Purchasing a home is an exciting milestone, but it comes with more costs than just the down payment and mortgage.
One of the most overlooked aspects of buying a home in Canada is the array of closing costs involved in finalizing the purchase. Understanding these expenses will help you avoid surprises and budget effectively for your new home.
What Are Closing Costs?
Closing costs are the fees and expenses you need to pay when completing a real estate transaction. These costs are typically due on or before the closing date and are separate from your down payment. While they can vary depending on the province, type of property, and mortgage agreement, it’s important to understand what they entail and plan for them in advance.
Common Closing Costs for Canadian Homebuyers
- Land Transfer Tax (LTT)
The land transfer tax is one of the most significant closing costs. It is calculated as a percentage of the home’s purchase price and varies by province. In some cases, municipal taxes may also apply, such as in Toronto. First-time homebuyers may qualify for rebates to offset this cost.
- Legal Fees and Disbursements
You’ll need a real estate lawyer to handle the legal paperwork, including title searches and registering the mortgage. Legal fees typically range from $800 to $2,000, depending on the complexity of the transaction.
- Home Inspection Fee
Although not mandatory, a home inspection is highly recommended to identify potential issues with the property. The cost of a home inspection usually ranges from $300 to $600.
- Title Insurance
Title insurance protects you against issues related to the property’s title, such as fraud or undisclosed liens. It is a one-time cost of approximately $200 to $400.
- Appraisal Fee
Lenders often require an independent appraisal to confirm the property’s value. Appraisal fees range from $300 to $500, depending on the property and location.
- Mortgage Default Insurance
If your down payment is less than 20% of the purchase price, you’ll need mortgage default insurance (also known as CMHC insurance). While the premium is typically rolled into your mortgage, the provincial sales tax on this insurance must be paid upfront. The amount depends on your mortgage size and province.
- Adjustments for Prepaid Costs
The seller may have prepaid certain expenses like property taxes, utility bills, or condo fees. At closing, you’ll need to reimburse them for your portion of these costs.
- Moving Costs
While not part of the official closing costs, moving expenses are an important consideration. Whether you’re hiring movers or renting a truck, this cost can add up quickly.
Budgeting Tips for Closing Costs
- Get a Detailed Estimate Early: Ask your mortgage broker or lender for an estimate of the closing costs specific to your situation.
- Save a Cushion: Plan for potential costs to ensure you have enough funds to cover all expenses, including unexpected ones.
- Take Advantage of Rebates: Check if you qualify for first-time homebuyer rebates or programs in your province.
- Work with Experienced Professionals: A trusted mortgage broker and real estate lawyer can help you navigate and clarify all associated costs.
Final Thoughts
Closing costs are a crucial part of the home-buying process that shouldn’t be underestimated. By understanding and preparing for these expenses, you’ll be in a stronger financial position to enjoy your new home.
If you’re ready to take the next step or need guidance, reach out to a member of our team for experienced and no cost advice!