One common mistake is overlooking the closing costs that need to be paid at the end of the buying process. While budgeting for your home purchase, you’ll want to have an accurate picture of the additional costs you’ll need to pay. Some of these costs may include land transfer taxes, title insurance, property valuation fees, home inspection fees, and legal fees. Visit the pages below to learn more about the costs that’ll apply to your purchase.
Closing Costs Overview
Closing costs, ranging from 1.5 to 4% of the purchase price, are the legal and administrative costs you will need to pay when your house closes. In addition to closing costs, there are other expenses and/or events that may require a cash outlay before, on or after your house closes. We will outline these in detail to ensure these often unexpected costs do not sneak up on you.
MANADATORY CLOSING COSTS
- The following is a list of closing costs that are incurred by the home buyer
- Land Transfer Tax. Calculated as a percentage of the purchase price of your home, all provinces have a Land Transfer Tax (LTT) payable on closing, with the amount varying in each province. Some cities, such as Toronto, also have a municipal LTT.
- Legal Fees and Disbursements. You can expect to incur a minimum of $500 (plus GST/HST) on legal fees, which account for the preparation and recording of official documents. Find a residential real estate lawyer with MyClosingCosts.ca.
- Title Insurance. Today, most lenders require title insurance to protect against losses in the event of a property ownership dispute. This is purchased through your lawyer/notary and costs $100 – $300.
- PST on CMHC insurance. Though CMHC insurance itself is financed through the mortgage, PST on the insurance must be paid in cash at the time of close.
The following is a list of closing costs that are incurred by some home buyers as they are only applicable to certain properties
- Septic tank. If the house has a septic tank, it should also be tested to ensure it is in good working order. Once again, you can negotiate the cost with the previous owner and list it in your Offer to Purchase.
- Water Tests. If the home has a well, you will want to test the quality of the water and ensure there is an adequate supply, as well if the water is potable. You can negotiate these costs with the previous owner and list them in your Offer to Purchase.
- Estoppel Certificate Fee (does not apply in Quebec). A certificate fee may be payable if you are buying a condominium or strata unit, and could cost up to $100
OTHER COSTS TO CONSIDER
Other costs to consider
- Property Insurance. Property insurance, which covers the cost of replacing your home and its contents, must be in place on closing day. This insurance is often paid in monthly or annual premiums.
- Prepaid Utility Bills. You may need to reimburse the previous owner of your property for prepaid costs such as property taxes, utilities and so forth.
- Property taxes. Property tax is calculated as a percentage of your home value, varies by municipality and must be paid each year. The residential property tax rate in Toronto for example is 0.83%, and on a $400,000 home, would be equal to $3,320 per year. You may need to reimburse the previous property owner if he/she has already paid property taxes for the full year. You are also given the option to set-up an automatic payment plan with you lender. Your lender will set up an account for you, collect an additional $277 per month ($3,320 / 12 months) and then pay property taxes on your behalf. Though by no means necessary, some homeowners find this service extremely valuable for budgeting purposes.
Closing Day is the day you finally take legal possession of your home. It’s important the bulk of your administration is completed by this point including transferring your down payment to your lawyer. Transferring down payment funds, especially from your RRSP can take time, and should be done several days before close.
On closing date, the following events will take place:
- Your lender will provide the mortgage funds to your lawyer/notary.
- You must provide, your down payment less the deposit, to your lawyer/notary along with the closing costs.
- Your lawyer/notary pays the previous owner, registers the home in your name, and gives you the deed and keys to your new home.