Closing Costs

So you’ve have been saving for your first house or condo, and have a fairly strong grasp of what kind of downpayment you'd be looking at in your particular price range and are now ready to move forward.

One of the major aspects of purchasing a home that many people fail to take into consideration is their closing costs.

Closing costs are costs that are over and above the cost of the purchase incurred by the purchaser. While not all costs apply in every situation, and there are differences based on region and province, I am going to outline what you should be prepared for when deciding if you are able to purchase.

The rule of thumb is to have around 1.5% of the purchase price available on closing. I would always suggest having between 2% or even 2.5% as a comfortable buffer After all its better safe than sorry.

What this means is that if you are purchasing a house for $300,000 then aim to have between $6000 and $7500 that can be easily applied towards closing. This figure is in addition to the down payment on the property which is for arguments sake a minimum if $15,000 at 5% down.

Now is also a good time to mention that if necessary you can borrow your closing costs when in a bind. This is not something I would recommend though because it is an additional debt that lenders will use in determining your ability to carry a mortgage.

So we have established that you are going to need to have around 2% or so available on closing. Lets now take a look at some of these costs and what they are for. Again, this list covers things you may require and there may or may not be items on this lists that apply to your closing.

Provincial Sales Tax (PST)
On any purchase with less than a 20% downpayment in Canada, Mortgage Default Insurance is required. These premiums which are usually added to the amount of your mortgage – although you can pay them up front – require a PST charge to be paid on the premium at the time of closing. A Provincial Sales Tax rate of 8% will apply to your insurance premium. So if you had a premium of $2000 then you would be responsible for $160 at the time of closing.

Home Inspection Fee

A home inspection carried out by a qualified and professional inspector is a cost that is of benefit you the purchaser, so you will be responsible for paying it. A thorough home inspection is something that should be done before purchasing the house and in my opinion is almost always worth the cost. A home inspection usually will cost somewhere in the range of $350 to $450 but larger homes or homes requiring more attention may be more costly.

Appraisal Fee

The lender will usually require that an appraisal is done on the property at your expense. This is done to determine the market value of the property as attained by the appraiser. An appraisal usually costs around $150 for a basic appraisal to $250 for a more thorough one, plus GST.

Property Insurance

All lenders will require that a certificate of insurance is available on the date of closing to ensure the property is adequately insured. This fee is dependent on the size of the property and what is being insured but the policy must usually be enough to cover at least the amount of the mortgage. The cost associated with this can vary between $200-$700.

Survey or Title Insurance Fee
The lender may require an updated survey of the land which can be costly. Most lenders will accept Title Insurance which offers protection from flaws in the title, and is only somewhere in the neighbourhood of $225.

Land Transfer Tax

Ontario requires a land transfer tax to be paid by the buyer on the transaction. The amount varies dependent on the purchase price of the land. Also, please note that if you are buying within Toronto, the City of Toronto has an additional Toronto Municipal Land Transfer Tax that is in addition to the Provincial tax. It is of note for the first time buyers that you qualify for a land transfer tax rebate up to a maximum of $2000.
Click the link for a tax calculator. http://www.torontorealestateboard.com/LTT_splash/ltt_calculator.htm

Legal Fees and Disbursements

These are fees attributed to the lawyer or notary provided their services to you such as performing searches and processing the mortgage. You can expect at least $500 for these services plus applicable tax.

A note on GST – When you purchase a new construction home, GST is deemed payable. Make sure before you sign your agreement with the builder that you know who is going to pay it -you or the builder. Often the GST will be worked into the purchase price beforehand, but you should obtain confirmation of this. Also the Government offers a GST/HST New Home Rebate, so you will want to know who this will be payable to.

This list covers many of the costs associated with purchasing a home. Individual circumstances vary accordingly. One thing that I suggest to any new homeowner is to make sure they create a budget. I highly recommend you meet with your mortgage professional leading up to your home purchase to make sure you are planning appropriately.

I will touch on budgeting and financial controls in a future post, so for now keep saving and happy house hunting.