Closing Costs

Closing costs, ranging from 1.5 to 4%1 of selling 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.

Cash outlays required before your mortgage closes

  • Home Inspection Fee. It is highly recommended that        you contract a home inspection as a condition of your Offer to   Purchase. A      home inspector will assemble a report on the condition   of the home for a      fee of around $500,      depending on the   complexities of the inspection.
  • Deposit. A deposit that counts towards your down payment is required when you make an Offer to Purchase. The      deposit may amount to 5% of the      purchase price, which is the minimum down payment percentage in Canada.

Costs financed in your mortgage

Mortgage default insurance, or CMHC insurance, is not normally considered a traditional closing cost as it is added to the total mortgage you require and amortized over the life of your mortgage. We have chosen to include it here to point out the major difference between it and traditional closing costs: it does not require a cash outlay upon closing.

  • Mortgage default insurance. If you purchase a house with less than a 20% down payment, you will be required  to buy      mortgage default insurance, commonly referred to as CMHC  insurance. This      protects the lender in the case the borrower,  defaults on the loan.

Mandatory closing costs covered by the home buyer

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
  • 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

Mandatory closing costs often covered by the lender

  • Appraisal Fee. An appraisal, which is an        estimate on the value of your home, is often covered by your mortgage        lender.  An      appraisal is performed to   certify the lender of the resale value      of the home in the case you   default on the mortgage. The cost is usually between $250 and $350.

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

Closing Day is the day you finally take legal possession of your home. It’s important the 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.

Congratulations! You are now ready to move in.

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