When buying a home you will incur additional closing costs not included in the purchase price.
Closing costs are usually calculated at an average of 1.5% of the home’s purchase price. This is a significant cost that needs to be paid by the buyer, and not usually paid out of the mortgage proceeds unless arranged. On a $400,000 home this cost could be $6,000.
Appraisal fee: $150-300 approx.
Most mortgage lenders will want an appraisal of the property you are buying. The cost of this service can vary by the type of appraisal done. In-town homes can often be compared to others in the same area, while rural properties are more difficult to compare. The appraised value may not be the same as the purchase price and if lower, can affect the down payment required. Lenders will only work with the appraised value.
Home inspection fees: $300 approx.
This is not a mandatory closing cost and often not applicable to new homes. On most resale homes, buyers will include a professional home inspection as part of the offer to purchase. While home inspections generally do not uncover major flaws in the home, they can inform the buyer of the condition and life expectancy of the home’s components.
Property survey: $750-1,000 approx.
A survey indicates the boundaries and measurements of the land and positions of major structures on that property. There can be visible easements such as a driveway, or encroachments such as a neighbour’s fence on the property. In some cases a neighbouring property can be partly on the adjacent property. Generally easements and encroachments are not an issue but it is nice to know about them. Many properties will already have an acceptable survey therefore may not be a closing cost you have to worry about.
Land transfer tax:
- 0.5% of the value of the transfer up to and including $55,000
- 1% of the value of the purchase which exceeds $55,000 up to $250,000
- 1.5% of the value which exceeds $250,000 up to $400,000
- 2% of the amount by which the value that exceeds $400,000 for properties that contains at least one and not more than two single family residences.
Legal fees: $1,500-2,500 approx.
Legal fees in Ontario are also subject to HST. Make sure you discuss all related costs with your lawyer so that on closing there are no surprises. Lawyers will generally take care of disbursements not included in their rates such as prepaid property taxes and utilities. These added closing costs can vary greatly depending on the circumstances.
Sales tax and the rate charged varies and is usually only applicable to new homes. Many builder include it in the price but always find out before signing an offer. Government rebates may also apply and can be included in the offer to purchase. Currently in Ontario a rebate of $24,000 is available regardless of the new home purchase price.
Title insurance: $250 approx.
Title insurance is also optional and covers issues such as encroachments (example, a structure on your property is actually part of your neighbour’s property and needs to be removed), existing liens against the property’s title, title fraud, undischarged mortgages and other issues relating to the property’s previous owners. While this is optional in your closing costs it is well worth the investment.
High ratio mortgage insurance: varies
High ratio mortgages are ones where the amount being financed is between 80% and 95%. Generally, mortgage default insurance premiums vary somewhere between 0.5% and 2.75% of the principal plus applicable fees, and may be subject to provincial sales tax which cannot be added to mortgage amount. If your down payment is less than 20% of the purchase price of your property, you have to pay a onetime insurance fee on your mortgage loan amount. You can make arrangements to pay the premium before closing, or it can be added to the principal amount of your mortgage. If you choose to add these closing costs to the principal amount of your mortgage, you will pay interest on it at the same interest rate you pay on the original amount being borrowed. See CMHC’s fees here (Canada Mortgage and Housing Corporation). Other insurers include Genworth Financial and Canada Guaranty Mortgage Insurance Company.
Mortgage interest adjustments: varies
You may be required to pay interest on the time between the date of closing and the the first payment date of the mortgage. Usually this can be avoided by arranging to make your first mortgage payment exactly one payment period after your closing date.
Home insurance: $500+/yr
You new home will need property insurance which may be paid monthly or up front, depending on the provider. Be sure to arrange this insurance up front – without coverage the lender may not release the funds to close the deal.
Mortgage insurance: varies
Costs will vary depending on the amount being borrowed. This insurance is not mandatory but protects your family in the event of premature death.