What to expect for Closing Costs
Purchasing a home can be a tremendously exciting and happy time. It’s also very challenging to save up the down payment and make the budgeting decision that you can afford the home.
For many people, they can be quite surprised to find out how expensive the Closing Costs are. Some lenders require the purchasers show that they have money saved up to pay for the closing costs and use a 1.5% rule of thumb.
Here is a comprehensive list of all the costs you can expect to pay:
Land Transfer Tax - This is the largest upfront cost. There is an Ontario Land Transfer Tax and a Toronto Land Transfer Tax (if applicable). The amount is dependent upon the purchase price of the home and works on a sliding scale. The higher the value, then the higher the tax rate in increments. First time buyers can receive a rebate on both of these.
Legal fees – These are fees payable to your legal professional to transfer title and to register the mortgage. Budget about $1,200 to $1,600 for this cost.
Mortgage loan insurance - With a down payment of less than a 20%, (called a high-ratio mortgage) lenders require mortgage loan insurance from a mortgage insurer such as CMHC. It is arranged automatically for you and the premium is normally added to the mortgage so that it’s not an upfront out of pocket expense. The cost for this depends on the level of down payment with a higher premium for less down payment.
Appraisal fee – If the down payment is at least 20% then the lender will most likely require a professional appraiser to determine the value of the property. The cost of an appraisal ranges from $250-400 depending on the property size and location.
Title Insurance - Title insurance is almost always required by the lender. Your solicitor or notary will arrange for this at closing. This protect the lender from any fraud or defects of title. The cost of this is about $600-800
Interest Adjustment – This potential cost depends on when your home closes and when your first mortgage payment starts. It is the interest on the mortgage balance for this period and does not have any principal. For example, let’s say your home closes on the 4th of the month and you want your mortgage payments to be monthly on the 15th of every month. You would be charged 11 days of interest upfront. Your first regular mortgage payment would be on the 15th of the next month.
Seller's pre-payments / adjustments - The seller may have recently paid Municipal taxes, or utility bills before the closing date. You will be expected to reimburse the seller, for part of these expenses from the pro-rata time that you become the owner.
HST - is paid on the price of a newly constructed home. You may qualify for a rebate if you buy for less than $450,000.
New home warranty program – purchasers of new homes are required to buy into the Tarion New Home Warranty program. The premium is based on your purchase price. Some builders also include this cost in the sale price but otherwise you will have to pay the fee at closing. As an example, the program fee for a $500,000 home would be $1,300.
Home Owner Insurance – Unless covered in condo fees, lenders require that you to protect your home against fire and weather related damage. Your insurance policy must be in effect so you can close on your new mortgage. Some lenders require confirmation of the policy 3–5 days before your completion date. Don’t leave this item to the last minute, not having it can delay mortgage funding. This is not a big upfront cost because it is usually paid monthly to the insurance company.
Home inspection fee - You may wish to have a professional inspection of your home to ensure that there are no hidden defects or faults in its construction. This is optional and usually discussed with your realtor.
Immediate costs - Items such as utility hook-up charges, cost of appliances, window and floor covering, and any necessary repairs, when (or before) you move in.
Moving expenses – There is no rule of thumb on their how much a moving company charges. My advice is to pick a very reputable company because moving horror stories are abound of people going for the lowest cost mover.
Status Certificate – purchasers of condos need to purchase the condo’s status certificate which include the corporation’s financial statements and bylaws. It is reviewed by the lawyer to gauge the overall strength of the corporation you are about to join. The fee for this is about $100.