Buying a home can be as stressful as it is exciting. You’ve worked hard to save a down payment—don’t be caught off guard by the costs of closing the deal! In this post, you’ll find important information about the costs associated with purchasing and closing a residential property sale.
This is a general guideline to help you budget for your purchase.
How does mortgage insurance work?
Mortgage Insurance – If your downpayment is less than 20% of the purchase price, an insurance premium on the mortgage amount is required. The Government requires the funds to be insured. This cost is usually added on to the mortgage amount so you don’t pay out of pocket.
The cost to insure through either C.M.H.C. (Canada Mortgage and Housing Corporation) or Genworth Capital, is up to a maximum of:
- 4% for between 5% and 9.99% down
- 3.1% for 10% up to 14.99% down
- and up to 2.8% of the mortgage amount up to 19.99%.
- At 20% there is rarely any insurance fee applicable.
There is also 8% PST on the insurance fee itself, which is payable when the mortgage funds are advanced.
Under the new mortgage rules all buyers must qualify based on the contract bank rate plus 2% or the Bank of Canada rate which is currently at 3.95% (as of Jan. 2018). whichever is greater. Try our online mortgage calculator here.
Don’t forget the mortgage application and appraisal fee
Mortgage Application & Appraisal Fee – An appraisal may be required by the lending institution only when your down payment is more than 20%, to ensure that the market value of the property supports your loan request. Typical fees run between $350 to $400.
Another fee you may encounter is an Interest Adjustment Date and Property Tax Fund. Be sure to have your mortgage company explain these two features when you get pre-approved.
Other conditions may apply.
Understanding the legal fees for a home purchase
Lawyer’s Fees – These often range from approximately $600 to $700, plus HST (although they can be higher; check with your lawyer) and disbursements. The total is usually around $1,500 to $1,900 plus HST (13%) depending on whether its a condo or a single family home, plus Land Transfer Tax. For more information, see this suggested fee schedule from The Working Group on Lawyers and Real Estate.
Land Transfer Tax – This is a provincial tax levied on every purchase and collected by your lawyer on closing & forwarded to the government on your behalf. The purchasers pay:
- $5.00 per $1000.00 up to $55,000
- $10.00 per $1000.00 from $55,000 to $250,000
- $15.00 per $1000.00 from $250,000 to $400,000
- $20.00 per $1000.00 over $400,000 up to 2 million.
Important note for first-time property buyers in Ontario:
First Time Property Buyers in Ontario, who qualify, will now not have to pay this tax (LTT) on the first $368,000 of the value of the qualifying property! First time purchasers of properties greater than $368,000 would receive a maximum refund of $4000 and pay only the difference.
We will review this government initiative with you in more detail when we meet to do your Buyer Profile.
What are the fees for disbursements and title insurance?
Disbursements are fees that are charged to the buyer by the lawyer for searching title, registering documents and checking property taxes, utilities plus basic office charges.
Title Insurance insures buyers directly against potential title issues and may eliminate the need for an up-to-date survey. It is approx. $432 which, actually reduces your overall closing costs. Ask us for more details.
How much down payment do you need for your home purchase?
Your down payment can range from a minimum of 20% of your purchase price, which allows for a conventional loan (no insurance fee), to as little as 5% down payment for a high ratio loan through CMHC. The down payment cheque goes to your lawyer on closing, who in turn forwards it to the Seller’s lawyer as part of the purchase price.
If you are purchasing a property over $500,000, you will need 10% down for the amount over $500,000.
If you are purchasing a property for rental purposes and you will not be living in it, the down payment can run from 20 to 35%.
Learn more about qualifying for a mortgage here.
Other costs associated with buying a residential property
STATUS CERTIFICATE: If you purchase a condo, you will need to pay for this certificate to be requisitioned by your lawyer from the condo corporation or their property management company. It costs $100.00 plus legal fees of $170 for plan and status review. The Status Certificate will reveal the financial condition of the condo corporation.
HOME INSURANCE: Arrange insurance and personal liability on your new property in the event of fire or other damage. This is available from any qualified insurance company and depends on the property purchased. Make arrangements at least 3 weeks prior to closing and let your lawyer know which company you’ve chosen. Be sure to fill out a Home Insurance checklist during the home inspection.
UTILITY HOOK UP COSTS:
a) Enbridge (formerly Union Gas) now charges new customers a security deposit of the highest two bills of the previous year, or $250.00 for brand new homes. This is only applicable if you do not use the equal billing and preauthorized payment option. All customers will now have to pay a $35 plus HST connection or transfer fee.
b) Hydro: New residential customers are often subject to a security deposit and will have an initial deposit. In addition, for each water service at a location, customers will be billed a deposit. Security deposits may be waived if the customer has a previous history with another utility company in Canada and provides a letter from that utility documenting a satisfactory payment for a duration of 12 months in the previous 24 months. The hook-up fee is $30.00 + HST(13%).
c) Water Heater Rental: You may assume the rental agreement of the seller for the water heater. This payment can be set up on a monthly or quarterly, whatever you decide. You must transfer the water heater to your name before closing. It is usually Reliance that owns the water heater, but there are other companies.
Other costs to consider…
a) Moving Costs: Depends on whether you hire a professional mover, or pick up the pizza and refreshments tab for a few strong friends.
b) Life Insurance for your mortgage: This is available through the lender or through your independent insurance agent to cover the amount of the mortgage outstanding in the event of death. We advise using an insurance agent. Ask us why!
c) Survey Certificate: This verifies that the property is situated on the lot within legal requirements. This document is often available from the seller. If no survey is available and you would like one, count on spending at least $1,200 plus HST(13%) to have a new survey prepared. A survey is not necessary to get a mortgage or close a sale in almost all cases.
d) Inspection Fee: It ensures that the property you’re planning to purchase is soundly constructed and meets your expectations. Inspections will identify issues and possible problems that may affect your final decision. Fees can range from $400 to $500 plus HST(13%).
* The above costs are the normal fees you encounter upon a purchase of a single family residence or condo as of 2019. There may be other costs particular to different situations, especially if its an investment property.
With information contributed by Joyce Byrne.
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