Closing costs are the list of charges that your lawyer presents to you on the closing date. These sometimes come as a surprise to many buyers since they are in addition to the price of the home. According to CMHC and GE Capital, if you are a first time buyer one should prepare to have, in addition to the down payment, at least 1.5% of the purchase price for closing costs (we say 2-2.5%, just to be on the safe side). As of Feb 1, 2008 in Toronto if you are not a first time buyer, you will now have to pay the secondary "city" property tax.
Below, I have outlined a brief explanation and approximate associated costs to the Buyer of the possible additional charges. Please note that not all may apply to your situation, or there may be more that apply in your circumstance. This is meant to be a guideline, and then discuss with your lawyer who can provide a more realistic estimate for your situation, since he or she is the best resource for your closing costs.
Appraisal Fee: The appraisal provides the lenders with a professional opinion of the market value of the property. This cost is normally the borrower's responsibility and it ranges as low as $100 for a drive-by appraisal to as much as $250 for a full appraisal, and the average being $180, plus G.S.T. Occasionally, the costs could be slightly higher for larger, custom-built homes, or homes in remote parts.
Home Inspection Fee: A professional inspection of the home, top to bottom, is for the benefit of the buyer, therefore, that's who absorbs the cost. A typical home inspection can cost anywhere from $300-$400, it's a small price to pay for piece of mind. When hiring a home inspector, make sure the inspector has liability insurance, just in case a mistake is made. In some cases Seller's are arranging Pre-Inspections done on their property in order to alleviate potential buyers of concerns and to facilitate with their hopes of "multiple offers". The buyer may after purchase have a walk-thru with the Home Inspector for a smaller fee (rates will vary). Fee is paid immediately after the home inspection.
Fire Insurance: All mortgage lenders will require a certificate of fire insurance to be in place from the time you take possession of the home. The amount required is generally at least the amount of the mortgage or the replacement cost of the home. This cost can vary on the property size and extras being insured, as well as the insurance company and the municipality. The cost can vary anywhere from $250-$600 per annum for most properties.
Provincial Sales Tax of 8% (P.S.T.): If your mortgage is CMHC or GE Capital insured (less than 20% down payment), there is P.S.T. of 8% in Ontario, payable at closing, on the CMHC or GE Capital fee. While the insurance premium can be added to the mortgage amount, the P.S.T. must be paid at closing. For example, a mortgage that results in a $1,000 fee, will have to pay $80 in PST upon closing.
Land Survey Fee or Title Insurance Fee: A recent Survey of the property is usually required by the lender, and if one is not available, it normally costs anywhere from $600-$900 for a new survey. In lieu of the Survey, most lenders today will accept Title Insurance, at a much lower price of approximately $225.
Legal Costs and Disbursements: A lawyer or notary will charge a fee for their professional services involved in drafting the title deed, preparing the mortgage, and conducting the various searches. The disbursements, on the other hand, are out-of-pocket expenses incurred, such as registrations, searches, supplies, etc., plus G.S.T.
Land Transfer Tax: Most provinces charge a land transfer tax, payable by the purchaser, and the amount varies from province to province.
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Land Transfer Tax in Ontario
Purchasers in Ontario add Land Transfer Taxes to their list of closing costs. Land transfer taxes are levied on properties that are changing hands, are the responsibility of the purchaser.
Many provinces have multi-tiered taxation systems that can prove complicated. If you purchase a property for $260,000 in Ontario, for example, 0.5 per cent is charged on the first $55,000, 1 per cent is charged on $55,000 - $250,000, while the $250,000 - $400,000 range is taxed at 1.5 per cent. Your total tax bill? $2,375.00
Ontario's Land Transfer Tax:
- Up to $55,000 X 0.5 % of total property value
- From $55,000 to $250,000 X 1 % of total property value, less $275
- From $250,000 to $400,000 X 1.5 % of total property value, less $1525
- From $400,000 up X 2 % of total property value, less $ 3525
Additional New Toronto's Land Transfer Tax:
Toronto home buyers will pay additional new tax rates (on purchase agreements signed after Dec 31, 2007 and close after Feb 1, 2008)
- 0.5% on first $55,000,
- 1% on next $345,000, and
- 2% on portion over $400,000
Exemption: First time buyers do not pay the new tax on the first $400,000 of a property purchase.
Land Transfer Tax Rebate
Land transfer Tax rebate is a permanent program allowing a rebate of provincial land transfer tax otherwise payable up to $2000 for all agreement of purchase and sale entered into after March 31, 1999 (being the land transfer tax on a $227,500 home, using above calculation). As of Dec 14, 2007, resale home buyers are eligible for the Ontario's new Land Transfer Tax Rebate.
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New Home Warranty: In many provinces, new homes are covered by a new home warranty program. The cost to the purchaser for this warranty is approximately $600 and should the builder default or fail to build to an agreed-upon standard, the fund will finish or repair the deficiencies.
Mortgage Application and Processing Fee: On a high-ratio insured mortgage (mortgages above 80% of the purchase price), the mortgage insurer (CMHC or GE Capital) charges a fee of $165-$185 for applying and processing the file, as well as appraising the property. On new homes, this fee drops to $75. Closing Adjustments: An estimate should be made for closing adjustments for bills that the seller has prepaid such as property taxes, utility bills, and other charges. Any bills after the closing date are the purchaser's responsibility. Your lawyer/notary will let you know what they are exactly once the various searches have been completed.
H.S.T.: On the purchase of a newly constructed home, HST is payable, but make sure you know who pays this, you or the builder. Therefore, on the offer, the purchase price will say "Plus HST" or "HST Included", and who gets the HST new home rebate. A lot of builders have included this cost into the purchase price so that the buyer does not have to come up with that at closing. (As well, this tax is also charged on all professional fees).
