Ah - the dreaded closing costs!
Closing costs are a list of charges your lawyer presents to you on the near the closing date of your home. Many people (not my clients!) are surprised at the additional costs over and above the price of the home when they show up to sign the papers. According to the CMHC and Genworth Financial you should have at least 1.5% of the purchase price for closing costs in addition to the down payment. The costs vary among provinces and cities. Toronto for example has double the land transfer tax as other municipalities in ON.
Below is a brief explanation of these costs. Please note these are some of the closing costs you may encounter depending on your specific situation. Use this as a guideline then talk with your lawyer who can provide a more realistic estimate for your situation. Or ask me!
An appraisal provides the lender with a professional opinion of the market value of the property. This cost is normally the responsibility of the and it can cost between $100 - $400. Due to higher instances of mortgage fraud Appraisals are becoming more and more popular everyday around the GTA. Sometimes your lender will waive the fee - if you have the right agent in your corner.
HOME INSPECTION FEE
A professional inspection of the home, top to bottom, is for the benefit of the buyer. A home inspection can cost anywhere from $300 - $400 and is well worth the investment. There are also additional services that you may choose to pay for at time of inspection based on your specific circumstances, such as: Mould Detection, Air Quality testing, Thermal Imaging, Radon etc.
Mortgage lenders require a certificate of fire insurance to be in place from the time you take possession of the home. The amount required is generally the amount of the mortgage or the replacement cost of the home not including the land. Costs will vary on the property size, amount of coverage, the insurance company and the neighbourhood; from $350-$800 annually for most properties. Many insurance companies offer a discount if you bundle it in with your car insurance and most offer a monthly payment plan.
High-ratio (non-conventional) mortgages with less than 20% down payment require insurance against default to protect the lender. The premium is usually rolled into the mortgage and varies between 1% - 3.25% depending on how much you are putting down. Variable rate mortgages often incur an additional charge of .25% but is often times quite worth it depending on interest rate differences.
TAX ON MORTGAGE INSURANCE
If your mortgage is insured, (CMHC or Genworth Financial), you will be required to pay the applicable taxes on the insurance premium on closing. While the insurance premium can be added to the mortgage amount, the tax must be paid at closing.
TITLE INSURANCE FEE
A recent survey of the property is usually required by lenders. If one is not available the cost can range between $600 - $900 for a new survey. In lieu of the survey most lenders today will accept title insurance which can cost considerably less. Regardless of the existence of a survey, talk to your lawyer about how Title Insurance protects you from Mortgage Fraud.
LEGAL COSTS AND DISBURSEMENTS
Lawyers charge fees for the services involved in drafting the title deed, preparing/discharging the mortgage, and conducting the various searches. Disbursements are out-of-pocket expenses incurred during the process such as registrations, searches, photocopying and supplies. Typically, a lawyer will charge between $600-$1000 for a purchase and slightly less for a sale.
LAND TRANSFER TAX
Most provinces charge a land transfer tax payable by the purchaser. Land transfer tax is a sliding scale based on the purchase price. First time home buyers purchasing a new home may be entitled to a discount. To learn more, visit Land Transfer Tax.
HST is usually payable on the purchase of a new construction homes only. If you are buying a new home make sure you know who pays this, you or the builder. On resale purchases the offer will say "HST in addition to" or "HST Included in". Talk to me if you have questions as to who has to pay the HST in your transaction.
An estimate should be made for closing adjustments for bills the seller has prepaid such as property taxes, utility bills, and other charges. The biggest example of this is Property Taxes. If the Seller has paid the taxes beyond the date they will live there, you will owe them a refund for the number of days they have overpaid. The opposite is true if you move in and the tax bill hasn't been issued yet. A lawyer will let you know what they are once the various searches have been completed.
Moving costs will vary depending on whether you are hiring professional movers or asking your friends to help you out and renting a truck. Boxes and packing supplies, cancellation and/or hook-up of utilities, mail forwarding service and take-out meals should be budgeted for.