It is important to be fully aware of all the costs involved in buying a home, preferably before you go house hunting. Knowing in advance what these additional “costs” are, over and above the down payment that you might have, will help you plan for a smooth closing and avoid any unpleasant surprises. You should allow at least 2% of the purchase price for closing costs. On a $300,000 home purchase, you should budget about $3750-5000 total to cover all closing costs.
- Legal fees: $800 - $1,500
- Land transfer fees: $2,975 (on a $300,000 home). First time home buyers are exempt from the land transfer fees.
- Mortgage insurance fees: could be between $25 - $100 a month depending on age, health, and type of insurance provider.
- Adjustments fees: $0 - $1,000.
- Property appraisal fees: $175 - $500 (sometimes are included in mortgage costs).
- Home inspection fees: $300 - $500.
- Utilities and Services Setup Fees: $100 - $500.
Below is a comprehensive list of closings costs that you might incur, but remember that they are estimates only and should be used as a guideline as of course they may vary depending on your own specific purchase.
Legal Fee and Disbursements
A lawyer will charge a fee for their professional services involved in drafting the title deed, preparing the mortgage, and conducting the various searches on title. The disbursements, on the other hand, are out-of-pocket expenses incurred, such as registrations, photocopies, phone calls, searches, supplies, etc., plus HST. The actual fee that the lawyer will charge will depend entirely upon the deal between you and your lawyer. Be sure to ascertain exactly what this will amount to in a worst-case situation. A typical purchase transaction for a $300,000 property with one mortgage will range between $800 to $1,500 including disbursements.
Land Transfer Fees
There is usually a land transfer fee that is charged on closing when the property is transferred to your name and it can vary depending on the price of the home, whether or not you are a first time home buyer. Normally first time home buyers do not pay the land transfer tax up to a maximum of $2,000.
Mortgage Insurance Fees
You should budget for insurance on your new home. Insurance fees can include default mortgage insurance, homeowners insurance, mortgage life insurance and title insurance. Although banks do offer mortgage insurance with your mortgage, obtain getting you own life insurance policy is often a better option. Especially for the young and healthy, life insurance can be relatively inexpensive and can grow and change with you well after the sale of your home.
Property Tax and Prepaid Utilities Adjustments
At the time of a sale, the lawyer for the buyer must confirm that local taxes have been paid up to date. If they are, a Tax Certificate is issued, from which any adjustments can be made - usually requiring the buyer to compensate the seller for any prepaid taxes. If they are not up to date, the municipality requires that the seller pay them off from the proceeds of the sale. Therefore, remember that if the previous owner has prepaid property taxes or other utilities for the year, they will be credited the prepaid portion on closing. If they paid all their taxes by the end of April, expect a large adjustment cost on closing! Again, your lawyer will confirm all this for you.
If your lender requires an appraisal report to be completed, it will have to be done before they hand over any mortgage money. They want to be assured that the property is worth what you are either paying for it, or valuing it for, and the cost normally ranges between $175 to $500 depending upon the location and complexity of the property.
This is a report ordered by a property owner or purchaser, usually to verify the condition of a property prior to fully committing to a Real Estate transaction. The scope and detail may vary, but most reports indicate the specific problem and the cost to repair. This report should be prepared by a certified Home Inspector to protect your interests in your new home. Depending on the size and location of the property, a home inspection is around $300 - $500.
Interest Adjustment (IA)
If you arrange to make your mortgage payments monthly on the first day of the month, and your transaction closes after that day, your lender may charge you interest on closing up to the first theoretical payment date, called the Interest Adjustment Date (IAD). The institution your mortgage is with, will calculate this for you. Remember, that all mortgages are paid in arrears so if your possession date is June 1st, and you choose to pay monthly, then your first payment will be July 1st. In this example there is no Interest Adjustment payable. However, if you moved in on May 29th, with your first payment on the first of the month, your first payment would still be July 1st, but there will be a three day Interest Adjustment (from May 29th to the “official start date” of June 1st).
Utility and Services
When you are moving to a new home many utility companies will charge you an admin fee to setup a new account or to transfer your services from a previous address. These fees vary from company to company and region to region. You also may incur charges as you setup phone, cable, internet and other services for your new home.
The may be other costs associated with moving into your new home based on your specific. You could choose to hire a mover, have your new home and/or carpets professional cleaned, or the home freshened up with a paint job. Make sure to include these costs when calculating how much money you will need to set aside for the closing.