Closing Costs Guide for Home Buyers

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You’ve found the perfect home – with all the bedrooms you’ll ever need, enough outdoor space to grow tomatoes and peppers for your mouth-watering salsa and a great view from the family room couch. Your pre-approved mortgage says you can afford the property and you’re more than ready to sign the contract. But wait a moment! Have you set aside enough funds to cover the many closing costs of the sale? Maybe you’ve been diligent in crunching your budget numbers and have already paid the home inspector and set aside the lawyer’s fee. But have you considered the other costs that you need to pay before getting the keys to your new home? These one-time expenses can quickly become overwhelming, so estimating your home closing costs ahead of time can help avoid sticker shock before you move in.

Land Transfer Tax

When you buy a property, you must pay a land transfer tax to the provincial government, and sometimes also to the municipality (e.g. Toronto). The buyer, not the seller, pays this tax. The amount of the land transfer tax depends on the value of your property and varies greatly by location, especially from province to province. For most Canadians, this tax is based on the purchase price of their property. However, if you buy your home in Alberta or Saskatchewan the land transfer tax is a much smaller cost. In lieu of a land transfer tax, Alberta charges registration fees. For example, the land transfer tax on a $500,000 home in Toronto is $12,950, split equally between provincial and municipal taxes. In Edmonton, Alberta, the registration fees for a $500,000 home with a 20% down payment is only $300. You can estimate your land transfer tax using our Land Transfer Tax calculator.

First-time homebuyers in Ontario, Prince Edward Island and British Columbia get a break as they’re eligible for land transfer tax rebates. Some municipalities, such as Toronto and Montreal, also offer rebates. On a $500,000 home in Toronto, first-time buyers would save $8,475.00. In Ontario, you have up to 18 months after the transfer to request your first-time homebuyer refund. It is recommended to check a land transfer tax calculator to figure out how much you can save as a first-time homebuyer. 

Legal Fees

Buying a home is such an intricate legal process that you will need a real estate lawyer to walk you through the complexities and to prepare and submit all the documents on time. In some provinces, such as Ontario and Alberta, it’s mandatory to have a lawyer. Legal fees vary with the amount and difficulty of the work required, but the average cost is around $1000 including tax. The same lawyer cannot represent both parties in most circumstances, except for select cases such as if the buyer and seller are the same person. 

Property Appraisal Fee

The mortgage lender usually requires a property appraisal by a professional appraiser to confirm that the selling price of the home is reasonable for the market and to determine how much they’re willing to lend. Your lender may arrange the appraisal themselves and may even pay for it. If they don’t, then you’re responsible for the cost of the appraisal, which is usually between $300 and $500 depending on location. Always try to negotiate with a lender to waive this charge; they will often waive it to bring you on as a new customer. The amount of your mortgage will be based on the appraised value of your property and not the purchase price. If you paid significantly more than the appraised value of your property, your mortgage may not fully cover what you paid.

Home Inspection Fee

It is highly recommended that you make your Purchase Offer conditional on a positive home inspection by a professional home inspector. The inspection will catch any hidden problems in the home that could have future consequences or be expensive to repair. This is especially important for a freehold in comparison to a condo apartment since you will be responsible for all future costs of the property. The inspection fee is generally around $500 but it could save you thousands of dollars if not more in repairs than if you discovered the home’s flaws after you’ve signed the contract. You may also require a water quality inspection if your property uses a private water system, such as well water or cisterns. Sometimes, you can ask the seller to give the maintenance costs as a credit or discount to the original agreed-upon sale price. It is a good idea to hire your own home inspector even if the seller has already conducted a home inspection. You may also want to be present during the home inspection to have a thorough understanding of any potential issues.

Property Survey

Both your mortgage provider and your lawyer require a current property survey certificate on the home, and the cost is typically part of the legal fee. If the certificate doesn’t reflect additions and improvements to the property, and your lawyer isn’t covering the cost, then your real estate agent should negotiate with the other agent as to who will cover the expense of a new certificate. The cost of a property survey varies by location, type of survey, type of property and geographic and legal complications with the general range being between $350 and $600. A professional survey allows you to know the boundaries of the property, easements, and any restrictions affecting the property.

