowner.Two main categories of expenses should be assessed: The initial expenses you incur when you first purchase the house and the ongoing expenses you continuously pay once you’re living in the house.

Initial Home Expenses:

  • Down Payment: First question you must ask yourself is whether you can afford putting down 20% of the purchase price, or if you are willing to pay CMHC insurance fees on top of the down payment. If you can’t afford the 20%, then it is important to estimate those CMHC insurance fees and make sure they are added to your final mortgage payments.
  • CMHC Insurance will cost anywhere between 0.5% to 3.5% of the purchase price. The lower your down payment, the higher the insurance fees are.
  • Appraisal: This is a cost that you can negotiate with the bank to incur unless you back out of a deal. It is typically around $400. This is a procedure for the bank to estimate the value of the property.
  • Legal: Notary closing costs includes their due diligence on the title being free and clear and to register the mortgage. You can expect to pay around $1200-1400.
  • Inspection: Inspectors will give you a report on the status of the house, so an inspection is a good idea. You can add another $400-1200 depending on the inspector.
  • Welcome tax (or land transfer tax) is the municipal tax for transferring the property into your name. Calculations in Quebec is as follows:
    Up to $50,000 X 0.5% of total property value
    From $50,000 to $250,000 X 1% of total property value
    From $250,000 up X 1.5% of total property value
    Land Survey fees: A Land survey, which determines the boundaries of your land, costs around $700.

Other fees that you should not ignore because they can rapidly add up:

  • Moving expenses
  • Hook-up and installation cost for utilities (telephone, cable)
  • Furniture and appliances
  • Real estate agent commissions
  • Initial renovations: eg – painting, replacing a sink here or a toilet there.

Once you assess all these expenses, your next step is to see if you can afford living in the house you are going to buy. Your bank approving you for a mortgage does NOT guarantee that you are going to be able to afford it.

Once you move in to your new house, you’ll have regular occurring expenses:

  • Mortgage: of course you have to pay your monthly payments. We advise you to do some hypothetical calculations and see the impact of an increase in your interest rate on the total monthly payment. Would you still afford it if your interest rate increased?
  • Property taxes: 1-2% of the value of the house.
  • Home insurance: you have to shop around to get a good price.
  • Mortgage insurance: You can either go through the bank or get one yourself.
  • Condo fees: (if you are buying a condo): Your real estate agent will inform you of this expense. It varies on each building.
  • Utilities: Gas, hydro, water, telephone, cable, alarm system, snow removal, gardening services. There’s a lot to consider here, so do not underestimate these expenses, especially when it comes to your heating bill in the winter.
  • Repairs, Renovation, and Maintenances: Things will start going wrong after some time, so repairs and renovations are inevitable.

Before diving into home-ownership, it is important for you to estimate all these expenses and account for them into your budget. Being proactive about it will save you from financial trouble down the road.

This article is written by Lama Farran, Founder and Personal Finance Coach at MaxWorth. If you have any budgeting concerns, Lama will be glad to assist you.
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