If you’re dreaming of that perfect Canadian home, you’re going to need to do some number crunching. And Part Two of your six-part guide to Buying in Canada will help you with just that. This week, we’re looking at the costs of buying a home in Canada. (Don’t forget to read Part One on planning and decision-making, if you missed it).
Working out your finances
You won’t get far house-hunting until you’ve worked out the costs of buying a home in Canada. Establish from the outset what your financial sources are and what you can spend. It could be savings, an inheritance, perhaps a pension lump sum, the sale or re-mortgage of your UK property, and many others. You might be surprised where you can lay your hands on some funds, so be bold and focused if you want to make your dream a reality. Without a firm handle on your available funds and when you can access them, you run the risk of spending time and effort searching for properties that are outside of your budget.
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It is also important to understand the costs involved in buying a property in Canada. Along with the annual expenditure you should budget for maintenance to the property and for maintaining your lifestyle.
One common trap that overseas buyers fall into is not understanding the effect that exchange rates can have on the price of their overseas property, and not being aware of the best way to transfer their funds to Canada.
Key costs of buying a home in Canada to consider are:
- The total amount of money you have available to purchase a property
- If you buy with a mortgage, how much deposit will you need, and how will you make the monthly repayments?
- Should you re-mortgage your UK home to release equity?
- The costs that come with buying property (taxes and fees)
- The cost of maintaining the property, and your lifestyle
- You maximum purchase price, including taxes and fees
What other costs of buying a home in Canada are there?
The various costs will depend upon the type of property, the purchase price, and whether or not you are buying with a mortgage. As a general rule of thumb, we recommend allowing around 3% to 7% of the property value to cover the various fees associated with buying a home in Canada. This is considerably cheaper than most European countries.
As a general rule of thumb, we recommend allowing around 3% to 7% of the property value to cover the various fees associated with buying a home in Canada.
Survey: Just as in the UK, this will cost C$400 to C$2,000 depending on the size and type of property and the detail required. Most buyers just pay for a certified home inspector who will charge C$400 to C$700 to verify the quality of the property for a mortgage company. More detailed reports are possible, including by a member of The Royal Institution of Chartered Surveyors (RICS) which has branches in Canada.
Title Insurance: This may be included in your legal fees, but if not budget for up to C$400.
Estoppel certificate fee: $100. This only applies for condominium buyers.
Conveyancing/legal fees: These usually add 0.5% to 1% of the property value. Budget for legal fees of C$1,500 on a C$400,000 property.
Tax: When buying a buying a property you will be paying Land Transfer Tax if you buy anywhere other than Alberta, rural Nova Scotia or Saskatchewan. In British Columbia and Ontario it varies from 0.5% to 2% of the property value.
Agent’s fees: Normally the estate agent’s fee is paid by the seller and buyer. The advantage in the agent sourcing properties and working for you becomes more obvious when buying from abroad in a new country. You can expect to pay around 2.5% to them.
What are the most common financial mistakes?
The biggest mistake you can make is failing to realise the impact of exchange rates on the final price of the property, and the agreed buying costs.
Unless you already have enough dollars in Canada to pay for the property and the fees involved, you will need to make currency transfers. If, up until this point, you haven’t considered the impact of fluctuating exchange rates, you could get a nasty shock.
Avoiding the risks of currency exchange
The price of currency fluctuates second by second as it gets traded on the currency market. As a ‘live’ market, on any given day, the exchange rate you receive in the morning could differ wildly from the rate you receive in the afternoon. And, over the course of weeks or months, the rate could move even more dramatically.
What many overseas property buyers don’t realise is that they can fix an exchange rate today for a purchase at a later date using what’s called a forward contract. This service allows them to effectively lock the price of their Canadian property in sterling, so that they aren’t hit with any surprises when the time comes to trade. This means you can budget effectively.
Get your free guide, How to Negotiate Abroad, for tips and tricks on getting the most out of your dollar.
The minute you know that you want to purchase property in Canada, we recommend speaking to a currency exchange specialist, such as our trusted partners, Smart Currency Exchange. In addition to locking in the price of your property in pounds, they can typically save you up to £4,000 for every £100,000 you transfer, simply by offering better exchange rates than your high street bank.
Smart Currency Exchange is the UK’s only currency exchange specialist dedicated to the overseas property market. They specialise in helping overseas property buyers around the world to save money and avoid currency fluctuations and risks. As they focus specifically on money transfers for property, as well as helping people to emigrate, their entire process is efficient, easy and very cost effective.