Title Insurance

The “title” in title insurance describes your legal ownership of a property and its land. A title search will be able to confirm the seller’s ownership of the property, and whether there are any liens or mortgages outstanding from the previous owner. Your lender may ask you to obtain title insurance in case there’s a dispute about such ownership, including whether you own the property or if part of your property is on your neighbour’s land. You can purchase this insurance through your lawyer as a one-time premium that varies depending on the insurance company but is usually around a few hundred dollars.

Government Registration Fees

Your lawyer will pay registration fees when they file official documents on your behalf with various government departments. The registration fees vary by document, by property type, and by region and province. Your lawyer may include these costs in their overall fee or may give you a list of these additional fees when you hire them. The average total for all registration fees is around $200 but you should ask your lawyer for a more accurate estimate.

CMHC Mortgage Insurance

If you plan to buy a home with a mortgage down payment of less than 20%, you must buy CMHC insurance to insure your mortgage in case you default. You can roll the CMHC insurance premium into your mortgage but if you live in Manitoba, Québec, Ontario or Saskatchewan you must pay a provincial sales tax on that premium at the HST/PST/GST rate applicable to your province. The premium can be added onto your mortgage, however you must pay the provincial sales tax portion on closing. On a $500,000 home with a 15% down payment, the CMHC insurance premium would be $11,900. Some lenders may also require you to obtain mortgage default insurance even if you make a down payment greater than 20%. Private mortgage insurance solutions are also available, namely from Canada Guaranty and Sagen (formerly known as Genworth).

Property Insurance

Your mortgage lender may require you to have property insurance that will be in effect on closing day. The insurance policy should include damage, such as due to fire. You may also want to consider mortgage life insurance to protect against illness or loss of work that may affect your ability to pay your mortgage.

Non-Resident Speculation Tax (NRST)

If you’re buying a home in the Greater Golden Horseshoe Region near Toronto and you’re not a citizen or permanent resident of Canada, then the non-resident speculation tax (NRST) kicks in. This tax is equal to 15% of the value of the property. You can obtain a full rebate of the NRST if you stay in Canada by becoming a permanent resident within four years of purchase; or by enrolling full-time as an international student for two years after purchase; or working full-time as a foreign national in Ontario for one year after purchase. You can also only claim the rebate if you occupied the property as your primary residence within 60 days of purchase. If you are not a permanent resident or citizen of Canada, a $500,000 house would cost you an NRST of $75,000. A similar 15% foreign-buyers tax is also applied to foreign buyers in British Columbia. You are exempt from the NRST if you are a protected person, such as a refugee.

Estoppel Certificate Fee

You will need an Estoppel certificate if you are buying a condominium or condo apartment. The certificate comes with the financial statements of the condo board and outlines all the common fees for your unit and the services you will receive in return. It also lays out all the penalties for any infractions of the condo rules. The Estoppel certificate usually costs around $100. 

HST/GST on New Construction Housing

You have to pay HST/GST on the property value if you are buying a newly constructed home or a substantially renovated home in which 90% or more of the home is rebuilt. However, the posted price of the property may already include this tax or the seller might pay it for you. The Federal government may rebate you the GST or part of the Federal portion of the HST. If your new home is in Ontario or British Columbia, your province may also rebate you the provincial portion of the HST.

Bridge Financing

You may require bridge financing if you are purchasing a new home before your current home is sold. While bridge financing would only be for a few months while you sell your existing home, it often comes with a higher interest rate than regular mortgages.

Interest Adjustments

If your closing date is not the same day your first mortgage payment is due, you will owe additional interest for the days where your lender has lent you your mortgage but you have not made a payment yet. The amount of the interest depends on your mortgage terms and the number of days you need to cover. This is often paid on the closing date, but can also be added to your mortgage payments. Your lender or lawyer can give you the details.

Property Tax Adjustments

If you’re buying a resale home, sometimes the seller has already paid that year’s property tax. Because you’ll be the one owning the property for some of that time, you need to reimburse them for the days after your closing. It’s a simple calculation of the number of days left in the year after your closing over the number of days in the year (365) multiplied by the annual tax bill for that year. You can find out the approximate property taxes for a property using Wowa’s Property Tax Estimator.

Other reimbursements that you may have to make include utility bills and condo fees, if applicable. Some utility companies may also charge hook-up fees when setting up your account. 

The Bottom Line

Unless you’re ready for them, all the closing costs can be a shock just when you’re ready to sign on the dotted line. Most people’s closing costs come in at 2-4% of the property’s purchase price, so be safe and check your closing costs in advance. 

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