Home buying closing costs are the 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 purchase price of the home. According to Canada Mortgage and Housing Corporation you should have at least 1.5% of the purchase price for closing costs, in addition to the down payment. I suggest around 2% to 2.5% to be on the safe side.
Below you'll find an example and a brief explanation of usual home buying closing 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 specific situation.
Home Buying Closing Costs Example
Purchase Price: $275 000.00
Down Payment: $13750.00
CMHC Premium: $9796.88
Principal: $271 046.88
CMHC Premium is based on 5% down.The rates may vary depending on when you decide to purchase.
Home Buying - Other Costs
The closing costs listed above don't include other costs including cable, phone set-up fees or your moving costs.This is why I would recommend having at least 2 to 2.5% cash in your bank to cover all closing costs. The numbers I've provided here work out to just under 2.5% of the purchase price.
Pre-paid Property Tax
If the seller pre-paid property taxes for the year in one lump payment in February and you move into your home in June, then you will have to repay the seller the remaining taxes for the year, e.g. from move-in date to December 31, because they pre-paid.
Mortgage Adjustments
Most mortgage companies make your monthly payments due on the 1st of the month or the 1st and 15th if you're on bi-weekly payments.If you move in on the 20th of the month the bank will calculate the interest from the 20th of the month to the end of the month and either bill you on closing or include it in your first mortgage payment.
Utilities Deposit
If you've never paid electricity or water charges directly to a utility sompany, the provider will usually require approximately $200 as a deposit. They will normally hold this for one year, then apply it as a credit to your account.
Appraisal Fee - Generally done with new homes
The appraisal provides the lender with a professional opinion of the market value of the property.The appraisal fee is normally the borrower's responsibility and it can range between $100 to $300 plus HST. Sometimes the costs may be higher for larger, custom-built homes or homes in remote areas.
Home Inspection Fee
A professional home inspection is for the benefit of the buyer. A typical home inspection can cost anywhere from $300- $400, and is well worth the investment. If the home is older than 5 years, a home inspection is a must. When hiring a home inspector, make sure the inspector has liability insurance, in case a mistake is made.
Fire Insurance
All 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 and extras being insured, as well as the insurance company and the municipality.The cost can vary anywhere from $250-$600 for most properties.
Provincial Sales Tax
If your mortgage is CMHC or GE Capital insured (less than 20% down payment), there is PST of 8% in Ontario, payable at closing, on the CMHC or GE Capital fee. While the insurance premium can be added to the mortgage amount, the PST must be paid at closing. For example, a mortgage that results in a $1,000 fee, will have to pay $80 in PST upon closing.
A recent property survey is usually required by the lender. If one is not available, it normally costs anywhere from $600-$900 for a new survey. In lieu of the survey, most lenders today will accept Title Insurance, at a much lower price of approximately $250.
Legal Costs and Disbursements
A lawyer or notary will charge a fee for their professional services involved in drafting the title deed, preparing the mortgage, and conducting the various searches. The disbursements, on the other hand, are out-of-pocket expenses incurred, such as registrations, searches, supplies, etc., plus G.S.T.
Ontario charges a provincial land transfer tax, payable by the purchaser. Land transfer tax is based on the purchase price. In Ontario, first time home buyers who purchase a new or resale home get a refund of up to $2000. Click here for more information on Ontario Land Transfer Tax. If you're buying in the City of Toronto, there is now a City Of Toronto Municipal Land Transfer Tax. You can calculate Ontario and Toronto Land Transfer tax using this Land Transfer Tax calculator.
New Home Warranty
In Ontario, 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. In Ontario, the New Home Warranty program is run by Tarion.
Mortgage Application and Processing Fee
On a high-ratio insured mortgage (mortgages above 80% of the purchase price), the mortgage insurer (CMHC or GE Capital) charges a fee of $165-$185 for applying and processing the file, as well as appraising the property. On new homes, this fee drops to $75.
Closing Adjustments
An estimate should be made for closing adjustments, for bills that the seller has prepaid such as property taxes, utility bills, and other charges. Any bills after the closing date are the purchaser's responsibility. Your lawyer or notary will let you know what they are exactly, once the various searches have been completed.
HST
On the purchase of a newly constructed home, HST is payable, but 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 the HST new home rebate.Many builders include HST in the purchase price, so that the buyer does not have to pay that at closing. HST is also charged on all professional fees. including legal fees, realtor fees, and so on.
Home Buying Closing Costs Summary
Home buying closing costs are a significant factor in the purchase of any property, residential, investment or commercial. Please consult with appropriate professionals for further assistance.
