After arranging finances and calculating carrying costs, etc., many homeowners are surprised by unexpected closing costs, which include legal fees, insurance charges and transfer costs.
According to the CMHC, closing costs add up to about 1.5% of the purchase price of your home. That’s $4,500 in closing costs for a $300,000 home.
To keep you informed and avoid costly surprises, domatorTEAM has assembled the following brief explanation of many of the closing costs you may have when buying a home.
Closing costs vary, depending on your location and your circumstance, and the following is only a guideline. Contact your real estate lawyer for a better idea of your closing costs.
Appraisal Fee Generally Required with NEW HOMES
An appraisal provides the lender with a professional opinion of the market value of the property. This cost is normally the responsibility of the buyer and is usually between $200 and $400.
Home Inspection Fee Generally Required with RESALE HOMES
A professional inspection of the home, top to bottom, gives the buyer a good idea of the condition of the home and any outstanding issues that might affect the purchase price. A home inspection can cost anywhere from $300 to $400 (subject to GST and soon PST) and is an excellent investment. When hiring a home inspector, make sure the inspector has liability insurance just in case they overlook something.
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. This cost can vary on the property size, amount of coverage, the insurance company and the municipality. It can vary between $250 and $600 annually for most properties.
Provincial Sales 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.
Land Survey Fee or TITLE INSURANCE FEE
Lenders usually require a recent survey of the property. If one is not available, the cost can range from $600 to $900 for a new survey. In lieu of the survey, most lenders today will accept title insurance, which can cost considerably less.
Legal Costs and DISBURSEMENTS
Lawyers and notaries charge fees for their services, including drafting the title deed, preparing the mortgage, and conducting the various searches.
Disbursements are out-of-pocket expenses incurred during the process such as registrations, searches, and supplies.
Average legal costs for a typical real estate transaction are around $1000.
Provincial Land TRANSFER TAX
Most provinces charge a land transfer tax payable by the purchaser. The amount varies depending on the province. Land transfer tax is based on the purchase price. First time homebuyers purchasing a new home may be entitled to a refund. In Ontario, the refund is up to $2000.
Toronto TRANSFER TAX – The City of Toronto implemented an additional Transfer Tax on buyers to cover deficits in the city budget. The Toronto Transfer Tax is equal to the Provincial Land Transfer Tax and substantially raises the closing costs for homebuyers in Toronto.
New Home WARRANTY
In most provinces, a new home warranty program covers new homes. The cost to the purchaser for this warranty is approximately $600 and, should the builder default or fail to build to an agreed-upon standard, the fund will finish or repair the deficiencies to a maximum amount. For more information on the Ontario new home warranty visit http://www.tarion.com.
GST is payable on the purchase of newly constructed homes only. If you are purchasing a new home, be sure to clarify who is responsible for GST: you or the builder. On the offer to purchase, the price will say "Plus GST" or "GST Included" and it will list who gets any GST rebates. Many builders have included this cost in the purchase price, so the buyer is not responsible.
Harmonized Tax - Soon all services related to purchasing real estate, other than GST, will subject to HST, the Harmonized Sales Tax, which combines GST and PST.
An estimate should be made of costs the seller has prepaid, such as property taxes, utility bills, and other charges, so they can be included in the closing costs. Any bills after the closing date are the responsibility of the purchaser. Your lawyer will outline the costs once the various searches have been completed.