Budgeting for a Home Purchase

From closing costs and property taxes to moving expenses and ongoing maintenance, there are several additional costs aside from down payment to consider before purchasing a property.

Understanding these expenses in advance can help you avoid unexpected financial stress, establish a realistic budget, and feel more confident throughout your homebuying journey.

1. Down Payment & Mortgage Default Insurance

Your down payment is the amount you contribute toward your home purchase. In Canada, eligible buyers may qualify with as little as 5% down, depending on the purchase price.

If your down payment is less than 20%, mortgage default insurance is generally required. The premium can usually be added to your mortgage, but the applicable 8% Ontario sales tax must be paid separately at closing.

Learn more here -> Buying a Home With Less Than 20% Down Payment in Canada.

2. Closing Costs

Your down payment isn't the only amount you'll need to have available when purchasing a home.

Closing costs are additional expenses associated with completing your property purchase, many of which must be paid before or on your closing date.

As a general guideline, buyers should budget approximately 1.5% to 4% of the purchase price for closing costs, although actual expenses will vary depending on the property, location, financing arrangements, and applicable rebates.

Common closing costs may include:

• Legal fees and disbursements
• Land transfer tax, after applicable rebates
• Title insurance
• Property appraisal fees, if required
• Mortgage default insurance sales tax, if applicable
• Property tax and utility adjustments
• Registration fees
• Applicable lender or mortgage broker fees
• New construction adjustments, if applicable

What Happens If You Can't Afford Your Closing Costs?

If you don't have sufficient funds available to cover your required closing costs, you may be unable to complete your purchase on the agreed closing date. This could result in closing delays or potentially losing your deposit and facing legal consequences. Lenders may also require proof that you have sufficient funds available for your down payment and closing expenses before issuing final mortgage approval.

3. Lawyer Fees

A real estate lawyer plays an essential role in completing your property purchase.

They review legal documents, conduct title searches, register your mortgage, transfer ownership of the property, and ensure funds are distributed correctly on closing day.

Legal fees and disbursements are a standard part of closing costs and should be included in your home-buying budget. The exact amount will depend on the complexity of the transaction and your lawyer's fees.

4. Mortgage Broker Fees

In certain situations, such as private mortgages, alternative lending solutions, or more complex financing arrangements, a mortgage broker fee may apply.

Your mortgage broker should explain any applicable fees and financing costs before you proceed with your mortgage. Like lawyer fees, the exact amount will depend on the complexity of the transaction.

5. Property Appraisal

Your lender may require a property appraisal before issuing final mortgage approval.

An appraisal is an independent assessment of a property's market value. It helps the lender confirm that the property's value supports the mortgage amount being requested.

Depending on the lender and mortgage program, the buyer may be responsible for paying the appraisal fee.

What Happens If the Appraisal Comes in Lower Than the Purchase Price?

If the appraised value is lower than the agreed-upon purchase price, your lender may calculate the mortgage amount using the lower appraised value rather than the purchase price.

For example, if you agree to purchase a home for $700,000, but the appraisal values it at $680,000, the lender may use the $680,000 valuation when determining how much financing it can provide.

This could mean you need to contribute additional funds out of pocket to cover the financing shortfall.

Depending on your circumstances, you may need to:

• Increase your down payment.
• Renegotiate the purchase price with the seller.
• Explore other financing options.

An appraisal shortfall can affect the amount of money you need to complete your purchase, making it an important consideration when preparing your homebuying budget.

6. Property Taxes and Closing Adjustments

Property taxes are another important expense to consider when purchasing a home in Ontario.

Depending on your closing date, you may be required to reimburse the seller for property taxes they've already paid for the period after you take ownership.

For example, if the seller has prepaid their annual property taxes, your lawyer will calculate the portion that applies after your closing date and include the appropriate adjustment in your final closing statement.

Other potential adjustments may include:

• Prepaid condominium maintenance fees
• Certain utility charges
• Applicable new construction adjustments

If you're purchasing a newly built home, review your purchase agreement carefully, as additional development-related charges or adjustments may apply.

Remember that property taxes will also become an ongoing expense once you own the home.

7. Moving Expenses

Moving costs are often overlooked when budgeting for a home purchase.

Depending on your circumstances, you should account for expenses such as:

• Professional movers
• Moving truck rental
• Packing supplies
• Temporary storage
• Utility connection fees or deposits
• Cleaning services

8. Ongoing Homeownership & Additional Expenses

Owning a home involves more than just your mortgage payment. It's important to budget for both immediate purchases and ongoing expenses, including:

• Property taxes and home insurance
• Utilities, internet, and other household services
• Condominium fees, if applicable
• Furniture, appliances, and moving-in essentials
• Routine maintenance and home repairs

Unexpected expenses, such as replacing a furnace or repairing a roof, can also arise. Having an emergency fund can help you manage these costs without unnecessary financial stress.

When determining how much home you can comfortably afford, consider your total homeownership expenses, not just your monthly mortgage payment.

Plan Ahead

Prepare for all the costs associated with buying a home, not just your down payment and mortgage payment.

Before beginning your home search, it's important to understand both how much mortgage financing you may qualify for and how much money you'll need to complete your purchase.

A mortgage consultation can help you:

• Understand your potential borrowing capacity.
• Review your available down payment.
• Estimate additional closing expenses.
• Explore mortgage options based on your financial situation.
• Establish a realistic home-buying budget.

Taking these steps early can put you in a stronger financial position when you're ready to purchase.

Start Your Homeownership Journey With Brevity Capital

At Brevity Capital, we provide personalized mortgage solutions and guidance to help you navigate the financing process with confidence.

From determining how much you may qualify for to exploring options through major banks and other lenders, our team is here to guide you every step of the way.

Planning to purchase a home? Contact us today for a free mortgage consultation.

Call: (905) 814-4455
Email: [email protected]

*O.A.C. Terms and conditions apply. All mortgage approvals are subject to lender guidelines, insurer requirements, property eligibility, and borrower qualification. Mortgage products, rates, fees, and availability vary by lender.