Buyer’s Closing Costs

So now you are searching for the home of your dreams? Right on. Sorry to burst your bubble, but now it’s time to discuss the crappy part. Closing costs are a reality to buying a home. Typically we recommend that you reserve 1.5% for closing costs. So for example, a $400,000 purchase you should set aside $6000 for these costs. Listed are the common costs to buying a home.

Land Transfer Tax

Tax, tax, tax… inevitable. Real estate is NO exception. I’m not sure where the term “Land Transfer” comes from as we can’t pick up the piece of land and carry it to another location. But nevertheless… here it is.. the dreadful Land Transfer Tax. More information can be found at:

http://www.fin.gov.on.ca/en/tax/ltt/

Tax Rates

The tax rates calculated on the value of the consideration are:

  • 0.5% up to and including $55,000
  • 1% above $55,000 up to and including $250,000
  • 1.5% above $250,000
  • 2% above $400,000 where the land contains one or two single family residences.

The land transfer tax rate is the same for residents and non-residents of Canada.

Calculating the Tax Amount

Use the table below to calculate land transfer tax.

  • Residential property: land that contains one or two single family residences
  • VC: Value of the consideration for the conveyance or disposition
  • LTT: Land transfer tax payable
For the Value of the Consideration Formula
up to and including $55,000 LTT = VC × 0.005
above $55,000 and up to $250,000 LTT = (VC × 0.01) – $275
above $250,000, for property other than residential LTT = (VC × 0.015) – $1,525
above $250,000 up to $400,000, for residential property LTT = (VC × 0.015) – $1,525
for residential property above $400,000 LTT = (VC × 0.02) – $3,525

For First Time Homebuyers:

go to http://www.fin.gov.on.ca/en/bulletins/ltt/1_2008.html for more info

Legal Fees

Lawyers vary in pricing, $400-$800 not including disbursements. It is not a bad thing to take your REALTOR®‘s opinion on who to use if you don’t have one in mind. A busy REALTOR® works with lawyers quite a bit. Also if you have a friend, co-worker or family member who has had a good experience this is also a good place to start. It is a good idea to look them up on the Better Business Bureau as well to see if there have been any real issues in the past. http://www.bbb.org/

Mortgage Insurance

This is a separate payment paid to the insurer of your mortgage, commonly CMHC. CMHC stands for the Canadian Mortgage and Housing Corporation. It is a federal owned entity dedicated to regulation and insurance of high ratio mortgages. If you are putting less than 20% as a down payment the lender requires that your mortgage be insured for risk purposes for both yourself, the seller and the lender. The premium is typically added to your new mortgage balance, but the HST on the premium is owed separately.

Title Insurance

Sometimes included in your mortgage through your lender. It protects your ownership or title against losses incurred as a result of undetected or unknown title defects, for as long as you own your home. Even if you are the rightful owner of a home, there are instances such as real estate fraud, when your title can come into question. Title insurance continues to protect your ownership from the day of closing to the day you sell your home. The fee is typically $250-$300.

Property Tax and Utility Adjustments

When you visit your lawyer’s office to sign all closing documentation, you will likely be required to bring in a Certified Cheque representing all adjustments to the purchase price. Adjustments include items that have been prepaid beyond the closing date by the Seller that benefit the Purchaser beyond the Closing Date. A credit will be given to the Seller as an adjustment on closing. For example, if your closing date is May 21st, the Seller has likely already prepaid the property taxes until May 31st. The Purchaser is responsible for all property expenditures from May 21st onward and therefore the Seller is to receive a credit for the overpaid taxes from May 21st to May 31st.

Property Appraisal

Your lender may have had to order a property appraisal to make sure you did not pay too much for the house for which they are lending on. Not all lenders charge this separately. But some do. This ranges between $150-$200.

Mortgage Application Fee

Your lending institution may charge a fee for processing your mortgage application. Approximate costs vary.

Home Inspection

If you have opted to have a home inspection done, the fee will be required at the time of the inspection booking or right after the inspection. It can range between $200-$500 for a standard inspection, but can go up depending on how many families the home resides (multi-family, duplex, triplex, etc.) and other irregular factors.

Interest Adjustment

Interest adjustment is calculated from the proposed date of advancement to your projected first payment date. On your first payment, technically your interest is past due and you must catch up. Because the mortgage payment system does not recognize to charge you this amount with the first payment, it is therefore due upon advancement of your mortgage. Lawyers routinely collect interest adjustments at closing.