Beware of the home ownership costs

Thinking about switching from renting to owning a home?

Buying a house is often seen as a way to cut living costs, but owning a home comes with many other expenses beyond your monthly mortgage payment. These include:

1. Closing Costs: These are one-time fees you pay when you finalize buying your house, like paying for the house inspection or setting up the mortgage.
2. Property Taxes: These are yearly taxes that depend on where your new home is located, often included in your monthly mortgage payments.
3. Maintenance and Repairs: When you own a home, you have to handle and pay for any repairs or general upkeep yourself, which can be pricey.
4. Unexpected Costs: Sometimes things break or need updating, and as a homeowner, you’ll need to cover these costs yourself.

As the Bank of Canada lowers interest rates, many people are thinking now might be a great time to buy a house. If you decide to buy, one of the initial costs you'll need to consider are the closing costs. These are the fees you need to pay to finalize your purchase, and they include:

1. Realtor’s Commission: This is the fee paid to your real estate agent for helping you find and buy your house.
2. Bank Underwriting Fees: These are charged by the bank for processing your mortgage application.
3. GST/HST and QST Sales Tax: Depending on where you live in Canada, you might have to pay these taxes on your purchase.
4. Legal Fees: You'll need a lawyer to handle the legal aspects of your home purchase, and this covers their charges.

According to the Canada Mortgage and Housing Corporation (CMHC), closing costs typically range between 1.5% and 4% of the total house price. For example, if you're considering buying a home priced at $500,000, your closing costs could be up to $20,000. This amount is in addition to whatever you'll be paying in interest on your mortgage. It's important to account for these extra costs when budgeting for a new home to avoid any surprises.

As a homeowner, you’ll need to manage several financial responsibilities beyond your mortgage:

1. Home Insurance: This is crucial for protecting your property against damages from unforeseen events like fires, trees falling on your house, flooding, or your roof collapsing under heavy snow. Often, the cost of this insurance can be incorporated into your mortgage payments, making it easier to manage.
2. Mortgage Insurance: If you’re a first-time homebuyer, you might not have a 20% down payment saved up, which is typically required. Through the Canada Mortgage and Housing Corporation (CMHC), you can qualify for mortgage insurance that allows you to make a down payment as low as 5%. This insurance protects the lender in case you default on your mortgage.
3. When you own a home, there are several ongoing expenses and responsibilities to consider:
4. Appliance Repairs and Replacement: Unlike renting, where your landlord typically handles appliance issues, homeowners are responsible for their appliances. This means paying for repairs and eventually replacing items like washers, dryers, and refrigerators, which can be costly. Appliances usually last between 5 to 15 years, but they will need to be replaced eventually.

These responsibilities highlight the importance of budgeting for more than just your mortgage when you buy a home, ensuring you're prepared for the full scope of homeownership costs.

1. Landscaping and Snow Removal: Homeownership includes maintaining the land your house sits on. This could involve tasks like mowing the lawn, gardening, and removing snow. You might need to invest in the necessary equipment or hire a service to handle these tasks.
2. Property Taxes: As a homeowner in Canada, you're required to pay property taxes annually. These taxes are based on the assessed value of your property and contribute to local services and infrastructure. Not paying your property taxes can lead to serious consequences, like foreclosure.

Home Repairs and Maintenance: Regular maintenance is crucial to keep your home in good shape. For example, roofs often need replacement every decade or so, which can start at around $5,000. Other repairs, like plumbing and electrical work, may also require hiring professionals if you're not able to do them yourself.