Five Hidden Costs to Consider When Buying a Home

In most Canadian provinces, you have to pay taxes to close the purchase of your home. These are called land transfer tax or property transfer tax. However, in Alberta buyers pay a land title transfer fee that is much less than the taxes paid in other provinces.

The land title transfer fee includes two parts: a mortgage registration fee and a property registration fee. Each of these registration fees starts at $50 – the property registration fee increases by $2 for every $5,000 of assessed property value, and the mortgage registration fee increases by $1.50 for every $5,000 on the amount of your mortgage.

For example, a home valued at $500,000 with a 20% down payment would require a $420 land transfer fee in Alberta: $170 for mortgage registration and $250 for property registration. Even though it may only end up being a few hundred dollars, it’s important to budget for the land title transfer fee as closing costs can add up quickly.

The down payment, the mortgage, home insurance – these are the big-ticket items that might come to mind when thinking about the costs to buy a home. And while home insurance is required by mortgage lenders to protect you against damage and liabilities, there are three other insurance options to consider that can add extra costs.

Title insurance

When you buy a home, your lawyer will offer you optional title insurance, which is part of your closing costs. Although not required, title insurance protects you from unforeseen issues with the property that may arise after you purchase a home. Title insurance is especially important to consider with older homes, where there may be defects with the property that you don’t discover until after you move in.

For example, let’s say you fall in love with a house that has a big, beautiful deck in the backyard. You later find out the deck was built without a permit and has several issues that are outside of building standards. As the new owner, it’s now your responsibility to fix these issues and bring your deck up to code. Title insurance would cover the cost of these repairs and materials, so you can hire a contractor who is familiar with building standards to complete the work at no additional expense to you.

Mortgage insurance

In Canada, buyers with less than 20% of their down payment based on the purchase price of the home must obtain mortgage insurance. This is mandated by the federal government to protect you and your financial institution in the event that you can’t pay your mortgage. If you’re planning to put down less than 20% for your deposit, it’s important to factor in mortgage insurance in your homebuying budget.

Life, disability, and critical illness insurance

Life, disability, and critical illness insurance is an important consideration when purchasing your home. Although not required, these types of insurance protect you and your family from unexpected and tragic events that make it impossible to pay your debts. These types of insurance can replace your income if you are unable to work, repay your mortgage and help support your family. These additional insurance policies are an additional expense when purchasing a home, but offer peace of mind in the long-term to protect your investment.

Before you purchase a home, you have the option to hire a home inspector to provide assurance about the property and help you understand if there are any costly issues with the property. If you are buying a brand-new home, an inspector is not required as the home would have been evaluated recently to ensure that it is up to code.

A home inspector evaluates the interior and exterior of the property and will let you know of any safety issues (such as mold), if any unpermitted renovations were completed by previous owners, or if there are big upcoming repairs you should expect for things like the roof or foundation.

If the home inspector finds anything problematic, you and your real estate agent can adjust your offer to the seller. If there are issues that are expensive to repair, they can be used to negotiate. You can put a condition on your offer for the seller to fix the issue prior to possession or ask the seller to reduce the purchase price based on the repair cost so you can fix it yourself. 

An inspector’s report can reveal hidden problems that are so significant, they cause you to walk away from the deal. Having this information is crucial to your decision-making process and investing in a home inspection can save you from unnecessary stress, expenses, and lost time in the future.

Since property taxes are paid every year by homeowners, you likely will have to reimburse the seller for pre-paid taxes when you purchase a home. Unless your possession date lines up perfectly with property tax season, you’ll be moving into your new home mid-year. The seller will have paid property taxes for the entire year, and since they are no longer living in the home, you must reimburse them for the months that they paid in advance.

This can be an unexpected cost, especially for first time home buyers, and property tax is a big annual expense. Depending on which Alberta city you live in, property taxes in larger metropolitan areas like Calgary, Edmonton and Lethbridge can range from $1,500-$5,500 per year based on the assessed value of your home. It is important to think about this annual tax expense and how you can budget enough money to pay future property taxes that will be due the next tax season.

In Alberta, it is mandatory to hire a lawyer during the home buying process. As you near the end of the home buying journey, a lawyer prepares documents and administers payments on your behalf. About a week before the closing date, your closing costs and down payment will be handled by your lawyer, who will send these payments to the proper recipients. There are legal fees for your lawyer to complete all of this work, so you’ll need to budget for these by asking your lawyer what their fees are.

It is important to choose a qualified real estate lawyer, as they will ensure all of the documents are in order and that the purchase of your home is properly finalized. Your mortgage broker, real estate agent, and lawyer are all players on your team who will guide you through the process of home buying. Spend some time doing research, getting recommendations and interviewing the service providers you plan on hiring to guarantee that they are a good fit.

To create an accurate budget of all of the hidden costs you may encounter, you’ll need to research the exact cost of things in the area where you live (or plan to live). Whether you are looking for a lawyer, home inspector, or exploring insurance options, make a list of questions to ask the professionals you’ll be working with to help you understand their services, price and quality.

When it comes to saving on costs for the home itself, always consider future implications. If a home seems to be priced low in comparison to other homes in the same market, work with your relator to investigate why. You may find there are significant renovations needed or other issues with the home that make you reconsider if it is worth the low price. Sometimes a good deal can quickly turn into a big expense, which is why it is wise to invest in proper insurance, a real estate lawyer, and a home inspection.

If you are a first-time home buyer, there are incentives and rebates in place to help you finance your first home. But a simple piece of advice that is relevant to every kind of buyer is to save at least 2-3% of the purchase price for closing costs.

There are many individual fees that come up throughout the home buying process. But by educating yourself on what to expect and setting aside money for the closing costs ahead of time, you can enter the home buying scene with confidence.