Closing Costs - What to Expect?
The cost of buying a home is often underestimated as there are many additional costs involved besides the mortgage itself. A good rule of thumb is to budget about 1.5 - 2% of the purchase price for closing costs. Closing costs often include, but are not limited to, expenses such as legal fees, land transfer taxes, insurance, and appraisal fees. Depending on your unique home purchase your closing costs will be slightly different, but it is possible to estimate these costs. Estimating the closing costs that will be involved in your purchase will allow you to include them in your budget, reducing any unanticipated expenses.
Below is a list of common closing cost you may incur when purchasing a home:
Mortgage Default Insurance
If you are obtaining a high ratio mortgage, those with less than 20% downpayment, your lender may require mortgage loan insurance. The cost of this insurance is up to 3.15% of the mortgage amount, depending on down payment added on to the mortgage. In addition, some mortgage insurers also charge a fee to process an application for a high ratio mortgage. Click Here to review information on mortgage default insurance.
Appraisal Fee
Often required by lenders to determine how much they are willing to lend on the property. The appraisal value on the property is based on the opinion of a certified appraiser. Each lender has a different list of approved appraisers, your mortgage professional can arrange for your appraisal with the appropriate appraiser. The average cost for an appraisal is between $250 and $350.
Home Inspection Fee
It is highly recommended that a home inspection be completed prior to purchase to ensure that are no hidden defects that you were not made aware of. Average cost is between $300 & 600, depending on size, age and value of the house and if there are any suspected issues. Click here for information on why a Home Inspection is important.
Land Transfer Tax
This fee is payable to the provincial or municipal government upon closing, it is commonly a certain percentage of the purchase price on the property. In Ontario, the rates are as follows:
- 0.5% on the first $55,000 of the purchase price
- 1% on the next $195,000 of the purchase price
- 1.5% on the next $150,000 of the purchase price
- 2% on the remaining purchase price
Specific municipalities, such as Toronto, may also have additional land transfer taxes. Click here for a land transfer tax calculator.
Property Insurance
Your lender will require you to obtain property insurance, as the home acts as collateral for the mortgage. Most lenders only require insurance that covers fire and weather-related damage in place on closing day. Annual premiums usually start at $500 and increase from there. Contact your insurance agent for rates; we have proven professionals that we can recommend to you if you do not currently have one.
Survey
A survey may be required by lender before finalizing the mortgage. If there is not an up-to-date survey, it can cost between $1,000-2,000. Whether you, or the seller, pay for this can be negotiated. It should also be noted that title insurance usually covers the need for a survey, talk to your lawyer or realtor to determine if you will need to do have a survey done.
Legal Fees & Disbursements
This usually covers the cost of completing a title search, drafting the title and deed, preparing the mortgage documents, registration fees and other disbursements. These fees will be due at closing and typically costs $1,500.
HST
If you are purchasing a resale home or a new home under $400,000 there is no HST charged. If you are purchasing a new home over $400,000 HST will be applied. Although there is a new 75% housing rebate of the Ontario component of the HST up to a maximum of $24,000. On average you should not pay more than you would have under the old system. Click here for more information on HST for Home Buyers.
Moving Expenses
Cost will depend on the amount of stuff that will need to be moved. Cost can be lowered by doing some of the moving yourself.
Service connection fees
You will have to pay to set-up utilities such as electricity, telephone, gas etc...This will also likely include an initial deposit.
The above list of common closing costs should give you a general idea of additional expenses you should expect to incur, besides the mortgage, when buying a home. Talk to your Homeguard agent, lawyer or real estate agent to get a better idea of the specific closing costs that will be involved in your specific home purchase.
