Closing Costs When Buying a Home
When you purchase a home in Canada, there are other costs related to the transaction beyond the purchase price. These costs are typically referred to as your “Closing Costs”. When buying a home you need to plan on having additional money to cover these costs over and above your down payment.
Even though you can purchase a home with as little as 5% down payment, you must remember that you must still have money remaining to close the transaction. Typically, you should have between 1-3% of the purchase price of the home saved up in order to cover your closing costs. Most lenders will require proof of not only the down payment, but also the closing costs funds.
Not all of these costs listed below will apply in all home purchase transactions. A Mortgage Broker can help you figure out which apply to your situation.
Land Transfer Tax
This is a provincial tax charged every time a property changes hands. In Ontario the cost is an escallating scale as follows:
— 0.5% of the value of the consideration up to and including $55,000
— 1% of the value of the consideration which exceeds $55,000 up to and including $250,000
— 1.5% of the value of the consideration which exceeds $250,000
— 2% of the amount by which the value of the consideration exceeds $400,000 for land that contains at least one and not more than two single family residences.
If you are a first time homebuyer, there is a program to provide full or partial relief (up to $2000) from this tax under specific conditions. We can help you find out if you qualify.
If you are selling a property, you will be responsible for legal fees regarding clearing the title for the purchaser. If you are the purchaser, you are responsible for conveyance fees, preparation of statements of adjustment, and mortgage registration.
Included in the Legal Fees are…
Is used to protect the lender’s interest in the mortgaged property in the event there is some discrepancy on title that would create a legal problem. Most lenders require title insurance. Title insurance is often a less expensive and acceptable alternative to getting a survey prepared for the property.
Lenders may require a survey to support the transaction. A survey is a drawing by a certified surveyor of the property lines, and where the building sits on the property. This is done so that the lender can verify exactly what and where they are lending on, and to provide some assurances that the buildings are not illegally encroaching on neighbouring properties, etc. The cost of the survey varies for size/complexity of the property but standard neighbourhood lots have a survey cost of about $200-$300.
Property Tax Adjustments
Generally, property taxes are paid in increments throughout the year. These times don’t necessarily line up with the closing date of the property. For this reason the seller’s and buyer’s lawyers will confirm how much tax has been received by the city and calculate the proportionate share for both the buyer and seller.
Rental Deposit Adjustments
If the home is a rental property the seller must transfer the tenant’s security deposit to the buyer. If the closing date is mid-month, adjustments must also be made for rent collected by the seller and pro-rated payment made to the buyer.
Other Costs to Consider…
HST does not apply to resale homes…yeah! If you are buying a newly constructed home under $400,000 typically no HST will be paid. Keep in mind that HST is applicable on legal fees, moving costs, home inspection fees, appraisals, and real estate commissions.
Most lenders will require an appraisal of the property to support the lending value of the property. Appraisal fees are higher for rental properties or commercial properties due to the complexity of the appraisal required.
This is optional but highly recommended. An inspection is a thorough evaluation of the structure, systems and components of a home. The inspection report reviews the condition of such home components as: foundations, electrical, plumbing, heating, water heaters, appliances, fireplaces, drainage, roof, walls, floors, attic, crawl spaces, patios, etc.
An inspection can cost anywhere between $250-$500 but the cost is well worth identifying any major cost repairs required before finalizing your Agreement of Purchase.
The term Mortgage Insurance is used in two different ways:
Life/Disability/Critical Illness Insurance
This insurance is often recommended by lenders to ensure that you are able to meet your mortgage obligation should you or your co-borrower become disabled or die during the term of your mortgage. Rates and coverage vary widely, so let your Mortgage Broker help you make sure you are getting the most coverage for your money.
Default insurance is usually required on loans where the borrower is borrowing more than 80% of the value of the property. Genworth and CMHC provide this insurance and the cost varies with the amount borrowed relative to the property value.
If you are purchasing a home and use a Realtor to help you, the seller will pay for their Realtor and yours. If you are selling, fees vary, but are often 3 to 5% of the selling price.
This is the interest that you will pay for receiving the mortgage funds for the period outside of standard payment periods. For example, if your completion date was on the 23rd of a 30 day month, you will owe 8 days interest for those days before normal payment cycles commence.
If you have a mortgage on a property, almost every lender will want to make certain that you have adequately insured the property for loss from fire, flood or other losses.
The purpose of A1 Mortgage’s Blog is to educate clients and others who are interested in learning more about one of the largest investments and debt we make—a home and mortgage. Its recommend that you always consult with a qualified Mortgage Broker before applying any of the topics or suggestions mentioned on this website. The Mortgage information on this Blog is general in nature and may not be suitable to your situation. Blair MacDonald, Invis Mortgage Broker and A1 Mortgages accept no responsibility for any of the information implemented on this website. If you have further questions please contact us directly at 905-901-3374.