Closing costs are other expenses incurred for the purchase of the home. It ranges from 1-4% of the home selling price, which includes legal and administrative fees that you need to pay for before the closing of the sale. Aside from this, there will be other expenses or event that you may have to pay for before, during or after the purchase is complete -most of which we shall enumerate today so you will not be caught surprised when you see them.
Prior to purchasing the home, you should have already paid for the following:
Home inspection fee- This is paid to a professional home inspector who will then inspect the physical condition of the home as an included provision to your Offer to Purchase. Depending on the arrangement, it is either you or the seller pays for it. The home inspector will then submit to you a report in exchange of around $500 fee.
Downpayment- Like it was previously discussed, you will have to prepare cash paid upfront once you made an Offer to Purchase. The minimum required in Canada is between 5%-20%. This eventually becomes your stake of the home upon purchase.
Mortgage Default Insurance- commonly known as CMHC insurance. If you purchase a home with less than 20% down payment, you shall be required to get CMHC insurance. This protects the lender in cases of payment default -on the part of the buyer, all due to the high-mortgage ratio on the loan.
The following is a list of closing costs that are incurred by the home buyer
Land Transfer Tax. All provinces have a Land Transfer Tax (LLT) which you should pay prior to closing. Although this tax is claculated from the home price, amounts still vary on each provinces, some key cities also impose a municipal LLT.
Legal Fees and Disbursements. Expect to spend a minimum of $500 (plus GST/HST) on legal fees, for the preparation and recording of the official documents in relation to your purchase.
Title Insurance. Most lenders today would require this insurance as safety net in cases of property ownership disputes. You can purchase this through your lawyer and would costs around $100-$300.
PST on CMHC insurance. Although CMHC insurance itself is paid through your mortgage, you will also need to pay for its provincial sales tax or PST upfront and does not add to your loan amount.
Property Insurance. A personal protection for you in cases of fire or other untoward incident in which your home, along with your belongings in it are damaged. This covers the cost of replacing the home and its contents, that must be availed prior to closing day.
Prepaid Utility Bills. Are minor reimbursements to the seller or previous owner of the home for prepaid costs they had incurred such as property taxes, utilities and others.
Property taxes. Calculated as a percentage of the current home value, with tax rates varying different municipalities and must be paid annually. You may also need to reimburse the previous owner if he has already paid property tax in full, for the year of purchase of the home. You can also choose to have an automatic payment scheme with your lender. Your lender will then set an account for you, pay property tax in monthly increments and the lender will pay the taxes on your behalf. This service can take the burden off the homeowner concerning personal budgeting.
Some other expenses that applies to certain properties.
Septic tank. If the home has it’s own septic tank, it should be tested to make sure it is in good working condition. Like the home inspection fee, you should negotiate with the seller on whose to shoulder this expense and list this on your Offer to Purchase.
Water tests. If the home has a well, you will have to test for water quality, potability and see if there is an adequate supply. Like other inspection expenses, this is drafted through your Offer to purchase and can be shouldered by either you or the seller.
Estoppel Certificate Fee. A certificate fee payable if buying a strata unit or condominium and could cost to $100. Not applicable in Quebec.
Appraisal Fee. An appraisal is performed by a professional to certify the lender of the resale value of home, in events of mortgage default or foreclosure. Fees range from $250-$350. Unlike other fees this is shouldered by the lender.