There are few things in life as exciting as buying a home, but the process can also come with some stressors. For many buyers, one of the most significant is covering closing costs. While these extra expenses are unavoidable, it’s important to know what they are ahead of time so you can factor them into your budget.
If you’re getting ready to buy a home, here are the closing costs you can expect…
Your deposit is a portion of your overall purchase price, and it’s usually due within 24 hours of your offer’s acceptance. As a rule, this amount is somewhere in the neighbourhood of 5 per cent (though including a higher amount with your offer may make sellers sit up and take notice).
A deposit shows you’re a serious buyer, since it means you have something at stake. If your purchase doesn’t make it to closing, the seller may have the right to hold onto it under certain circumstances (like if you back out of the deal for a reason not specified in your contract).
You may also pay an inspection fee (typically $300-$700, if you opt to have the property inspected), and an appraisal fee. Many lenders will pay the latter, since having an appraisal done is part of the process of securing a loan.
PST on your CMHC Insurance
If you have to pay CMHC insurance, the PST on it will be due at closing. Here’s how it works.
Your down payment is the amount you put towards your purchase so you can qualify for financing. In most cases, you’ll pay 20 per cent—but if your home costs less than $1 million, you may be able to put down as little as 5 per cent. The drawback? You’ll have to purchase CMHC insurance, and the premium will be somewhere between 1.8 and 4 per cent.
CMHC insurance is there to protect your lender if you default on your mortgage. While your premium will be included in your monthly payments, you’ll have to pay the PST on it (8 per cent) at closing.
Legal Fees & Title Insurance
Part of your due diligence is having a qualified legal representative ensure that your purchase is above board. The cost for this service varies. Often, it depends on the price of your home and the complexity of your transaction. Many buyers pay around $1000—though your bill may be less, or significantly more.
Title insurance, which costs around $250, will protect you if future challenges to your ownership, existing liens against your property, and other similar issues arise. Many lawyers will include this amount in their fees, so be sure to ask yours if you have any questions about what it covers.
Land Transfer Tax
In the City of Toronto, buyers will pay both provincial and municipal land transfer tax. These amounts exist on a sliding scale, and they’re dependent on your purchase price. They range from 0.5 to 2.5 per cent.
Homebuyers will pay either 1.5 per cent (for homes above $250,000 up to $400,000), 2 per cent (for properties over $400,000 up to $2 million), or 2.5 per cent (for those priced higher). Remember that this amount is due at both the municipal and provincial level, which means you’ll pay the same amount for each tax.
Property Tax and Utility Adjustments
In some cases, homeowners pay property taxes and utilities in advance. When the period they’ve paid for overlaps with your ownership of the property, you’ll have to reimburse them for these prepaid costs.
Determining the timelines—and how much you owe—can sometimes be tricky. Fortunately, your lawyer (and the seller’s) will do the heavy lifting by working this out for you.
While it may not be a closing cost in the traditional sense, you should make sure you budget for moving expenses. The amount you’ll pay will depend on a few factors.
Do you plan to rent a truck and do the work yourself, or hire professionals to help? How far do you have to move? Comparison shopping can help you get a good rate—just be sure to read reviews and choose a reputable company.
Buying a home is bound to come with stressors, but determining the costs associated with the process doesn’t have to be one of them. Be sure you know what to expect, and make plenty of room in your budget for all necessary expenses. With a bit of careful planning, you can help pave the way to a smoother purchase!
Are you ready to buy your dream home? From explaining costs and the purchase process to closing your deal with care, we’re here to help. Start your search today by finding the right agent!