It has to be our least favourite thing about buying a home. No matter how you look at it, paying closing costs is no fun. While most buyers are ready to cover the purchase price of their ideal property, the sum total of the extra expenses involved may come as a surprise. The good news is, it’s entirely possible to plan and budget for them—once you know what they are.
Here are the major closing costs associated with purchasing a home…
Your Down Payment
Your down payment is the initial amount you’ll put towards your home purchase. The remainder will be paid through your mortgage.
This cost can vary greatly, and the minimum will depend on the price of the property you’re purchasing. For homes under $500,000, the lowest amount you can pay is 5 per cent. Those above that sum up to $999,999 require a payment of 5 per cent on the first $500,000, and 10 per cent on any amount over that. Finally, you must pay 20 per cent of your purchase price on properties $1 million and above.
Land Transfer Tax
Anyone who buys a home in Ontario has to pay the provincial land transfer tax. Fortunately, if you’re a buyer in a community like Burlington or Hamilton, you’re in luck! Unlike Toronto buyers, you only have to cover Ontario land transfer taxes—as opposed to those set by the province and the municipality.
Here are the rates you’ll pay, based on the price of the home you’re buying:
- 0.5% of the home’s value for a property up to $55,000
- 1% for homes over $55,000 up to $250,000
- 1.5% for homes above $250,000 up to $400,000
- 2% on properties over $400,000 up to $2,000,000
- 2.5% for those over $2,000,000
Legal Fees
Take it from us: you need a real estate lawyer. Having the right professional on your side helps ensure that all documents are prepared and reviewed correctly, that there are no claims against your new home, and that (in general) your legal due diligence is done.
While fees can vary depending on location and the level of service you receive, you can expect to pay anywhere from a few hundred to a couple thousand dollars.
PST on CMHC Insurance
If your down payment is less than 20 per cent, your lender will charge you mortgage insurance (also known as CMHC insurance). The premium (which ranges between 1.8 and 4 per cent of your purchase price, depending on your down payment) will be added to your mortgage.
What you will have to pay at closing is the PST on your insurance (which will be 8 per cent of the overall premium).
The Insurance
Title-related issues (such as ownership disputes, liens against the property you’re buying, and zoning problems) can have serious consequences. The good news is, title insurance can protect you. You’ll likely pay somewhere in the neighbourhood of $150 to $350 in Ontario. Typically, it’s purchased through your lawyer.
Adjustments
In some cases, homeowners pay their property taxes, utilities, or condo fees well in advance. When your ownership of the property you’re buying overlaps with the payments the previous owners have made, you’ll have to reimburse them for that period. Fortunately, your real estate agent can work it out with theirs to simplify the process.
HST
If you’re building a home or buying an investment property, HST (harmonized sales tax) is applicable. The HST will be 13 per cent of your purchase price.
In either situation, you can obtain a rebate to help cover the cost. If you’re an investor, you can apply as soon as you have a one-year lease in place with a tenant. The amount you’ll receive will depend on your purchase price—but it could total as much as $24,000.
For a custom-built home, the maximum amount you can receive is $16,000. A good real estate lawyer can take care of the details!
Covering the Costs of Buying a Home
Closing costs can be annoying, but being prepared for them can help ensure that your purchase is smooth. With a bit of planning and some expert advice, you’ll have the keys in your hand—and your new home in your possession—before you know it!
Are you ready to buy your next home? Get in touch—we’re happy to answer any questions you may have!
