A reader left the following comment on an earlier post: “For someone who frets over a difference of 50bps paid to a mutual fund company, I find it surprising that there isn’t a mention of the 6% commission you pay to purchase the roof over your head and the 6% commission you pay to realize your profits at the time of sale”. I’ve been scratching my head trying to figure out when I had ever written that it’s best to own a home without any regard to whether the household budget can handle the mortgage and other costs. Looking back, I hadn’t written about the costs of home ownership either; so, perhaps, the reader is suggesting a crime of omission.
Houses are money pits and mortgage interest isn’t the only expense that homeowners face. A future homeowner should make keep in mind that they will be on hook for the following costs and should be figured while calculating the “profits” in owning an home:
Maintenance: It doesn’t even have to be a major renovation; regular upgrades are likely to give homeowners sticker shock. Replacing the roof, windows or a furnace is going to cost thousands of dollars. Not to mention the costs that quickly add up to a tidy sum when fixing a leaky tap or giving the house a fresh coat of paint.
Land Transfer Tax: Yes, there is no capital gains to be paid on selling a personal residence but you pay a tax on the entire value of the property at the time of buying that runs into the thousands of dollars.
Realtor Commissions: If a homeowner sells her home through a realtor, she can expect to pay 4%-6% of the selling price in commissions. If she sells the home on her own, the buyer might want a discount on the purchase price.
Property Taxes: A proud property owner can add one more layer to the taxes she already pays – the local municipality. In Ottawa, property taxes run at roughly 1% of the value of the property every year.
Insurance: If you have a mortgage, you are required to have fire insurance for the full replacement value of your property.
Utilities: When renting, the landlord may pay for some utilities but a homeowner should budget for utility bills such as heating, water and sewer and hydro. Heating could cost as much as hundreds of dollars in the winter months.
Miscellaneous: Lawyer fees, mortgage appraisal fees, home inspection, mortgage discharge fees etc. will fall under this category.
When purchasing a home, it is extremely important to ensure that the household budget can easily carry the mortgage and the ongoing costs of owning a home. Otherwise, like the young couples profiled in this Toronto Life article (thanks to reader Geoff for the link), new homeowners could face the prospect of “forgoing vacations, putting off having kids and surviving on tuna sandwiches”, just to pay for a roof over their heads.