Closing costs are a one-time fee associated with the sale of a home and are separate from the mortgage insurance and down payment. Typically, these costs range from 1.5-4% of the purchase price, depending on your location. Factoring these costs into your maximum budget can help you narrow down an entirely affordable home and ensure future financial stability and security.
Here are a few closing costs to keep an eye out for:
- Land Transfer Tax: This is calculated as a percentage of the purchase price of your home, with the amount varying in each province. Some cities, such as Toronto, also have a municipal LTT.
- Legal Fees and Disbursements: You can expect to incur a minimum of $500 (plus GST/HST) on legal fees for the preparation and recording of official documents.
- Title Insurance: Most lenders require title insurance to protect against losses in the event of a property ownership dispute. This is purchased through your lawyer/notary and is typically $300 or more.
- PST on CMHC Insurance: Though CMHC insurance itself is financed through the mortgage, PST on the insurance is typically paid at the lawyers and sometimes deducted from your advance.
Home Inspection Fee: A home inspection is highly recommended as a condition of your Offer to Purchase to prevent any future surprises. This can cost around $500.
- Appraisal Fee: An appraisal is performed to certify the lender of the resale value of the home in the case you default on the mortgage. The cost is usually $400 - $600 but is typically covered by the lender.
- Property Insurance: Property insurance covers the cost of replacing your home and its contents, and must be in place on closing day. This is paid in monthly or annual premiums.
- Prepaid Utility Bills: You may need to reimburse the previous owner of your property for prepaid costs such as property taxes, utilities, and so forth.
- Property Taxes: Property taxes are due on an annual basis and are calculated as a percentage of the home value and vary by municipality. You also may need to reimburse the previous property owner if he/she has already paid property taxes for the full year.
Getting Proper Coverage: Purchasing a home is likely the largest investment you will make, and you want to ensure it is protected.
Various insurance items can be obtained for your home, including:
- Title Insurance: Required by most lenders to protect against losses should a property ownership dispute arise. This insurance is done through your lawyer/notary.
- Mortgage Protection Insurance: An optional debt replacement that protects your family should anything happen in the future. Many homeowners believe they are covered through their life insurance policy, but the Manulife Mortgage Protection Plan is different. Before closing, it’s important to look at the costs and coverage for you!
- Property & Fire Insurance: Mandatory and needs to be arranged before your closing appointment. Not sure how much to budget for? Get quotes from various insurance companies! Your lawyer/notary or myself can provide recommendations.
- Default Insurance: Only required if you purchase a house with less than a 20% down payment.
Whether you’re looking at a condo, townhouse, rancher, or a two-story property, there is nothing quite like your first home! However, the mortgage process can be intimidating - and that’s where I come in! If you’re looking to get started on your home-buying journey, don’t hesitate to reach out to me today.
