For many homeowners closing on their first home; they may not be aware of the additional costs beyond the price they agreed on with the seller. Before you can put your keys into the door for the first time, there are a number of additional expenses and costs you need to know.
Closing costs aren’t set in stone and can vary depending on the area in which you’re buying. As a rule of thumb, closing costs can equal approximately 2 – 4 percent of the purchase price of your new home. Lenders will typically require you to show an ability to cover these costs over and above the down payment you’ve provided on your home purchase.
Let’s break down the closing costs and when you’ll have to pay them by looking at the three phases of your home purchase:
1) Costs when making an offer
2) Costs before closing
3) Costs at closing
Costs When Making an Offer
The biggest cost you’ll be responsible for when making an offer on a home is the deposit. A deposit shows the seller that your offer is genuine displays your capability to close on the purchase of the property.
For example, in Ontario, you can provide a deposit with the offer upfront or alternatively, provide a deposit within 24 hours after the seller has decided to accept your offer. While there is no specific amount as to what the deposit should be, it isn’t atypical to see deposits up to 5% of the home’s selling price in competitive housing markets — it may be generally accepted as good practice to provide less than 5% in other markets where the competition is less intense. A larger deposit may convince the seller of your sincerity and could possibly help your offer stand out among any others.
Note that the deposit is counted as part of your down payment. Providing a higher deposit does not mean that you’ll be paying any more than any other bidder offering the same amount on the home. Be sure to speak with a trusted real estate professional regarding deposits in case your agreement with the seller isn’t completed for whatever reason.
Costs Before Closing
Your lender may require an appraisal of the home in order to assess the home’s value in comparison to the mortgage you require. In this case, an approved third-party appraiser will provide their assessment of the home in question along with a market value of the property. The cost of an appraisal will typically cost around $300 to $500.
You may also decide (or the lender may ask) for a home inspection on the property. You may even decide to make your offer conditional on a home inspection in order to have the assurance that the home is in the shape you expect it to be and that no major problems present themselves after you take possession. Be aware that some sellers may choose to favour an offer without a condition upon home inspection over an offer which includes it.
Costs at Closing
Land Transfer Tax
Depending on the location of the property, the Land Transfer Tax will vary in amount. The Land Transfer Tax is a cost that must be paid by the purchaser of the property in order to transfer the property title into their name. The City of Toronto levies an additional land transfer tax over and above what is paid to the province of Ontario. Land Transfer Tax are due upon the closing date of your purchase.
Miscellaneous Adjustments
You may find that some condo fees, property taxes or other expenses related to the ongoing ownership of the property may have already been paid for by the seller before closing. In this case, a Statement of Adjustments will reflect the expenses for which you are required to reimburse the seller upon closing.
Property Insurance and Title Insurance
In the event of a fire or other disaster, property insurance will cover the cost of replacing your home. The lender providing your mortgage will require you to carry this insurance — as it reassures them the property they’ve mortgaged is covered in the off chance something happens.
Title insurance is also a must have — title insurance covers you in case of any unforeseen problems regarding the ownership of your property. Your coverage will protect you from any inappropriate liens against the property or other title related issues. You should expect to allocate between $200 – $300 for title insurance costs.
Legal Fees
You will want to hire a real estate lawyer to act on your behalf to provide you with the reassurance that everything is prepared, completed and filed as needed. Prepare to spend between $500 – $1200 for your real estate transaction.
Provincial Sales Tax on Mortgage Insurance
With a down payment of less than 20% of the purchase price of the home, you will require mortgage default insurance. While the premium you must pay for the insurance is added to your mortgage, the provincial sales tax on that insurance is required upon closing.
If you have any questions about the closing costs on your home, fill out the form at the top of the page and speak to a MonsterMortgage.ca mortgage expert today!
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