Closing costs to consider when buying a property

Closing costs are one-time expenses associated with the purchase of a home, and they can really add up. These fees are separate and do not include mortgage insurance and the down payment, and need to be factored into your cash-on-hand budget.

Closing cost amounts are often underestimated. Generally speaking, these costs range from 1.5 per cent to four per cent of the purchase price of your home and depend on its location and type of property you are buying. Factoring these costs into your total budget can help you narrow down an entirely affordable home and ensure future financial stability and security.

Of course, these are estimates, and the actual amount could be higher or lower, depending on the factors mentioned above, as well as if it’s a new construction home.

The following are a few closing costs to keep an eye out for:

• Property/land transfer tax: This is calculated as a percentage of the purchase price of your home, with the amount varying in each province and if you are buying it as a principal residence or to be used as a rental, if it is a re-sale home or new construction. Some cities, such as Toronto, also have a municipal land transfer tax.
• Legal fees and disbursements: You can expect to incur approximately $2,000 (plus GST/HST) on legal fees for the preparation and recording of official documents.
• Title insurance: 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 is about $200 or more, depending on the purchase price of the home.
• Home inspection fee: A home inspection is highly recommended as a condition of your offer to purchase, to prevent any future surprises. It can range from $500 to $800.
• Appraisal fee: An appraisal is performed to certify for the lender the resale value of the home in case you default on the mortgage. The cost is usually between $400 and $600.
• Property and fire insurance: Property insurance covers the cost of replacing your home and its contents and must be in place on closing day. This is paid in monthly or annual premiums. It will be mandatory for a single-family home and for a strata (for example, a condo or townhome). Although your strata/condo fees will cover the insurance for the exterior and common areas, it will not cover the contents in your unit, strata deductibles or upgrades that have been made inside your home since it was originally built.
• Property taxes adjustments: Property taxes are due on an annual basis and are calculated as a percentage of the home’s value and vary by municipality. You also may need to reimburse the previous property owner if he/she has already paid property taxes for the full year.
• Strata/condo fees adjustments: Strata/condo fees are paid at the beginning of the month, therefore, depending on the completion date, there may be an adjustment if the current owner has paid for the entire month.

It all adds up

These, along with the possibility of payouts for interest adjustments, strata fee adjustments, property condition inspection, a property survey certificate, fire insurance, payout penalties, moving expenses, utilities connections, and lender and mortgage broker fee (in certain circumstances), can quickly accumulate. Being prepared allows you to save the money and reduce the impact of the final tally. Speaking to a mortgage expert to assist you in preparing for closing costs can help with a seamless transition in the purchase of your new home.