Closing costs are a list of charges your lawyer presents to you on the closing date of your home. Many people are surprised at the additional costs over and above the price of the home. According to the CMHC and GE Capital you should have at least 1.5% of the purchase price for closing costs in addition to the down payment (I suggest around 2% ? 2.5% to be on the safe side).The costs vary among provinces and cities.
Below you'll find an example and a brief explanation of these costs. Please note these are some of the closing costs you may encounter depending on your specific situation.Use this as a guideline then talk with your lawyer who can provide a more realistic estimate for your situation.
Closing Costs Example
Purchase Price: $400,000.00
Down Payment: $40,000.00 (10%)
CMHC Premium: $7,200.00 (2%)
People who purchase a home with less than 25% down-payment must insure the mortgage loan with CMHC or GEMICO and pay a premium. The application fee ($75 - $300) covers the costs incurred by the insurer to review the application. The premium is based on the down payment and loan amount. Typical fees range from 1.00% to 2.75% of the principal amount of your mortgage. Rates vary depending on the amount of your down-payment.
See the section: Greater Savings with a Larger Down Payment to learn about CMHC Premium Fees.
Example based on a purchase of $400,000.00
HST on CMHC Premium: $936.00
Provincial Land Transfer Tax: $4475.00
Toronto Land Transfer Tax: $3725.00 (First time Buyers qualify for Rebate of up to $3250.00)
CMHC Application: $275.00
Home Inspection: $450.00
Appraisal Fee: $300.00
Legal Costs: $1600.00
Title Insurance: $450.00
Closing Adjustments: $250.00+
Home & Fire Insurance: $80.00/mn or $1000.00yr.
Interest Adjustments* $Depends on closing date
Hydro New Account: $300.00
Est. Total: $12,761.00-$3250.00= $9511.00
Status Certificate Fee*** : $100.00*** Only applies to condos
This doesn't?t include other costs like cable, phone set-up fees or your moving costs.This is why I would recommend having at least 2-2.5% cash in your bank to cover closing costs. You'll notice the numbers I've provided here work out to just under 2.5% of the purchase price.
Also if the seller paid his/ her taxes for the year in one lump payment in February and you move in June then you will have to pay the seller the remaining taxes for the year because they pre-paid.
*Most mortgage companies make your monthly payments due on the 1st of the month or the 1st and 15th if you're on bi-weekly payments. If you move in on the 20th of the month the bank will calculate the interest from the 20th of the month to the end of the month and either bill you on closing or including it in your first mortgage payment.
**If you've never had to pay Enbridge directly they will want a approx. 200 deposit which they hold for one year then apply it as a credit to your account.
The appraisal provides the lender with a professional opinion of the market value of the property.This cost is normally the borrower's responsibility and it can range between $100 to $300 plus HST. Sometimes the costs may be higher for larger, custom-built homes or homes in a remote area.
A professional inspection of the home, top to bottom is for the benefit of the buyer. A typical home inspection can cost anywhere from $400- $500, and is well worth the investment. If the home is older then 5 years a home inspection is a must for buyers.When hiring a home inspector, make sure the inspector has liability insurance, just in case a mistake is made.
All mortgage lenders require a certificate of fire insurance to be in place from the time you take possession of the home. The amount required is generally 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 $700-$1200 for most properties.
If your mortgage is CMHC or GE Capital insured (less than 25% down payment), there is H.S.T. of 13% in Ontario, payable at closing, on the CMHC or GE Capital fee. While the insurance premium can be added to the mortgage amount, the H.S.T. must be paid at closing. For example, a mortgage that results in a $1,000 fee, will have to pay $130 in HST upon closing.
A recent Survey of the property is usually required by the lender, and if one is not available, it normally costs anywhere from $600-$1000 for a new survey. In lieu of the Survey, most lenders today will accept Title Insurance, at a much lower price of approximately $450.
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 H.S.T.
Most provinces charge a land transfer tax, payable by the purchaser, and the amount varies from province to province. This tax is based on the purchase price (refer to mortgage ABC's for exact calculation). In Ontario, first time home buyers who purchase a new home get a refund of up to $3250.00.
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.
On a high-ratio insured mortgage (mortgages above 75% of the purchase price), the mortgage insurer (CMHC or GE Capital) charges a fee of $275.00 for applying and processing the file, as well as appraising the property. On new homes, this fee drops to $150.00
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.
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).