Closing Costs

Closing costs are a list of charges your lawyer presents to you on the closing date of your home.  Many people are surprised at the additional costs over and above the price of the home.  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 (have around 2.5% to be on the safe side).  The costs vary among provinces and cities.

Land Transfer Tax

Land Transfer Tax Calculator

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 home buyers purchasing a new home may be entitled to a refund.

ONTARIO Land Transfer Tax Calculation

Up to $55,000  =  .005 x Purchase Price
$55,000 to $250,000 =  (.01 x Purchase Price) minus $275
$250,000 to $400,000 = (.015 x Purchase Price) minus $1,525

$400,000 and up = (.02 x Purchase Price) minus $3,525

TORONTO Land Transfer Tax Calculation

Up to $55,000  =  .005 x Purchase Price
$55,000 to $250,000 =  (.01 x Purchase Price) minus $275
$400,000  and up = (.02 x Purchase Price) minus $6,000

Appraisal

Before your lender approves your mortgage you may be required to have an appraisal done.  An appraisal provides the lender with a professional opinion of the market value of the property. And is generally required with new homes.  Sometimes your lender covers this cost otherwise you are responsible for covering this cost. The fee ranges between $100 - $300.

Mortgage Loan Insurance Premium.

If yours is a high-ratio mortgage (less than 20% down payment), your lender may need mortgage loan insurance. If you qualify for a 5% down payment, CMHC charges an insurance fee that equals 3.25% of the mortgage. If you put 10% or 15% down, your insurance fees will decrease to 2% and 1.75% respectively. 

The insurance premium usually gets added to your mortgage so the cost is not required upfront. However, you will also have to pay an application fee. CMHC's standard fee is $235. CMHC also offers a basic service for a $75 fee but it must be accompanied by an appraisal. You can visit the CMHC website at http://www.cmhc-schl.gc.ca

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.

Deposit.   

This is part of your down payment and must be paid when you make an Offer to Purchase. The cost varies depending on the area, but it may be up to 5% of the purchase price. If you wish to make a down payment of 5% and you give a deposit of 5%, then your down payment is considered to be made.

Down Payment.         

With mortgage loan insurance from CMHC you can own your home with as little as 5% down payment. At least 20% of the purchase price is usually required for a conventional mortgage.

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.  When hiring a home inspector make sure the inspector has liability insurance just in case they overlook something.

Estoppel Certificate Fee

This applies if you are buying a condominium or strata unit and could cost up to $100.

Fire Insurance

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. The cost can vary anywhere from $250-$600 annually for most properties.

Land Survey Fee or 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.

Legal Costs

Lawyers and notaries charge fees for their services involved in drafting the title deed, preparing the mortgage, and conducting the various searches. Legal fees range according to the complexity of the deal and are typically from $600 - $1500.

Disbursements

Disbursements are out-of-pocket expenses incurred during the process such as registrations, searches, and supplies. These fees are approximately $300. Your lawyer/notary will arrange this payment.

New Home Warranty

In most provinces new homes are covered by a new home warranty program. 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 Ontario new home warranty visit http://www.tarion.com.

HST

HST is payable on the purchase of a newly constructed homes only.  If you are purchasing a new home make sure you know who pays this, you or the builder.  On the offer the purchase price will say "Plus HST" or "HST Included" and who gets any HST rebates.  Many builders have included this cost into the purchase price so the buyer does not have to come up with it at closing. 

Closing Adjustments

An estimate should be made for closing adjustments for bills the seller has prepaid such as property taxes, utility bills, and other charges.  Any bills after the closing date are the responsibility of the purchaser.  A lawyer will let you know what they are once the various searches have been completed.

If you feel you cannot cover all of the up-front costs, you can ask your lender for a loan. Remember that payment for this loan amount, based on a 12-month repayment period, will have to be included in your Total Debt Service ratio calculation.