The true cost of home ownership? Ouch!

By Ryan Starr, Moneyville, TheStar.com


Buying a home can be such an exhilarating and nerve-wracking experience for first-timers that they often overlook the true costs.

“They’re so emotionally charged that they forget the cost of the house isn’t just what they need to account for,” says Farhaneh Haque, director of mortgage advice with TD Bank. “There are ancillary costs you need to budget and save for.”

We asked experts what first-timers should expect to pay when purchasing a home, and the costs of ownership over time.
Begin with a budget:Before you begin house hunting, examine your income and create a budget to determine a monthly mortgage payment you can live with. The basic rule of thumb is that your total housing costs shouldn’t exceed one-third of your gross income.

Short-term pain: Initially you’ll need money for a down payment. A typical down payment ranges from 5 to 15 per cent of the home purchase price, or appraised value, whichever is less. The more you put down up front, the less you’ll pay in the long run.

You’ll need a home inspection as part of the condition of purchase agreement: this can cost up to $500.

Then there are closing costs, which can run between 1.5 to 2 per cent of your purchase price.
There’s the provincial land transfer tax and, for homes in Toronto, an additional municipal land transfer tax. On a $400,000 home, that’s a combined one-time payment of $8,200.

Notary and legal fees should be factored in; about $1,000 to $1,300. You’ll also pay $200 to $300 for your title insurance fee.

Dizzy yet? Wait, there’s more! A few other costs to consider:

If you’re buying a condo, you might need to pay for a status or estoppel certificate from the condo corporation.

And if you’re purchasing a new house from a developer, or one that’s been significantly renovated, you’ll likely be paying HST on the transaction.

Finally, there are the costs associated with the actual house move and furnishings to spruce up your new digs.

Not surprisingly, experts recommend establishing a decent-sized financial cushion ahead of time.

“I always tell my clients not to cut themselves short,” says Frances Hinojosa, a mortgage specialist at BMO. “Create a buffer in there for any incidentals, such as moving costs or upgrades to your property; maybe you want to paint or get window treatments.”

Ongoing obligations: Notwithstanding the mortgage payments, there are several other ongoing, long-term costs associated with operating a home.

There are property taxes, which in the GTA are usually about 1 per cent of a home’s purchase price and are based on the assessed value of the home. (Total taxes on a $400,000 home in Toronto are about $3,000 a year.)

A condo will have maintenance fees, which tend to increase over time.

And if you’re buying a house, there will be the ongoing cost of utilities and maintenance.

A home inspection will give you a basic sense of its state of repair, “but something like a furnace can go out overnight,” Haque notes. “So having a little bit of a safety net set aside for that is a good idea.” $100 a month for home maintenance is a safe bet.

Also be mindful of interest rates, which are currently at all-time lows. It’s wise for first-time buyers to account for roughly a 2- to 3-percentage point increase in this rate and provide for that in their budget, says Haque.

Budget stress test: Once you’ve accounted for your housing costs and determined what your new monthly budget will be, experts recommend subjecting your finances to a stress test.

If you’re currently renting, put the difference in the monthly costs into a savings vehicle. “So you actually get used to carrying that expense on a month-to-month basis,’ Hinojosa explains.

“That’s what my husband and I did when we bought our first home; even when we moved up to a second property,” she says. “When the purchase closed and we had to pay (that amount), we’d already been paying it. So there wasn’t this feeling of, ‘Oh my goodness, I can’t afford this.’ ”