Closing costs when you buy a home
Much like forgetting about the tax you’re going to have to pay on that new outfit you’ve found on sale, it’s easy for us to get tripped up by a home’s closing costs – those not-so-obvious extra expenses beyond a home’s price when we buy or sell.
Knowing what those closing costs are likely to be and planning for them can go a long way toward making your home sale or purchase smoother, particularly since many of these costs are ones you have to pay up front.
Buyers can expect closing costs to range from about 1 to 4 percent of a home’s selling price. These are the legal and administrative costs to pay when the house closes, along with other expenses. Here are some of the typical costs both buyers and sellers will likely face.
Realtor commission: This is the seller's responsibility and typically represents about 5 percent of the home’s sale price. Keep in mind that GST is added to this amount.
Lawyer fees: Your lawyer will make sure that all elements of the sale and transfer of ownership are done correctly, including ensuring that any prepaid expenses are returned to you. This fee is generally about $500 to $1,500 for a sale that is not complicated. There will be disbursements on top of that.
Mortgage discharge: If you sell your home before your mortgage matures, expect to pay a penalty and discharge fees. The penalties can vary, so check with your lender.
Moving costs: The cost for a moving company will depend on how much you’re moving, how far and the time of year. A safe bet is at least $1,000 and it could be much more. If you plan to move yourself, don’t forget the cost to rent a vehicle, plus whatever you’ve promised family and friends who help (pizza and beer, anyone?)
Down payment: You’ll need to have this ready for transfer in time for closing. First-time buyers, in particular, can get caught by not making sure the process of transferring – which can take several days – can be done by the time the deal closes.
Mortgage default insurance premium: If your down payment is less than 20 percent, you will need to purchase mortgage default insurance through an organization such as Canada Mortgage and Housing Corporation (CMHC) or Genworth Canada. While this is often added to the mortgage so that there is no upfront cost, there is provincial sales tax (PST) on the premium, and that is payable up front for the full amortization period. The PST can amount to $1,000 or more.
Home inspection: It may not be a requirement for the sale, but you’d be wise to inspect the home before you sign off on the deal. Besides, your lender may ask for it. Costs vary but are generally between $200 and $500, plus taxes.
Appraisal: Again, it might not be required, but your lender may ask for an appraisal of the home. Sometimes this fee can be absorbed by the lender, but be prepared to have to pay yourself. It’s typically less than $500.
Land transfer tax: This is paid to the province and works on a sliding scale based on the purchase price. On a $500,000 home, for instance, the tax would be $6,475. First-time buyers qualify for a substantial rebate, but the tax must be paid first.
Title insurance: This protects you against many of the problems that can come up related to the property title after purchase. Most lenders require title insurance to protect against losses in the event of a property ownership dispute. The average home will cost about $250-$300 for title insurance.
Home insurance: If you will be getting a mortgage, your lender will require proof of insurance. But even if you don’t need a mortgage, having insurance is wise. The amount will vary depending on the home you buy, where it’s located and the type of coverage you require, but you can expect to pay at least $800 a year for coverage.
Lawyer’s fees: Your lawyer will look after the preparation and recording of official documents, such as doing a title search to make sure the seller can actually sell the home and making sure there are no liens against it, registering the title deed and mortgage, etc. Most lawyers will charge anywhere from $500 to $1,500. But there will also be other fees on top of this that include disbursement fees and other costs of doing business such as faxing and photocopying.
Statement of adjustments: If you close on your home in the middle of a billing cycle then the utility and other bills such as property taxes have to be distributed proportionally to the buyer and seller. The lawyer will work out your portion of the payment, and prepare a statement of adjustment. If there is anything owing to the previous owner, you’ll need to reimburse them.
Utility hookups: Be prepared to have to pay fees to have utilities hooked up or changed to your name.
Moving costs: Just as it is for the seller, there is the cost of moving for the buyer. What your cost for a moving company is will depend on how much you’re moving, how far and the time of year. A safe bet is at least $1,000 and it could be much more. If you plan to move yourself, don’t forget the cost to rent a vehicle.
Other costs: For some buyers, there are other things to keep in mind, such as HST for those who buy new homes, status certificates for condos, septic and well testing for rural properties, and any repairs that might need to be made right away.
By understanding the likely costs before you buy, you’ll be better prepared to budget for buying or selling your home.