Closing costs are often not pre-determined when buying a property. It is important, before moving forward with your home purchase, that your realtor explains the estimated closing costs to you.
Closing Cost can vary and range from 1.5 up to 4% of your purchase price. Included in your closing costs are Land Transfer Taxes, Legal Fees, Registering Your Mortgage, and Administrative costs, which you and your Lawyer will review on closing.
Buying a house also has additional costs associated throughout the entire process, which you need to be aware of. These expenses can also occur after your property closes with the Lawyer. Nobody likes surprises, which is why we will cover all of these items here.
Home Inspection. Your real estate agent should suggest putting in a condition of home inspection into your offer to purchase. There are times in, especially in Seller’s Markets, where your real estate agent will suggest this, however, it can hurt your chances to move forward, this should be your decision only after careful explanation by your agent. Home Inspections can run from as little as $200 for a walk through and as high as $500 for a full inspection. Home Inspections are a plus as the inspectors can identify deficiencies associated with the property both interior and exterior.
Deposit for Purchase. When your offer has been successfully accepted, you will be required to deliver a deposit to the Listing Brokerage as per the agreement, usually within twenty four hours of acceptance. This deposit can be counted towards your down payment on closing, if you wish. Deposits illustrate to the Sellers that you are serious about buying their property. The more your deposit is, the stronger your offer is, especially when dealing with Multiple Offers. A strong deposit also illustrates that you, as the Buyers, have the financial means to offer on this house, and, absorb the risk, if any, until closing. There is no minimum or maximum amount you can offer as a deposit.
If you are not fortunate enough to put down 20% of your purchase price onto your mortgage, you will be subject to Mortgage Default Insurance. This is commonly known as CMHC Insurance. This is not typically included in your closing costs. You have the option of paying the Insurance Premium up front or dumping it into your mortgage balance. The downside is this is amortized over the entire life of the mortgage or until you discharge the mortgage. This particular cost, if applicable is not applicable to additional costs on the closing costs in Ontario.
CMHC Insurance. Protects the lender in the event the Borrower, the Buyer, defaults on the mortgage.
When closing on a property, the following costs will be absorbed by the buyer:
Legal Fees & Disbursements. Typical costs for this are in the $450-$600 + HST price range on legal fees. This cost represents the preparing, recording and handling of all the official documents for your file to close.
Land Transfer Tax. All provinces have Land Transfer Tax (LTT) payable on closing. LTT is a marginal tax and calculated as a percentage of the purchase price of the home you purchased (It is not applicable to the Seller, only the Buyer). The amount paid varies in each province. There are cities, which also have Municipal LTT on top of Provincial, such as Toronto.
Title Insurance. It is highly recommended to purchase Title Insurance through your Lawyer on closing. Title Insurance will protect you against financial loss, which are sustained from property defects. Common claims filed against title can include; back taxes missed, outstanding liens, and conflicting Wills. Lawyers typically have a two week window to search the subject properties title to identify any deficiencies and to have them rectified prior to the closing date.
Here are some additional closing costs, which could be absorbed by the Buyer. Some of these are only applicable to certain property types.
WETT Inspection. A Wood Energy Transfer Technology Transfer inspection involved a thorough inspection of all wood burning appliances in the property such as wood burning fireplaces and stoves. Be sure to have a certified WETT Inspector conduct the inspection.
Septic Tanks. Septic Tanks are in area where water services are not installed. This should be inspected and confirmed it is in good working order. Septic Tanks typically last for twenty years, before having to be replaced. They are located outside the property underground and should be pumped every three years.
Water Test. If the property you have purchased has a Well, it might be important to get the water tested. Testing the quality of the water will ensure a number of concerns including, ensuring there is adequate water supply available, ensuring that water is potable, safe to drink.
Status Certificate. Typically in most offers, this is paid for by the Seller of the property. The cost for this is $100 plus applicable taxes. This certificate explains the workings of the Condominium Corporation, if you were buying a Condo, and will also illustrate any outstanding liens, work orders or lawsuits against the Condo Corporation.