Your Down Payment Isn’t Your Whole Budget: The Closing Costs BC Home Buyers Forget

When most people start saving for a home, there is one number they tend to focus on: the down payment.

And for good reason. Building a down payment can take years, especially in markets like Vancouver, Victoria and other parts of British Columbia.

But there is an important catch.

Your down payment is not necessarily the total amount of money you need to buy a home.

Legal fees, property transfer tax, inspections, adjustments, insurance and moving expenses can all show up around the same time. Some of those costs can amount to thousands of dollars, and many can’t simply be rolled into your mortgage.

That’s why one of the most useful things you can do before house hunting is calculate not just your down payment, but your total cash required to close.

Here are some of the costs BC home buyers should have on their radar.

Start With Your Minimum Down Payment

Canada’s minimum down-payment rules depend on the purchase price.

For a home priced at $500,000 or less, the minimum down payment is 5%.

For a property between $500,000 and $1.5 million, buyers generally need 5% of the first $500,000 and 10% of the amount above $500,000.

At $1.5 million or more, the minimum down payment is generally 20%.

So let’s use a $700,000 home as an example.

Your minimum down payment would be:

• 5% of the first $500,000 = $25,000
• 10% of the remaining $200,000 = $20,000
• Total minimum down payment = $45,000

It’s easy to see that number and think, “Great. Once I save $45,000, I’m ready.”

Not quite.

There can still be several expenses between an accepted offer and getting the keys.

BC Property Transfer Tax Can Be a Major Expense

For many buyers, property transfer tax is one of the largest closing costs.

BC’s general property transfer tax starts at 1% on the first $200,000 of a property’s fair market value and 2% on the portion between $200,000 and $2 million, with higher rates applying above that.

On a $700,000 property, the standard calculation would be:

1% of $200,000 = $2,000

2% of the remaining $500,000 = $10,000

Total = $12,000

Suddenly, our buyer who thought they needed $45,000 may be looking at $57,000 before even considering legal fees, an inspection or moving costs.

Fortunately, some buyers qualify for exemptions.

First-Time Buyers May Save Thousands

BC’s First Time Home Buyers’ Program can significantly reduce property transfer tax for eligible buyers.

Qualifying buyers purchasing a home valued at $500,000 or less can receive a full exemption. For qualifying properties above $500,000 and up to $835,000, the first $500,000 of value is exempt, providing potential savings of up to $8,000.

The exemption is gradually reduced for properties between $835,000 and $860,000.

That makes a big difference in our $700,000 example.

Instead of paying approximately $12,000 in property transfer tax, an eligible first-time buyer could reduce the bill by as much as $8,000.

That is exactly why these programs are worth discussing before you start submitting offers.

The purchase price, your status as a first-time buyer and the type of property you’re buying can all affect the amount you ultimately need.

Budget for Your Lawyer or Notary

Your home purchase also needs to be legally completed.

A lawyer or notary will generally take care of things such as registering the transfer of ownership, registering your mortgage, handling funds and preparing the documents required to complete the transaction.

Fees vary depending on the property and complexity of the purchase, so getting an estimate ahead of time is useful.

The bigger lesson is that you don’t want to arrive at closing with exactly enough money for your down payment and nothing more.

A healthier home-buying budget looks more like:

Down payment + closing costs + a cash cushion.

That final part matters more than buyers sometimes realize.

Don’t Forget the Home Inspection

A home inspection is normally paid before closing, but it still needs to be included in your overall purchase budget.

An inspector can help identify potential issues with the home’s major systems and components before your purchase becomes firm, depending on the conditions in your offer.

That could include concerns with plumbing, electrical systems, heating, moisture, roofing and other areas of the property.

An inspection can’t guarantee that nothing will ever go wrong.

But when you’re spending hundreds of thousands of dollars, paying to better understand the property you’re buying can be money well spent.

Depending on the home, additional specialized inspections or testing may also be appropriate.

