Now that you’ve purchased your home, you need to put aside enough for closing costs before getting the key because you don’t want to be caught off guard at the last minute.
According to CMHC and GE Capital, you should have at least 3-3.5% of the purchase price for closing costs in addition to the down payment. We’re a little more conservative so we suggest around 4-4.5% to be on the safe side.
Below you’ll find an example and a brief explanation of these costs. Use this as a guideline and then confirm with your lawyer who will be providing the final numbers based on your actual situation.
Closing Costs Example
Purchase Price: $975,000.00
Down Payment: $97,500.00 (Assume 10%)
CMHC Premium: $27,203.
CMHC Premium is required when down payment is less than 20% of purchase price. CMHC Rates vary depending on size of down payment.
PST on CMHC Premium: $2,176.24
Land Transfer Tax: $15,975.00
Municipal Land Transfer Tax: $15,975.00*
CMHC Application: $165.00
Home Inspection: $678.00
Appraisal Fee: $452.00
Legal Costs: $1,695.00
Title Insurance: $678.00
Closing Adjustments: $250.00+
Home & Fire Insurance: $40/ mo. or $480/ yr.
Hydro New Account: $300.00**
Interest Adjustments*** Amount depends on closing date
Est. Total: ~$38,824.24
These exclude costs like cable, phone set-up fees or your moving costs. This is why we would recommend having at least 4-4.5% cash on hand to cover closing costs. You’ll notice the numbers we’ve provided here work out to just approx. 4% of the purchase price. Also if the seller paid his/ her taxes for the year in a lump sum payment in February and you move in June, you will have to pay the seller the pre-paid taxes.
* Example based on a purchaser who is not a first-time home buyer having bought a property in the City of Toronto.
**If you’ve never had to pay hydro to Enbridge directly they will want an approx. $300 deposit which they hold for one year, then apply it as a credit to your account.
*** 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 include it in your first mortgage payment.
Appraisal Fee – Generally done with new homes
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 $350 – $500. Sometimes the costs may be higher for larger, custom-built homes or homes in a remote area.
Home Inspection Fee – Generally done with resale homes
A professional inspection of the home, top to bottom is for the benefit of the buyer. A typical home inspection can cost anywhere from $500-$600.
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 $250-$600 for most properties.
Provincial Sales Tax 8%
If your mortgage is CMHC or GE Capital insured (less than 20% down payment), there is PST of 8% payable at closing on the CMHC or GE Capital fee. While the insurance premium can be added to the mortgage amount, the PST 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 cost of approximately $500.
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 various searches. The disbursements, on the other hand, are out-of-pocket expenses incurred, such as registrations, searches, supplies, etc., plus HST.
Land Transfer Tax
This tax is based on the purchase price (refer to mortgage ABC’s for exact calculation). Click here for more information on Land Transfer Tax.
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 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.
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).