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Be Prepared
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. Prices can vary but have dropped a lot in the last
few years 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 our 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.
Home Inspection
It's not absolutely required
and it's not technically a closing cost, but a thorough inspection of your
new home by a qualified Home Inspector is highly recommended, especially
if you are buying an older home. The inspector will check out all the systems
of the home, wiring, plumbing, furnace, insulation, drainage etc. (They
do not check septic systems or wells). Almost all offers to purchase include
a Home Inspection clause these days. Talk to one of our Sales
Representatives for the full story about home inspections. The cost
depends on the size of the home but is usually in the $250 - $300 range.
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 $500 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 $2,000
for a $100,000 home. This does not include the cost of a survey, CMHC
insurance, home inspection 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 us.
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© 1998-2010, Prudential Financial, Inc. and its subsidiaries. Prudential Real Estate brokerage services are offered through the network of independently owned and operated franchisees of Prudential Real Estate and Relocation Services, Inc., a Prudential Financial company.
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