You May Have Closing Adjustments

Another cost that catches buyers off guard is the statement of adjustments.

Imagine the seller has already paid the year’s property taxes, but you take possession partway through the year.

Because you’re benefiting from the portion of those taxes that applies after possession, you may have to reimburse the seller for your share.

Other adjustments can sometimes apply depending on the property and transaction.

Your lawyer or notary will normally calculate these amounts before closing.

They aren’t necessarily enormous, but they are another reason why buying a home with virtually no money left after your down payment can create unnecessary stress.

What About Mortgage Default Insurance?

If your down payment is below 20%, you will generally need mortgage default insurance on an eligible purchase.

This protects the lender rather than the borrower.

Unlike many other closing costs, the mortgage insurance premium can generally be added to the mortgage balance instead of being paid entirely in cash.

That helps with your immediate cash requirement, but it still increases the amount you’re borrowing.

This is one reason a mortgage shouldn’t be evaluated using the interest rate alone.

Your down payment, mortgage amount, insurance requirements, amortization and overall structure all affect what the financing ultimately costs.

Buying New Construction? There Are Extra Rules — and Potential Savings

New construction adds another important consideration: GST.

GST can apply to newly built and substantially renovated homes, although how it appears in your purchase price depends on your contract with the builder.

There is also now a significant federal benefit for eligible first-time buyers.

The federal First-Time Home Buyers’ GST/HST Rebate can provide eligible buyers with a rebate of up to 100% of the GST on a qualifying new home valued at $1 million or less, up to a maximum rebate of $50,000.

The benefit is gradually reduced for qualifying homes valued between $1 million and $1.5 million, and there is no rebate at $1.5 million or above.

BC also has a property transfer tax exemption specifically for qualifying newly built homes. The threshold for that program was increased to $1.1 million, potentially providing additional savings for eligible purchasers.

For someone buying a new build, understanding these programs before signing a purchase contract can make a substantial difference.

Remember the Costs That Come After You Get the Keys

Closing day isn’t the end of the expenses.

It’s usually when another round begins.

You may need to budget for:

• Movers
• Home insurance
• Furniture
• Utility setup
• Strata move-in fees
• Changing locks
• Minor repairs
• Appliances
• Immediate maintenance

And, somehow, that first trip to the hardware store always seems to cost more than expected.

None of these expenses necessarily determine whether your mortgage will be approved, but they certainly affect how comfortable you’ll feel after moving in.

There is a big difference between getting the keys with $10,000 or $15,000 still sitting in savings and getting the keys with $400.

How Much Should You Really Save?

There isn’t one percentage or dollar amount that works for every buyer.

A first-time buyer purchasing a $600,000 condo may have a completely different closing-cost picture from someone buying a $1.2 million detached home.

The property itself matters.

Your down payment matters.

Whether you’re a first-time buyer matters.

Whether the home is newly built matters.

Even your possession date can affect the final calculation.

That’s why it’s useful to work backwards from your expected purchase price rather than simply saying, “I have my down payment, so I’m ready.”

Before you begin seriously shopping, try to understand:

How much will my down payment be?

How much property transfer tax could I owe?

Do I qualify for an exemption?

Will I require mortgage insurance?

How much should I budget for legal fees and an inspection?

And most importantly: how much money will I still have after the purchase is complete?

Plan for the Home, Not Just the Mortgage

Getting approved for a mortgage is obviously an important part of buying a home.

But a mortgage approval doesn’t automatically mean the rest of your finances are ready for the purchase.

The goal should be to enter homeownership with a financing plan that makes sense both on closing day and in the months afterward.

At GLM Mortgage Group, we can help you look at the entire picture — from your down payment and mortgage options to the costs and programs that may affect how much cash you’ll actually need.

Because saving enough to qualify for the purchase is one thing.

Being financially prepared to comfortably own the home once you get the keys is another.