Don't Get Caught Off Guard With Closing Costs

One of the biggest mistakes that first-time home buyers make is failing to budget for closing costs. In fact, even experienced home buyers can overlook expenses related to the sale of a home that go above and beyond the purchase price. Both buyers and sellers are required to pay closing costs, so it is important to know what to expect before entering into a home sale.

What Are Closing Costs?

Closing costs are upfront expenses that you must pay when finalizing a home purchase. They typically cover legal and administrative costs and are separate from your down payment and mortgage fees. 

Closing costs in Canada can be anywhere from 1.5% to 4% of the purchase price of the home. So if your new home costs $400,000, the closing costs could be between $6,000 and $16,000. This is something to take into consideration when budgeting for a new home.

Types of Closing Costs

Before closing on a home, you will need to pay various taxes and fees to different individuals and organizations to finalize the sale. These are the main types of closing costs you can expect:

Land Transfer Tax

Land transfer tax (LTT) is a one-time fee that you pay the provincial government when a home is transferred from a seller to you. It is a percentage of the purchase price of your home. In some cities you may also have to pay a land transfer tax to the municipality. In Ontario, first-time home buyers can receive a tax rebate of up to a maximum of $4,000 on the Ontario land transfer tax.

Legal Fees

All home transactions require a real estate lawyer because only a lawyer can register the land titles. Your lawyer will also prepare and file official documents for you, make disbursements and ensure that everything is above board. They can also offer guidance on contracts and agreements. Fees vary depending on the lawyer and work involved.

Property Appraisal Fee

Your lender may request a property appraisal to ensure that the home you are planning to buy is in good condition and worth the amount they are lending you. The appraisal is an unbiased estimate of the market value of your future home. Typically home buyers pay for the property appraisal. This can cost anywhere from $300 to $500.

Home Inspection

Although a home inspection is not mandatory, it is an essential step in purchasing a home. As a home buyer, you need to know whether there are any major issues with the property that could affect your health, safety, comfort or finances. A home inspection could cost up to $800, but it’s well worth the money for peace of mind and to avoid costly repairs in the future.

Title Insurance

Many lenders require home buyers to purchase title insurance to protect against any property disputes or fraudulent activity. Even if your lender does not require it, title insurance is never a bad thing to have. You can purchase title insurance through your lawyer. The typical cost of title insurance is anywhere between $300 and $500. 

Mortgage Insurance Tax

If you pay less than 20% for your down payment, you will be required to pay for Canada Mortgage and Housing Corporation (CMHC) insurance. The insurance premium is typically included in your mortgage financing. However, you will have to pay the PST on the insurance in full when you close on your home. In Ontario, the tax is 8% of the insurance premium.

Do you have questions about closing costs in Ontario or anything else related to buying or selling a home in the Durham Region? Get in touch with us here or call 905-668-1511 to speak with one of our Durham Region real estate experts today!

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