Many first-time home buyers spend years saving up a hefty down-payment and jump into house hunting without fully understanding all the costs related to closing a home that go far beyond your down-payment and standard mortgage. Knowing what these additional (out of pocket) expenses are in advance will ensure a smooth closing and avoid any scary surprises.
Rule of thumb: Allow an additional 1.5-2% of the purchase price for closing costs!
Below are closing costs that are typically incurred, price but are to be used as a guideline only as things could vary on a case by case basis.
Legal Fees and Disbursements:
Lawyers will always charge a fee for their professional services. In my recent transactions this has ranged from $1200-$1500 but as stated before can be +/- based on your individual circumstances. These services paid for include drafting title deed, preparing the mortgage and conducting any searches needed on the property to ensure a smooth transition. Disbursements are out of pocket expenses your lawyer incurs such as searches, supplies, registrations (Plus HST).
It is always important when searching for the right lawyer to ask what your ‘worst case scenario’ could be and don’t be afraid to shop around. The fees charged by Lawyers are NOT standard, so it is possible to get a better deal with a different lawyer.
Land Transfer Tax:
A land transfer tax is charged on closing when the property is transferred from the old owners into your name. Land transfer tax is charged at 1% of the purchase price of the property everywhere in Ontario with the exception of Toronto, where the land transfer tax is actually 2%. First-Time home buyers are eligible for a Land Transfer Tax refund of up to $3,725 in Toronto and $2000 elsewhere in Ontario. For more details on the Land Transfer Tax rebate – please contact me.
There are many types of insurance that may be taken including Mortgage Default Insurance for those who wish to buy a home without 20% down, home owners insurance, Mortgage Life Insurance and Title Insurance. These insurance prices vary, it is best to consult your mortgage specialist about how these prices will affect your costs.
Property Tax & Prepaid Utilities Adjustments
In the time leading up to the closing, your lawyer will confirm that municipal taxes have been paid to date. If they are – a tax certificate is issued and used as a guideline for any adjustments that need to be made. What this means, is that any prepaid taxes will be reimbursed to the seller by the buyer upon closing of the property. If the taxes are not up to date – the city will demand these be paid by the seller from the proceeds of the sale. This adjustment can get costly if everything has been paid for the year, be sure to get confirmation from your lawyer on the amounts owing!
If is not uncommon for a lender to ask that an appraisal report be completed prior to handing over a mortgage. They do this to ensure that the property is worth what you are paying for it or valuing it for to in turn ensure their investments are safe. The cost of having this done can range from $175 to $285 depending on complexity and location of the property. Sometimes your bank will eat this cost – but it is becoming more and more common that the buyer is asked to pay for the appraisal so tuck that money away just in case!
This report is usually a condition placed on any offer made to purchase a property. It provides the buyer with the peace of mind to know that the condition of the property is as expected and that there are no pending problems that could affect the price or value of the property. Most reports will indicate any problems discovered as well as the cost to repair. Most home inspections will cost about $350 (+HST) for a standard Inspection – larger or older homes could incur a larger fee.
Now that you are better prepared you can ensure no uncomfortable surprises and a smooth and happy closing!
Happy House Hunting!