Know in advance how much money you will need on closing day
When investing in a home, most people know how much money they will need each month for mortgage payments, taxes etc., but many are shocked when they learn the additional legal and financial expenses which a purchaser usually has to pay on closing. In order to make sure you are prepared, I’ve made up this summary of typical expenses:
Financing Costs
Appraisal Fee
This is where the bank checks to see if your new home is worth the money you offered. This fee, usually about $175, is often waived so in a competitive mortgage market it pays to shop around.
CMHC
If your down payment is less than 25% of the purchase price the mortgage must be insured, either by Canada Mortgage & Housing Corp. or another private insurer. Costs for this include a $235 Application Fee (this includes the appraisal) plus an Insurance Premium which depends on the Loan to Value percentage. For a 90% mortgage the fee is 2.5% of the loan and can be paid separately or added to the mortgage. For more details on CMHC Fees go to the CMHC web site.
Survey
If the Vendor does not have an up-to-date building location survey, you may need to buy one. A typical survey costs about $500
Title Insurance
A relatively new alternative that can eliminate the need for a survey. It costs about $250 - $300. See my report on Title Insurance for more details. It is also not uncommon to negotiate to have the vendor pay for a survey or title insurance.
Land Transfer Tax
A major concern. The percentage of tax goes up with the value of the property. The formula works like this:
Basic tax of $5 per thousand on the first $55,000, then $10 per thousand on the excess up to $250,000 and $15 per thousand on any amount over that . Over $400,000 there is a further $5 per thousand added. Confused? Here's some examples
| Purchase Price | Land Transfer Tax | |
| $80,000 | $525 | |
| $100,000 | $725 | |
| $125,000 | $975 | |
| $150,000 | $1,225 | |
| $175,000 | $1,475 | |
| $200,000 | $1,725 | |
| $250,000 | $2,225 | |
| $300,000 | $2,975 |
Legal Fees
The actual closing of the sale is handled by your lawyer who checks to make sure the deal is correct and legal. He/she will also check the title to the property and make sure the Vendor really has clear ownership and that there are no liens, work orders or outstanding debts registered on title that otherwise would transfer to you. Typically, the charge for this service is about $600 plus disbursements but will vary according to the amount of work required. It’s a good idea to ask for a quote first.
Disbursements
Expenses which your lawyer will pay out while closing the sale. Depending on the nature and location of the property they might include:
| Title search | $60 (average) | |
| Sheriff's certificate for liens | $66 (average, depends on number of names) | |
| Registration of deed | $50 | |
| Registration of mortgage | $50 | |
| Municipal tax certificate | $15 (and up) | |
| Municipal Zoning and Building report | $25 (and up) | |
| Health Unit septic search | $15 (if required) | |
| Ontario Hydro search letter | $15 | |
| Gas compliance | $15 |
Insurance
A Purchaser must arrange for fire insurance on the home for mortgage purposes before closing. Depending on the property this would cost approximately $300 - $400
Adjustments
The Vendor’s solicitor prepares a Statement of Adjustments in which the price is adjusted to compensate either the Vendor or the Purchaser for payments which are owed by one or the other on closing day. These are not "extras" but they do affect how much money you pay out. You may need to compensate the Vendor for payments made in advance that apply after the closing date for things such as; realty taxes, non-metered municipal water, heating oil (the tank should be filled before closing) mortgage (if assumed), or condominium fees. On the plus side, your down payment, which is held in trust, is credited towards the purchase price.
New Homes
Additional extras are sometimes charged to the purchasers of new homes including the Ontario New Home Warranty fee, water meter charges, hot water tanks, mortgage assumption and construction extras. These should be spelled out in your agreement.
A Rule of Thumb
It’s just about impossible to pinpoint exactly how much the closing costs will be in any particular transaction but in general, it’s wise to budget about 2% of the purchase price for “hidden costs”. That’s about $4,000 for a $200,000 home. This does not include the cost of a survey, CMHC insurance and, of course, your moving expenses. This report is prepared as a guide only. Every effort is made to ensure accuracy but it is not guaranteed. Always check with your lawyer regarding actual closing costs, they change constantly (without notice) and vary in different jurisdictions. Some figures supplied by Bourne, Jenkins & Mulligan, Barristers, Solicitors & Notaries Public, Orillia.
If you have questions or need help in any aspect of buying or selling a home, contact me