The costs associated with purchasing a house in British Columbia aren’t limited to the down payment and purchase price. There are many steps, services, and fees which might come as a surprise if you do not prepare yourself from the beginning. When you work with a Realtor from the early stages of buying we will educate and guide you through the process from start to finish. Here is a list of costs every home buyer should expect, in no particular order:
Save For a Down Payment
The first step in purchasing a home is saving up for a down payment. You cannot borrow money for a down payment on a house, unless it’s from the bank of mum and dad. Many buyer’s wonder what the down payment will be on a certain house, which is quite simple: Lender’s require a minimum of 5% for a down payment for a house below $500,000. If the house is over $500,000 the lender will require 10% on the balance, up to $1,000,000. Now, if you’re looking at a property over $1,000,000 then you will be required to have a down payment of 20% of the purchase price. If you are purchasing an investment property – that will not be your primary residence but will be used simply for rental/income purposes – then CMHC might require you to have a down payment of 25%. Some lenders may let you get away with 20% down, but don’t get your hopes up. Your return on investment will be greater if you put more down anyway.
Most lenders charge a fee on the application of a new mortgage. I highly recommend hiring a mortgage broker; they do not work for any particular bank but instead shop around at every lender to find the the best “product” for you. Starting the search for a home means establishing your finances and approval ahead of any showings you’d like to book.
Lenders almost always require an appraisal before any money is loaned for the purchase of a property. Just because you qualify at a certain amount does not mean the lender will give it all to you blindly — they’ll likely send an appraiser to determine the true market value of the home. Most of the time the lender will pay for this appraisal but in any case it would be wise to budget accordingly.
If you are borrowing more than 80% to purchase a home you will be required to pay mortgage insurance as you’ll be borrowing on what is known as a high-ratio mortgage. This insures that the lender will be covered in the event you cannot make payments, otherwise known as default insurance. The amount will be added to the face value of the loan. Once again, keep in mind that this protects the lender and does not cover the borrower in any case. This insurance might be waived if your deposit is greater than 20% and, if borrowing on a conventional mortgage, this amount (let’s say 20%) of a down payment might save you 10-15% of your monthly mortgage payments. Food for thought.
Unlike mortgage default insurance, life insurance is there for you if your co-borrower dies and you cannot make payments. This is a no-brainer: Do you want to purchase a house? Get life insurance. There are plenty of options available so choose the provider that best suits your needs, and if you require help I can put you in touch with several contacts I hold in high regard.
Lawyer & Notary Fees
A lawyer will be responsible for all of your transaction documents and extremely important paperwork, for example: the Land Title, Statements of Adjustments, Disbursements, discrepancies, and so forth. In this fast paced market choosing a lawyer prior to entering into a contract is a very wise decision. You might need the legal advice of a lawyer during the offer stage of the transaction, not just at closing. One example of this would be reviewing strata documents. With our hot market in Victoria many lawyers are extremely backed up and may need several days to review or prepare these documents. This could be a very stressful issue considering the conditions on contracts are time sensitive. Get in touch with me if you would like to receive a list of recommendations.
No matter what type of property you are purchasing it is extremely wise to hire a licensed building inspector to thoroughly examine it. Part of any logical offer (contract of purchase and sale) will include a condition (subject) to the buyer receiving a building inspection which meets their approval. The cost of this inspection can range anywhere from $300-$500 (or more) depending on the size of the home. This is extremely reasonable if you consider the cost of the home you are purchasing, which is usually in the hundreds of thousands if not millions.
Property Transfer Tax
The standard property transfer tax to be paid upon completion is:
- 1% on the first $200,000
- 2% of the remaining balance up to $2,000,000
- 3% of the remaining balance if the purchase price is greater than $2,000,000
First Time Home Buyer:
If you are a first time home-buyer purchasing a home under $500,000 you are not required to pay property transfer taxes. There is a partial exemption (on a sliding-scale) up to $525,000 otherwise the standard full property transfer tax will have to be paid upon completion.
A full exemption for property transfer tax is in set in place for anyone purchasing a brand new home under $750,000 in British Columbia, with partial exemptions (sliding scale) in effect up to $800,000. You’ll still have to pay GST, however.
Sales Tax (GST) on New Construction
If you are purchasing a new property in British Columbia you will be required to pay 5% GST on top of the purchase price. I wish I could say more, but it’s pretty straight forward. No matter the price of the house or if you are a first time home-buyer you will be required to pay 5% GST on top of the purchasing price. If you’re buying a house under $750,000 at least you won’t have to pay property transfer tax. Look at the bright side!
Annual Property Taxes
Don’t forget about property taxes! Depending on the completion date you may owe the seller money if they’ve already paid the property taxes for the year. Make sure to budget accordingly as this may be an unexpected cost during the closing portion of your transaction. No, property taxes can’t be tapped on your credit card.
Often times we forget that we’ll need to hook up utilities to our house. Hydro, cable, alarm systems – just to name examples – will need to be installed or switched over on possession day. Most of these charge an installation fee or a deposit which might be another unexpected cost on move-in day. Household goods such as cleaning and maintenance products, and even small home renovations such as fresh paint or new drawer pulls for the kitchen should be budgeted for as well. In conclusion, a generally wise rule-of-thumb is to budget a little over 3% for the costs detailed on this page. Remember, if you are purchasing a new home to add 5% on top of that, 8% total.