Closing Costs When Buying A Home| Fivewalls

Closing costs must be factored in any time you buy a home – and they can add up pretty quickly. This closing cost overview will help you understand the type of fees you should expect to pay, how much you should budget, and ways to save on closing costs. 

What Are Closing Costs?

Closing costs are a general term used to describe the set of one-time fees you are required to pay when you purchase a property. There are no set standards for closing costs, and the amount you owe will vary depending on the price of the property, your lender, the city or province the home is in, and the size of your down payment. 

You are almost always required to pay for closing costs upfront, and you are usually prohibited from rolling these into the mortgage. 

The Costs of Buying a Home

The cost of buying a home includes much more than just the purchase price. You should generally budget around 3% to 4% of the sale price to cover your closing costs. Here are some of the most common fees you will pay when you purchase a new home:

Fees Due Before Closing

Even though the term closing costs implies that you pay them at the closing date, you must cover certain fees ahead of time:

Deposit:

The deposit is usually 5% of the sale price, and it must be paid within 24 hours of offer acceptance. This shows that you are serious about the purchase and indicates to the seller that you are ready to move forward. 

Home Appraisal:

An appraisal is ordered before closing to ensure that the selling price is in line with current market conditions. The bank will not extend a mortgage for $700,000 when the property is valued at $650,000. Sometimes appraisal costs may be paid by the lender, but the fee ranges from $300 to $500 depending on the area. 

Home Inspection:

Your home inspection is very important and must be completed before closing. Most purchase agreements and contracts make the offer conditional on a clean inspection. 

The inspector will walk through the home and property and look for any hidden problems that need to be repaired ahead of time. They may also identify issues that may cause a problem in the future since you will be responsible for those costs once you purchase the home. 

If the inspector discovers something during their review, you can ask the seller to discount the original sale price or agree to repair it before the closing date. If the problem is severe enough, you may be able to cancel the contract altogether. 

Expect to pay anywhere from $400 to $700 for your home inspection but note that this is a valuable investment because it could save you thousands of dollars in the long term. 

The following expenses are due at closing, so you must pay for them before you get the keys to your new home. 

Legal Fees: 

The legal fees due at closing will cover all of the legal documents that must be drafted, such as the purchase agreement and title transfer. There is no avoiding this cost because hiring a real estate lawyer is required when you purchase a home in Ontario. 

The cost of your real estate legal fees will vary depending on the difficulty of the transaction. You can estimate between $500 to $1,500 for this cost, but there are some additional legal items that we can itemize. 

Government registration fees are included in this category. The documents that must be filed will change depending on the property type, region, and province, but your real estate lawyer will file these on your behalf. The average cost for registration fees is about $200. 

If your lender requests that you obtain title insurance, you will purchase it through your real estate lawyer. This one-time fee is in case there are any disputes about the ownership of a property and is generally a few $100. The premium will vary based on the insurance company. 

When you buy a condominium, you will also need an estoppel certificate. This legal document includes the financial statements of the Association and will outline all of the standard fees required for your unit. It will include any services you will receive in return for those fees, as well as penalties for failing to comply with the condo rules. The cost of an estoppel certificate is about $100.

Land Transfer Tax: 

You are required to pay land transfer tax anytime that you buy a property. Typically, this is a provincial tax, but some cities and municipalities may have an additional fee. 

The amount will vary based on the purchase price, and the tax rates are different in every province. There will also be an additional assessment if you live in Toronto. Similarly, you may qualify for certain rebates if you are a first-time homebuyer that can help you save on your land transfer taxes. 

For example, in Ontario, the rates begin at 0.5% and increase on a sliding scale to 2.5%. The higher the property price, the higher the tax bracket that will apply:

The easiest way to estimate your land transfer taxes is to use a closing cost calculator!

Property Tax Adjustment: 

You must reimburse the seller a portion of the property taxes they have already paid for the year. This cost will be provided to you at closing.

Property Survey: 

Your mortgage lender may require a property survey before they can finalize the loan. The survey should reflect any improvements and additions to the property, and the cost will vary depending on the location of the home, the type of survey required, and any existing legal or geographic complications. 

In general, you can expect to pay between $350 and $1,500. 

HST: 

Harmonized sales tax must be factored in on any new construction house or condo. Sometimes this fee may be covered by the builder, so work with your realtor and lawyer to determine if it applies to you. 

Mortgage Insurance Premium: 

If you do not have a 20% down payment, you will also be required to pay these CMHC insurance premiums. The insurance protects the lender if you default on the loan, and the cost is based on the total mortgage.

Additional Fees After Closing

You may even owe some additional fees after the closing date, depending on how you plan on moving into your new home. 

Moving Costs: 

You should expect to pay around $1,000 to move your furniture and belongings to your new home. While this is an optional expense, it is usually worth not having to carry your furniture up a flight of stairs yourself! 

