In the frenzy of saving for a down payment, home buyers often forget about the closing costs required during the home purchasing process. And these unexpected costs can really put a damper on your finances. Plus, there are other expenses that are required before and after your house closes. To avoid getting caught with costs you can’t afford, learn as much as you can about the closing costs before buying a home. Here we outline all the costs you should become familiar with before getting ready to make an offer on your dream home.
Required Before Closing:
Your lender may require that you complete a home inspection before closing and report on the overall condition of the home. While a standard home inspection costs $200-500, when combined with other closing costs it can add up.
You’re also required to pay the deposit within 24 hours of offer acceptance. This amount goes towards your down payment and is used to help bind the buyer to the sale. The deposit cost can range from a few hundred dollars to 2%-5% of the purchase price of the home.
Your lender will require that you provide an appraisal of your home. This outlines the estimated market value of your home. The lender may offer to cover this cost but not in all cases. This is typically $300-$500.
Costs Required Upon Closing:
The majority of lenders will also require that you obtain title insurance to protect you from the risk of any issues with the title of the home. Title insurance costs $325 for the first $500,000 of the purchase price, plus $0.90 for every $1,000 thereafter. For instance, a $600,000 home would require $415 in title insurance; a $900,000 home would require $685 in title insurance.
You will be required to pay the administration fees issued to you by your lawyer. These fees cover the costs associated with the paperwork and official documents that have been prepared for the sale. Legal fees plus disbursements will total around $1,000-$1,500.
Land Transfer Tax
Each province will set out an applicable Land Transfer Tax (LTT) that is payable upon owing. The tax is calculated as a percentage of the purchase price. Ontario’s LTT is calculated based on ranges of the purchase price. For instance, on a $700,000 home in Vaughan, LTT will be $10,475. Toronto also has a Municipal Land Transfer Tax that will apply if you live within the city limits. This would add another $10,475 in LTT for the same purchase price.
Ontario and the City of Toronto have rebates to help first-time home buyers.
PST on Mortgage Default Insurance
At the time of closing you’re also required to pay the PST on the insured mortgage issued by Canada Mortgage Housing Corporation (CMHC). This amount will depend on the amount of your insurance premium. For instance, CMHC insurance premium totaling $10,000 would require $800 in PST payable on closing day.
Adjustments for Utility Bills and Property Taxes
You may also need to reimburse the owner if they have prepaid any utility bills or property taxes for the period you will own the home.
Other Potential Fees
Depending on your situation you may need to pay for an estoppel certificate, septic tank inspection, and well water testing.
Costs That Need to be in Place on Closing:
If you’re purchasing a home below the conventional 20% down payment, you will require mortgage default insurance that is backed by CMHC. This cost will either be added to your total mortgage and amortized or it can be paid in a lump sum. This is a cost that is outside your closing costs but is something you should be prepared to start paying after closing.
The property insurance will need to be in place at the closing date. This amount is usually paid in monthly or annual premiums. This costs $1,000-$2,000 per year depending on your home and belongings.
Knowing the total costs required as part of the closing process can help you avoid any financial burdens. Your mortgage broker with the Financial Forum can help outline all the expenses that will be associated with your home purchase.