Many buyers are surprised at the additional costs over and above the price of the home. It is advisable to have at least 1.5% of the purchase price (around 4% to be on the safe side) for closing costs in addition to the down payment.
Below you will find a brief explanation of these costs. Please note these are only some of the closing costs you may encounter depending on the specific situation.
Appraisal Fee
An appraisal provides the lender with a professional unbiased opinion regarding the market value of the property. This may be necessary if there is a lack of a sales history for similar properties to compare with. Depending on the circumstances and provider, this amount may be covered by the financer.
Home Inspection Fee
A professional and thorough inspection of the home is for the benefit of the buyer. When hiring a home inspector make sure the inspector has liability insurance just in case they overlook something. A standard home inspection is generally under $1000 for the average dwelling and is well worth the investment.
Fire Insurance
Mortgage lenders require a certificate of fire insurance to be in place from the time you take possession of the home. The amount required is generally the amount of the mortgage or the replacement cost of the home. This cost can depend on the property size, amount of coverage, municipality, and insurance provider.
Land Survey Fee
A recent survey of the property is sometimes required by lenders. Even when optional, it may be ideal to have one completed to get confirmation of what is actually being purchased. This amount can vary from the hundreds into the thousands if surveying acreages or difficult terrain.
Legal Costs
Lawyers charge fees for providing advice, document review, searching for liens, assisting in the transferring of funds, and registering ownership on title. The cost will vary and be charged based on the complexity of the transaction and the amount of due diligence required.
Title Insurance
A legal professional arranges title insurance and you pay a one-time premium at time of close. This product aims to give you protection for defects that may not be evident; a survey or zoning by-law issue may not be apparent. Certain types of risks might be excluded so confirm details with your lawyer at the time of closing.
Land Transfer Tax
Ontario charges a land transfer tax payable by the purchaser. The amount varies depending on the area and is based on the purchase price. First time home buyers purchasing a new or re-sale home may be entitled to a refund.
New Home Warranty
In Ontario, new homes are covered by the Tarion new home warranty program. The cost to the purchaser for enrollment in this warranty ranges up to $1500 depending on sale price. Should the builder default or fail to build to an agreed-upon standard the program will provide the means to rectify the deficiencies to a maximum amount.
Harmonized Sales Tax
HST is payable on the purchase of a newly constructed homes only. If you are purchasing a new home make sure you know which party pays this, buyer or builder. On the offer the purchase price will say “Plus HST” or “HST Included” and who gets any HST rebates.
Sales Tax on Mortgage Insurance
If your mortgage is insured, you will be required to pay the applicable tax (8% in Ontario) on the insurance premium. While the premium itself can be added to the mortgage amount, the tax must be paid out of pocket at closing.
Non-Resident Speculation Tax
The NRST is a 25% tax on the purchase or acquisition of an interest in residential property located in the Greater Golden Horseshoe Region (GGH) by individuals who are not citizens or permanent residents of Canada. This legislation also applies to foreign corporations, entities, and taxable trustees.
Closing Adjustments
An estimate should be made for pro-rated closing adjustments for bills the seller has prepaid such as property taxes, utility bills, and other charges. Any bills after the closing date are the responsibility of the purchaser. A lawyer will let you know what they are once the various searches have been completed.