13: How Much Can I Expect to Spend On a Million Dollar Home?

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EPISODE DESCRIPTION

In this episode, Tom shares how he and Brandon pre-approve clients by making a customized budget, and how much it would actually cost to purchase a million dollar home in Canada.

 

What was discussed: → Breaking down the mortgage down payment, amortization, rate, and property taxes. → How much cash you actually need for closing costs including down payment, legal fees, appraisals, land transfer tax, and adjustment costs. → What your monthly household budget would be with mortgage, utilities, property tax, and home insurance.

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Episode Transcript

(00:00):
buying a home, it's not as simpleas just taking into account your
down payment and your mortgagepayment.
There's other costs associatedwhen it comes to buying a home.
And some of which a lot of peopledon't really take into account,
which can either result in reallytight cashflow for them, or even
worse, they can't close on theirmortgage.
I'll be taking you through behindthe scenes of what we do to
pre-approve clients and reallyjust go through a laid out

(00:20):
customized budget outlining a $1million purchase.
And some of these costs mightshock you, so it's best to stick
around to the end of the video,especially if you plan on
purchasing in the near future.
right, so walking you through the
budget here, we have a $1 millionpurchase and 20% down.
Now, we can go with a bunch ofdifferent scenarios, but just for
today, we're going to use thisjust to keep it simple.

(00:42):
And we're going to use a five-yearfix.
Now, we have multiple differentterms we can look at, one to
five-year to a five-year variable.
But again, we're just going to
keep things simple and go througha five-year fix.
So a 30-year amortization meansthe length of the mortgage.
That's going to bring down yourpayment as low as possible.
If you wanted to do a shorteramortization, you can do that, but
it's going to bring that paymenthigher.
So when it comes to mortgageinsurance, you're not paying

(01:04):
anything on this because you'reputting 20% down.
For annual mortgage rate, we havea 5.24%.
And for any of you that are aboutto drop some comments saying that
you've seen lower, for sure, we'reusing the average here.
There's definitely some lowerrates out there.
And there's also some higher.
So we're going right down the
middle at 524.
And that's also at the time of
recording, fixed rates fluctuateliterally on a day to day basis.

(01:24):
So there you have it, we're gonnago with 524.
If you are a first-time homebuyer,you are going to get a rebate on
the land transfer tax.
You have $12,475.
So that's part of your closingcosts that we're about to walk you
through.
But if we're going to go with that
and you are a first-timehomebuyer, we already have that
rebated in here.
You can get rebated up to $4,000
on the land transfer tax.
So if I clicked none, you would

(01:45):
see that jump up to $16,000.
So assuming you're a first-time
homebuyer, we're going to usethat.
But if you aren't, you're going tobe paying that extra $4,000 on the
land transfer tax.
Property taxes, we don't know what
property we're looking at, so I'mgoing to go with an average of
5,500.
There's some municipalities that
are in the higher range for theone male purchase, but again, I'm
going with the averages here.

(02:05):
For property location, we're going
to go with an Ontario property.
All of these numbers will make
sense for any province.
The only thing that will change
here is the land transfer tax.
So now we're going to go through
the mortgage breakdown, we have a20% down payment, a one mil
purchase, so your down payment is200,000.
Then we have your mortgage amountof 800,000.
So now we're going to walk throughthe closing costs, which a lot of

(02:26):
people don't really take intoaccount when it comes to their
budgeting, especially when they goto banks, Unfortunately, banks
don't really take intoconsideration these costs that I'm
about to walk you through.
So if you pay attention to
anything in this video, thesenumbers here are crucial.
So we have your down payment of$200,000, your legal fees.
Now this is going to depend onwhat lawyer you use.
but we're using the average of$1,700.

(02:46):
Tax on the legal fees, $221.
Appraisal fee, $400.
So this is a category where youcan actually save some money
depending on the appraiser andalso the lender you go with.
So to give you an example, ifyou're using lender A, they might
require a full appraisal, whereaslender B, they might have an auto
appraisal system on the back end,which will save you some money and
time.
And typically it will be in and

(03:09):
around $100 and a full appraisalwill run you around $400.
So we're going to go on the higherend of 400.
Then we have your land transfertax.
And this number right here issomething a lot of people don't
even really know about orunderstand.
And that's the adjustments onclosing with your lawyer.
So what this number is, it canvary anywhere.
A thousand is on the higher side.
So we're going with a thousand.

(03:30):
And what this is, is if you buy anexisting property, then chances
are that current property ownerhas prepaid their property taxes.
So if they've prepaid thoseproperty taxes, you're just
picking up the tab essentially.
So that's what that is.
We're going to go on the higherside.
So we have your total closingcosts at $215,796.
So a lot of people mistake justtaking into account their down
payment, which would only be$200,000.
But here you have another $16,000,and that's if you are a first-time

(03:54):
homebuyer and have that $4,000rebated on the land transfer tax.
So this can be closer to $20,000if you aren't a first-time
homebuyer.
So that's missing expenses, number
one.
And number two, I'm going to walk
through the actual householdbudget breakdown.
So we have your monthly mortgagepayment at $4,384.
We have your hot water rental.
So this can actually be $0, but if
you are purchasing a home, there'sa good chance that you are going

(04:17):
to have a hot water rental.
And that typically runs around
$55.
So I'm going to include that in
there as well.
And for utilities, this is
ballpark here, this can range, butI'm just going to factor in $100
for each utility, which will be300 a month, and monthly property
taxes based off of the 5500 upabove is 458 a month.
And then you have your homeinsurance at 115.

(04:38):
Again, that's approximate.
But just for the sake of this
budget, and rough numbers, we'regoing to use that.
So assuming we're paying all ofthese items here at the bottom, we
have $5,000 and 83 cents.
So other than the closing costs
and the other monthly expenseslike the utilities and home
insurance, those are all thingsthat a lot of people discount and
forget about.
The other major expense that I
think you should buffer for isfurniture costs.

(04:59):
So it sounds obvious, youobviously have to furnish your new
property.
But a lot of people actually tend
to forget about this.
And they're really just worried
about getting to the highestpurchase price as possible.
Which I understand, but at thesame time, you do need to furnish
your new place.
So please set aside some money.
Don't use all of your money foryour down payment and closing
costs.
You have to have enough buffer

(05:21):
room for, let's say, a couch,sofa, TV, you name it, the list
goes on.
So I'm curious, did you expect a
lower or a higher payment on theone mil purchase?
I'm curious to hear what yourthoughts