Renovations: 

Depending on the move-in readiness of your home, you may need to spend some money on renovations after the closing date. 

Utility Connections: 

There are usually nominal fees associated with connecting your electric, water, and other utilities for your new home. Estimate a few hundred dollars to cover the cost of initiating these services.

How Much Should I Budget for Closing Costs?

The closing costs when buying a house are driven by the total property value. Here are some examples of different property prices that can help you estimate how much you will need to save. 

$300,000 Home = $19,475
Deposit: $15,000
Property Survey: $500
Land Transfer Tax: $2,975
Legal Fees: $1,000

$500,000 Home = $32,975
Deposit: $25,000
Property Survey: $500
Land Transfer Tax: $6,475
Legal Fees: $1,000

$750,000 Home = $51,275
Deposit: $37,500
Property Survey: $800
Land Transfer Tax: $11,475
Legal Fees: $1,500

$1,000,000 Home = $68,775
Deposit: $50,000
Property Survey: $800
Land Transfer Tax: $16,475
Legal Fees: $1,500
Note that these estimates only include the standard costs and that additional fees will likely apply! To get a more exact estimate of the closing costs you will owe when you purchase your new home, consider using a closing cost calculator.

Ways to Save on Closing Costs

If you are buying your first home, you may be able to save on closing costs. The first-time homebuyer’s incentive provides a credit on the land transfer taxes which can be some of the most expensive closing costs. 

As long as you meet all of the criteria, which includes being a Canadian citizen or permanent resident and occupying the home within nine months of closing, you could receive up to $4,000 in tax credits. For first-time homeowners in Toronto, you may be eligible for an additional $4,475 in land transfer tax rebates – helping you save $8,475!

Are There Additional Fees for Certain Buyers?

In addition to the standard closing costs, certain types of buyers may face additional fees.

Non-Resident Speculation Tax

Buying a home when you are not a citizen or permanent resident of Canada can also result in you being subject to the non-resident speculation tax. When it comes to closing costs in Ontario, this can be one of the most significant expenses if it applies to you. 

This tax applies specifically to the Greater Golden Horseshoe Region, which is near Toronto. The tax rate is 15% and it can be calculated using the value of the property. To give you an example, the NRST tax on a $600,000 home would be a staggering $90,000! 

You may be able to obtain a full rebate for this expense if you remain in Canada and become a permanent resident within four years. Similarly, you may receive a rebate if you enroll as a full-time international student or work as a foreign national in Ontario. 

Mortgage Insurance

Although you are not required to make a 20% down payment when you buy a home, if you do so you will be required to purchase mortgage insurance. CMHC mortgage insurance costs are applied at closing, and the premiums are based on the sale price of the home. 

If you live in Saskatchewan, Ontario, Manitoba, or Québec, you are also required to pay a provincial sales tax on these premiums.

GST & HST

Purchasing a newly constructed home will also result in sales taxes. this is in addition to the purchase price and typically consists of a federal and provincial portion. When combined, these fees are called HST - harmonized sales tax. 

In some cases, the home builder may be willing to cover the cost, but you should first contact your lawyer to determine if it applies to you. If the house is valued at less than $450,000, you may receive a rebate for some of the federal tax. 

Tax and Interest Adjustments

When you purchase a resale home, the seller likely already paid a portion of their property taxes for the year. At closing, you must reimburse them for the part of the taxes that they already paid. The total amount will vary depending on the length of time left before the end of the year and what property tax rates are in that area.  

Depending on the day of your closing, you might also have to pay an interest adjustment. For instance, if you close on the third day of the month but your mortgage is not due until the 10th, interest will still accrue during this time. You will owe this amount on the closing date. 

Other Costs to Budget for When You Own a Home

The closing costs in Ontario are not the only items you should budget for when you purchase a home. The following are some additional items that are not technically considered closing costs but will still impact your total expenses.  

Utilities

As a homeowner, you are solely responsible for the utilities in your home. This includes everything from heat, electricity, water, and sewage to internet and insurance costs. If you live in a condo, the association fees may cover some of these. However, check with the condo corporation to confirm. 

Regular Maintenance

One of the largest sources of unexpected expenses for new homeowners is regular maintenance. If you previously lived in an apartment or rented a home, you may be used to things like landscaping and snow removal being covered for you. 

Now that you are responsible for these costs, you should have a contingency fund to help you pay for regular maintenance and prepare for any repairs or home improvements that you might need in the future. 

Other Real Estate Resources You May Be Interested In

A Guide on How to Buy A Home

First Time Home Buyer Incentives and Tips in Canada

Land Transfer Tax in Ontario

Land Transfer Tax in British Columbia

Mortgage Pre-Approval Process in Canada

What is Title Insurance?

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