When buying a home, there’s much more to consider above and beyond your mortgage costs while taking overall affordability into account. Be sure to include closing costs in your budget because, in most cases, they can’t be rolled into your mortgage payments.
‘Closing costs’ refer to a large variety of fees and services associated with homebuying, including all legal and administrative expenses you’ll be responsible for paying on, or leading up to, your home’s closing date.
Closing costs range depending on the specific property, but it’s a good idea to set aside 5% of the purchase price as a buffer to cover these expenses. They typically come in anywhere from 1-4% of the actual home’s price, but leftover funds can then be used for moving expenses and/or to help furnish and decorate your new home.
The following list provides a rough estimate for calculating your closing costs and will more fully prepare your for your property purchase:
Land Transfer Tax – This is a provincial tax that’s charged whenever a property is purchased – unless you’re a first-time homebuyer in Ontario, in which case you’re likely exempt from the cost. The tax varies from jurisdiction to jurisdiction (eg, 1.5% of purchase price for property costing $250,000-$400,000; 2% for property $400,000+, etc). Some cities, such as Toronto, also impose a municipal land transfer tax you’ll have to also include in your budget.
Appraisal Fee – An appraisal is an unbiased estimate on the value of your home. It certifies the property’s resale value to the lender in case you default on your mortgage. The cost is typically $300-$500.
Legal Fees & Disbursements – Your lawyer or notary will charge you a fee for drawing up the mortgage and conveyance of title. The amount of the fee will depend on the individual that you use. The typical cost is $800-$1,000.
Title Insurance – 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 approximately $200-500.
Home Inspection – A home inspection is a wise investment, as a professional will offer an objective visual examination of the physical structure and systems within a house. This typically includes a report outlining the condition of the home’s heating and cooling systems, interior plumbing and electrical systems, roof, attic, visible insulation, walls, ceilings, floors, windows, doors, foundation, basement and structural components. Cost range is $350-500.
GST/HST – Tax is only charged on new homes, and doesn’t affect homes priced at less than $400,000. Even homes that exceed the price threshold are only taxed on the portion above $400,000. Certain conditions may apply. Contact your lawyer/notary for more detailed information.
Interest Adjustments – You’ll need to pay interest on any gap between the closing date of the purchase and the first payment date of the mortgage. You can avoid an interest adjustment by scheduling your first mortgage payment exactly one payment period after your closing date.
Statement of Adjustments – Your lawyer will calculate and prepare a statement of adjustments for your portion owing on utilities, property taxes and other bills based on where your closing date falls within the month/payment cycle. As some owners prepay these services, the adjustment could be quite costly.
Survey – If you’re purchasing a single-family home, you’ll need to provide your lender with a survey certificate showing where the property sits within the property lines. Some exceptions are made, however, on low loan-to-value purchases and acreage properties. A survey will cost approximately $750-$1,000, but the lender will often accept a copy of an existing survey. Closing
Your mortgage agent can help determine the closing costs you’ll have to pay based on your specific property.
Have questions about closing costs and calculations? Answers are just a call or email away!