Closing Costs

paper-clip-side-house-3Closing costs are a list of charges your lawyer presents to you on the closing date of your home. At Di Nardo Financial, we assists our clients in understanding all the costs to ensure a smooth closing.

According to CMHC and Genworth Financial, the closing costs range from 1.5% to 2.5% of the purchase price. The costs vary among provinces and cities. Below you will find a brief explanation of these costs. While Di Nardo Financial has idenitified most common closing costs, you may encounter other costs depending on your situation.

Cash outlays (if necessary) required from the home buyer before mortgage closes

  • Home Inspection Fee. It is highly recommended that you contract a home inspection as a condition of your Offer to Purchase. A home inspector will assemble a report on the condition of the home for a fee of approximately $500, depending on the complexities of the inspection.
  • Appraisal Fee. An appraisal, which is an estimate on the value of your home, is often covered by the borrower. An appraisal is performed to certify the lender of the resale value of the home in the case you default on the mortgage. The cost is approximately $250 - $350.
  • Deposit. A deposit that counts towards your down payment is required when you make an Offer to Purchase. The deposit may amount to 5% of the purchase price depending on the vendor, which is the minimum down payment percentage in Canada.

 

Costs financed within your mortgage

Mortgage default insurance, or CMHC insurance, is not normally considered a traditional closing cost as it is added to the total mortgage you require and amortized over the life of your mortgage. We have chosen to include it here to point out the major difference between it and traditional closing costs. It does not require a cash outlay upon closing.

  • Mortgage default insurance. If you purchase a house with less than a 20% down payment, you will be required to buy mortgage default insurance, commonly referred to as CMHC insurance. This protects the lender in the case the borrower, defaults on the loan.

 

Cash outlays (mandatory) required by the home buyer on closing

The following is a list of closing costs that are incurred by the home buyer.

  • Land Transfer Tax. Calculated as a percentage of the purchase price of your home, all provinces have a Land Transfer Tax (LTT) payable on closing, with the amount varying in each province. Some cities, such as Toronto, also have a municipal LTT.
  • Legal Fees and Disbursements. You can expect to incur a minimum of $1000 (plus HST) on legal fees, which account for the preparation and recording of official documents.
  • Title Insurance. Today, most lenders require title insurance to protect against losses in the event of a property ownership dispute. This is purchased through your lawyer/notary and costs range from $250 - $500.
  • Fire Insurance. Mortgage lenders require a certificate of fire insurance to be in place from the time you take possession of the home. The cost can vary from $250-$600 annually for most properties.
  • PST on CMHC insurance. Though CMHC insurance itself is financed through the mortgage, PST on the insurance premium must be paid at the time of closing.

The following is a list of closing costs that are incurred by some home buyers as they are only applicable to certain properties

  • Septic tank. If the house has a septic tank, it should also be tested to ensure it is in good working order. Once again, you can negotiate the cost with the previous owner and list it in your Offer to Purchase.
  • Water Tests. If the home has a well, you will want to test the quality of the water and ensure there is an adequate supply, as well if the water is potable. You can negotiate these costs with the previous owner and list them in your Offer to Purchase.
  • Estoppel Certificate Fee (does not apply in Quebec). A certificate fee may be payable if you are buying a condominium or strata unit, and could cost up to $100

Other costs to consider for the borrower

  • Property Insurance. Property insurance, which covers the cost of replacing your home and its contents, must be in place on closing day. This insurance is often paid in monthly or annual premiums. The cost of the plan will be discussed with your insurance provider.
  • Prepaid Utility Bills. You may need to reimburse the previous owner of your property for prepaid costs such as property taxes, utilities and so forth.
  • Property taxes. Property tax is calculated as a percentage of your home value, varies by municipality and must be paid each year. The residential property tax rate in Toronto for example is 0.83%, and on a $400,000 home, would be equal to $3,320 per year. You may need to reimburse the previous property owner if he/she has already paid property taxes for the full year. You are also given the option to set-up an automatic payment plan with your lender. Your lender will set up an account for you, collect an additional $277 per month ($3,320 / 12 months) and then pay property taxes on your behalf. Though by no means necessary, some homeowners find this service extremely valuable for budgeting purposes.
  • HST. HST is payable on the purchase of newly constructed homes only. On the offer the purchase price will say .Plus HST. or .HST included. Many builders have included this cost into the purchase price so the buyer does not have to come up with it at closing.
  • Interest Adjustment. If you arrange to make your mortgage payments monthly on the first day of the month, and your transaction closes after the first day of the month, your lender will charge you interest on closing to the next interest date, called the interest adjustment date.

 

What to expect on Closing Day

Closing Day is the day you finally take legal possession of your home. It’s important that the bulk of your administration is completed by this point including transferring your down payment to your lawyer. Transferring down payment funds, especially from your RRSP can take time, and should be done several days before close.

On closing date, the following events will take place:

  • Your lender will provide the mortgage funds to your lawyer/notary.
  • You must provide your down payment less the deposit, to your lawyer/notary along with the closing costs.
  • Your lawyer/notary pays the previous owner, registers the home in your name, and gives you the deed and keys to your new home.

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