When you finally choose the home you want to purchase, it’s an important and exciting moment in your life. Even more important is closing the deal. So what does it cost to close on your dream house? You can expect to pay from 1.5% to 4% of the purchase price in closing fees. Some expenses are mandatory for homebuyers, and some are optional but can stand to benefit you and protect your investment. It’s important for buyers to have a handle on all the different closing costs and to know which are due before you close and which are due at the time of closing.
As you prepare to make the initial down payment on your home, keep in mind the two options you have for your mortgage. Conventional mortgages involve a down payment of 20% or more of the home’s purchase price.
If you make a down-payment between 5% and 19.9% you will be required to pay for default or high-ratio mortgage insurance. This type of insurance is beneficial for lenders in case you can no longer pay your mortgage and done through Canada Mortgage and Housing Corporation (CMHC) or a private insurer.
Depending on the size of your loan, your premium will be between 1.8% and 3.6% plus applicable sales tax. Unlike Land Transfer Tax, mortgage default insurance doesn’t have to be a lump sum and can be built into your mortgage. But Sales Tax on the insurance is due at the time of closing.
Mortgage default insurance is not available on homes purchased for more than $1 million; this means that a minimum 20% down payment is required for these homes.
Appraisal of a home is a common practice used by the lenders. Cost usually runs between $250 and $350 and often covered by the lender.
Land transfer tax is a tier-based system that uses the cost of your new or re-sale home to determine what percentage of tax you’ll pay. Homebuyers in Toronto, however, also incur an additional municipal tax.
Ontario Land Transfer Tax:
First $55,000 – 0.5%
On $55,000-$250,000 – 1%
On $250,000-$400,000 – 1.5%
Over $400,000 – 2%
You can figure out your Provincial Land Transfer Tax using an online calculator.
Municipal Land Transfer Tax (if your home is located in Toronto)
First $55,000 – 0.5%
On $55,000-$400,000 – 1%
Over $400,000 – 2%
If you’re a first time homebuyer in Ontario, you qualify for a maximum of a $2,000 provincial rebate (that covers tax amount on $227,500 home). First-time homebuyers in Toronto are eligible to receive a refund up to a maximum of $3,725.
You can figure out your total Land Transfer Tax and First Time Buyer Rebate using an online calculator.
The documentation that goes along with securing your new home will involve $500-$1,000 in legal fees plus about $200 in mortgage related legal fees. The amount is higher if you’re investing in a brand new condominium because there are two closings (a possession closing and title closing), and there is more documentation involved. All of your legal fees will be subject to Goods and Services Tax.
Applicable to condominiums and condo townhouses, this typically costs $100, and is most often paid by the seller.This document will give you and your lawyer the opportunity to review most important condominium’s governing documents, financial statements and insurance coverage.
Before making a decision to purchase, it’s a good idea to have any property inspected by professional and knowledgeable home inspector and obtain a report on the condition of the house. The cost of a home inspection varies based on the inspector’s qualifications, complexity of the inspection, and the size of your property. Typically, the inspection of a 2,000 sq. ft. home will cost about $500.
As the buyer of a new home, you will need to cover any costs, like annual utilities or property tax, that the previous owners may have paid for in advance. Your lawyer will present you with a Statement of Adjustments letting you know what these costs are, if any, along with a declaration of your deposit and the purchase price of the house. These fees will be due at the time of closing.
Although the mortgage lander may request one, land surveys are rarely necessary (most properties already have a valid surveys in existence), and buyers do not normally pay for fees. Cost of the survey is $1,000-$2000
There are two major types of insurance you’ll need to look into when buying a new home.
Property insurance is your typical homeowner's insurance, and the cost greatly varies depending on your home, what coverage you want, and who brokers your insurance. Your mortgage lender will require you to have property insurance in place on closing day.
Your lawyer or lender may also recommend you to get a title insurance. This is a one-time fee you’ll pay at the time of closing that protects the property’s title against fraud, faulty workmanship, and any negligence on the part of past owners. For a $500,000 home, the cost of title insurance would be around $350.