How Much Money Do I Need to Buy A House in Toronto?
Thursday Jan 24th, 2019
The cost of buying a home factors in way more than the moving truck rental and the initial purchase price. First time home-buyers get a massive surprise on the closing day when they see the amount they are presented with the final cost. Wouldn’t it be better to be financially prepared by knowing what to expect in advance? While industry leaders may look at the Toronto housing market through an analytical lens of interest rates, shifting sales numbers, and percentages. However, an average buyer is only really interested in two things:
“What can I afford?” and “What is the actual cost of buying a house?”
Based on the average home prices in 2018, let’s see what average household income you need to be able to purchase a house in Toronto. To help answer the first question, here are the average prices for houses in Toronto by property types against average household incomes to help you decipher if you can afford a house. Before you get overwhelmed by the staggering numbers, remember that these salaries are not representative of those of a single person, but rather signify household incomes.
As for your second question, by getting to grips with more than just your regular mortgage payments and your down payment, you will be fully braced for the closing day. Plus, you will be in a better place to negotiate with your lender or broker for a fee waiver. Here are the hidden costs included in buying a house.
Home Inspection Fee: $350 to $600
While most buyers are of the opinion that they can skimp on this seemingly redundant cost by skipping it altogether, this fee is nothing compared to what they might be charged with down the road. The size of a prospective home determines this cost. Before issuing you a mortgage, some lenders ask for a professional inspection report. If you are in the throes of closing the deal on a home, you should better get done with a home inspection to uncover potential key issues promptly before they become a noose around your neck. A licensed professional home inspector can gauge every nook and cranny of a house, looking into foundation or roofing to conduct an accurate inspection. These flaws can cost you a fortune later on, so it is better to leave the inspection to an expert, who can ascertain the accurate functioning of all systems and the structural safety, so you can bring up any defects with the seller.
You are entailed to provide a deposit when you put in an offer for a home. This makes sure that the buyer goes through with the purchase on closing day and not back out. If you do, your seller has the authority to keep your deposit. If you do buy the house, the deposit will be adjusted in the total cost of the house. The higher the deposit, the more serious a behavior you are presenting in front of your seller. In addition, a higher deposit can help you save up on interest. On a side note: Do not confuse down payment with the deposit.
Appraisal Fee: $300 to $500
When it comes to the mortgage, the amount a lender will be willing to lend toy will either be a percentage of the home’s purchase price or the percentage of the appraised market value of your home; the lesser of the two as a rule of thumb. Though you will have to pay the cost of the appraisal service out of your pocket, which boils down to somewhere between $300-$500. The fees will vary depending on your credit score and also from lender to lender.
Land Survey: $1,000 to $2,000
Most lenders need to clarify the boundaries of your property so that there is no confusion between neighboring properties. A land survey by an expert can cost you somewhere along the lines of $1000-$2000.
Legal Fees: $500 to $1,000
When acquiring a mortgage, all the legal paperwork is generally managed by the real estate lawyers. They draft your mortgage contracts after your purchase and assess the property to gauge if there are any existing liens or mortgages on the property. While a lawyer’s fee can be quite hefty on the pocket, make sure that everything is verified to completion in a professional way.
Harmonized Sales Tax (HST)
In Ontario, HST is the 13 per cent provincial sales tax, applied to the purchase price of all new homes, but not applicable on resale homes. It also applies on your moving costs, the home inspection, your real estate professional’s commission, and your lawyer fees.
New Home Warranties
Warranties protect your investment if you are buying in to a new development or a pre-construction property. This one-time fee varies according to the size of the house.
Mortgage Default Insurance: 1.75% to 2.95% of the Mortgage Value
With a less than 20% down payment, you can only apply for a high-ratio mortgage, for which you will need to purchase mortgage default insurance. This insurance covers the lender in case the buyer fails to make good on the mortgage payments. Most lenders also necessitate you to protect your home with extended coverage insurance.
Title Insurance – $300
Title insurance is a prudent move that protects you from such things as title omissions, errors, and defects, including flaws in the existing surveys and public registry, as well as undisclosed heirs who may fraudulently discharged mortgages or claim your property. This insurance can cost somewhere around $300, depending on the title insurance and property type, and affords you much peace of mind later on.
Land Transfer Tax
After a change in land ownership, a new owner in Toronto is entitled to pay a tax related to the value of the property. First-time homeowners can usually receive a refund on this tax.
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