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Closing costs

Last updated: May 25, 2022

You must pay closing costs at the end of your home buying process in addition to your down payment. These costs can consist of various taxes and fees such as land or property transfer taxes, HST/GST, title insurance and more. A common mistake that many people make is overlooking closing costs which can result in a hefty fee that they’re not prepared for. Average closing costs will come up to 3-5 % of the purchase price of a home but this can vary. It’s a good idea to get an estimate of your costs before your closing date so that you don’t run into any difficulties later on as they have to be paid upon the closing of the home and often cannot be rolled into your mortgage.

For example, 3% in closing costs on a $300,000 home will be around $9,000 that you will have to pay upfront before you actually own the property.
Buyers are usually responsible for paying costs associated with purchasing the property and taking out a mortgage.

Sellers are usually responsible for paying real estate agent’s commission, lawyer fees, and outstanding taxes or mortgages owed on the property.

These costs can include but are not limited to:

Land or property transfer taxes


Probably one of the largest closing costs for buyers, the land transfer tax is a one time fee paid to the provincial government when the home is transferred from the seller to you. Depending on the city you live in, such as Toronto, Montreal or Halifax, you will also have to pay a land transfer tax to the city. If you are a first-time home buyer, you might be able to claim a land transfer tax rebate against both your provincial and municipal land transfer taxes.

HST/GST


If you are purchasing a resale home, you likely won’t need to worry about this expense. For a newly built home, the sale is subject to HST or GST and you would need to confirm if the HST/GST is included or in addition to the sale price you negotiate with the builder.

Title insurance


When a property is transferred from one owner to another, title insurance can provide protection against any financial losses resulting from fraudulent activities. It is an optional expense but might save you from more fees and complications later on.

Legal fees


Buying a home is a very big decision that involves a lot of money, so it requires some legal guidance along the way. It is mandatory to have a real estate lawyer or notary act for you in the purchase and mortgaging of your property since only a lawyer can register a legal charge on the property which confirms your ownership. The legal fees will vary depending on the amount and difficulty of the work required.

Inspection fees


Home inspection fees are optional but highly recommended. It may be a good idea to get a home inspection as a condition of your Offer to Purchase. This will ensure that your new home is properly inspected for things such as water damage or structural integrity before moving in and could minimize costly repair fees down the line. It will be done by a home inspector and the price of this fee will depend on the complexity of the inspection and can range from $500 to $800 or more.

Appraisal fees


An appraisal will give you an unbiased estimate of your property’s market value and can vary depending on the home’s location, size and condition. The costs can range from $300 – $500 for a single family home and are typically requested by the lender. The buyer typically pays for the appraisal.

Interest adjustments


You pay interest on your mortgage after it’s been incurred, it is not a prepaid expense. If you have elected to pay semi-monthly or monthly, there will be gaps between your closing date and your payment dates. That gap is typically filled with an interest adjustment amount which is an interest-only payment and may be deducted at closing or paid by you when due (your lawyer would confirm).

For example, let’s say you opted for monthly payments on the 1st of each month and your closing was on January 10th. Here’s the schedule for your first few payments Interest payment on February 1st for mortgage amount between Jan 10th and Jan 31st Full mortgage payment (principal + interest) on March 1st for mortgage amount between Feb 1st to Feb 28th.

After March 1st, you would then simply make your monthly payments now that your payment schedule is lined up on the 1st.

Statement adjustments


Some owners pre pay services such as utilities, property taxes and other bills. This means that you might have to pay the seller for the portion of the utilities they have paid where you will be owning the home. For example, if the seller paid for 4 months of property taxes and you were to move in 1 month later, you’d pay them ¾ of that property tax bill since you will be living in the property for the remaining 3 months.
  • Compare mortgage lenders to try and get the best interest rate and terms that you are eligible for. This can decrease the amount of interest you will have to pay. You can save a significant amount of money by comparing lenders to find the most favorable rates and terms for your situation.
  • If you don’t have enough money for closing costs, you can consider a no closing costs mortgage. However, the lender will charge you a higher interest rate or they could roll those fees into your mortgage which will ultimately increase your monthly mortgage payments.
  • Be considerate of your closing date as you will be responsible for all costs once you close. You could potentially save money if you close later in the month as many of your taxes and bills will be prorated.
Closing day is when the property is officially transferred to your name. Usually what happens is:
  • You will provide your down payment
  • Your mortgage is funded by your lendr
  • The previous homeowner is paid and then home is transferred to your name
  • You will receive the keys and title deed