The homebuying experience is never just about the cost of the home you are purchasing. Costs associated with the finalizing of a deal are referred to as closing costs. These closing costs include the different fees and charges attached to the finalizing of the agreement between buyer and seller. These include administration costs and legal fees that will be required of you leading up to your closing date. Too often, people do not budget for these costs and, since they most likely can’t be rolled into your mortgage, it’s important you have the funds budgeted prior to entering your search for the perfect home.
How Much Should I Budget For Closing Costs?
Generally speaking, a safe closing cost estimate to budget for is roughly 5% of the purchase price of the home. In some cases, it can be as low as 3% but we always err on the side of caution. That range is based on the type of property you are purchasing (brand new, resale, etc.) and the need to set aside additional funds can be beneficial to reducing stress leading up to the closing date – and potentially providing a buffer to help furnish the home you’re moving in to.
What Closing Costs Can I Expect?
• Land Transfer Tax (provincial and municipal, where applicable) – This one-time payment is the largest of the closing costs. It is paid by the purchaser at the time the property changes ownership from seller to buyer. This applies generally to resale properties and is solely based on the purchase price of the home. The amount you pay is based on the purchase price of your home and typically only applies to resale properties. These are also mostly provincial, but can apply to a municipal fee as well. (In Toronto, there are city and provincial taxes, for example).
NOTE: If you’re a first-time homebuyer, you may be eligible for a land transfer tax rebate.
• HST/GST – These may seem like standard taxes but they actually only apply to new home purchases That said, rebates at the provincial and federal level can apply. Contact your lawyer/notary for more detailed information.
• Appraisal Fee – An appraisal is an estimate on the value of your home, and is usually performed at the request of your lender. It certifies the property’s resale value to the lender in case you default on your mortgage. The cost is typically $300-$500.
• Legal Fees & Disbursements – Your legal representation will charge you a fee for drawing up the mortgage and conveyance of title. This fee varies depending on who you use to represent you. This will typically be in the $800-$1000 range.
• Survey – If you’re purchasing a single-family home, your lender requires you to provide a survey certificate showing where the property sits within the property lines. Some exceptions can be made, however, on low loan-to-value deals and acreage properties. This can be anywhere from $750-$1,000 but if a previous survey exists from a past sale, that may be adequate for your lender.
• Interest Adjustments – Should there be a gap in interest between the closing date of the purchase and the first payment date of the mortgage, you will be required to pay this difference. You can avoid an interest adjustment by scheduling your first mortgage payment exactly one payment period after your closing date.
• Statement of Adjustments – Your legal representation will calculate and prepare a statement of adjustments for your portion owing on utilities, property taxes and other bills based on where your closing date falls within the month/payment cycle. As some owners prepay these services, the adjustment could be quite costly.
• Title Insurance – Most mortgage lenders must see title insurance to protect against potential losses in the event of a property ownership dispute. This is $200-$300 insurance is usually purchased through a lawyer.
• Home Inspection – A home inspection is a wise investment, as a professional will offer an objective visual examination of the physical structure and systems within a house. Usually will be in the $350-500 range.
Do Sellers Pay Closing Costs?
Sellers only pay real estate commissions. Those costs are then split between the agents representing each side of the transaction.
While not compulsory, some sellers do take on additional costs by covering the pre-inspection for their buyer prior to closing – as a means of showing gratitude and to provide piece of mind for the impending buyer and future owner of the home.