Transaction fees to consider
Rule of Thumb: 2 - 3% of the Purchase Price
To avoid any surprises on closing, here is a list of what to expect in the way of costs.
Deposit:
Part of your down payment, a deposit is due upon acceptance of your offer.
Home Inspection:
Prepared by a qualified inspector to assess the property for defects and poor maintenance.
Appraisal:
Prepared by an appraiser chosen by the lender, CMHC or GE (if applicable).
Legal Fee/Disbursements:
Your lawyer will quote the fee for closing the purchase and mortgage(s) plus an approximation for the disbursements, which includes registration fees, courier costs, photocopies, etc. Ask for an estimate. Land Survey or Title Insurance: Your lawyer or the lender will specify whether a survey is necessary or if title insurance will be acceptable in lieu of a survey.
Fire Insurance:
You will have to arrange and maintain fire and extended coverage insurance for the outstanding balance of the mortgage or the replacement value of the building.
Interest Adjustment:
Monthly mortgage payments are usually due on the first of the month. Unless the closing date is the first of the month, you must prepay the amount of the interest accruing up to the 1st day of the following month known as the "interest adjustment date" (IAD). If however, you choose biweekly or weekly payments your interest adjustment period may be much shorter.
CMHC or GE (High Ratio Insurance):
If your mortgage is insured by CMHC or GE the insurance premium will usually be added to the mortgage so it is not a cash requirement on closing.
Prepaid Expenses:
If the Vendor has prepaid any other expenses such as utilities, water and sewage taxes, oil in tank or property taxes, they must be compensated. This will be reflected in the Statement of Adjustments.
Property Tax Hold-back:
If the lender is collecting and paying property taxes you may be required to pay to the lender an amount to ensure sufficient funds are available to pay the next instalment of property taxes when due. An alternative to a property tax holdback is for the lender to increase the tax portion of the regular payment proportionately to ensure sufficient funds are on hand in time to pay the taxes when due.
Other Fees:
Occasionally, a lender or the broker will charge a fee for providing the mortgage. If so, these costs should be disclosed to you at the time the Statement of Mortgage is issued to you.
GST:
Is payable on all new homes, commercial properties and land. GST is NOT payable on un-renovated residential re-sales.
GST New Housing Rebate:
You may be able to claim a rebate for a portion of the GST you pay on the purchase price or cost of building your home if you buy a new or substantially renovated home, mobile home, floating or modular home from a builder or vendor. Or, you buy a share in the capital stock of a cooperative housing corporation, or construct or substantially renovate your home (or hire someone to do so). Also applicable if your home is destroyed by fire and is rebuilt. Contact the Canada Customs and Revenue Agency in your community for the Completion Guide and Application Form.
Moving Expenses:
You may have to allow for the expense of a professional mover or the rental of a moving van.
Appliances:
You will likely need four major appliances.
Decorating:
Carpets, drapes, furniture and painting may be necessary.
Repairs:
You may have some immediate renovations to do especially if the financial institution withholds some of the mortgage money on the condition specific repairs be made.
Tools:
You may need lawn tools, garbage cans and snow removal equipment.
Utility Hook-up:
You may have to pay to have the telephone, gas and electricity connected and in some cases, pay a deposit. Contact the local utility companies directly.
Don't Let Closing Costs Take You By Surprise
You've come up with a down payment, searched for a good lawyer, and have found a reputable mortgage broker. Well done! You're off to a great start in the house purchase process. Keep in mind that you'll also be facing -- in addition to the expected legal fees and moving costs -- a few extra payouts when the final deal is done. Knowing about these "closing costs" in advance soothes their sting. The following list covers typical costs you'll encounter when your purchase is completed or "closed".
Reimbursements
You'll need to refund the money that the seller has already paid out on your behalf: expenses that are now fairly and rightfully owed by you, the new homeowner. In your lawyer's office, on closing day, you'll definitely run into those famous last words: "subject to the usual adjustments". Typically these adjustments include portions of municipal property and school taxes for the months you'll be resident, utility bills paid in advance, fuel oil that you will be using - that kind of thing. These expenses would have to be paid by you anyway, so they are fair.
Land Transfer Or Similar Taxes
Your province levies this tax whenever real estate changes hands. It's sometimes also called (ironically) a "welcome tax". They do literally get you coming and going! The amount of this tax is a percentage of the purchase price of your property, so the more expensive the property, the bigger the tax. Ask about Transfer Taxes in your province or the province you are moving to for full details.
Home Insurance
This insurance, especially fire, must take effect from the moment you are the owner of the home. It's all about protecting the investment for the lender -- and in this case it works for you too. Mortgage Life and Disability insurance. This is an especially good idea for young parents or anyone else with dependents. If anything should happen to either one of you, your home ownership won't be in jeopardy. The mortgage would be paid in full - immediately - on your behalf. You'll appreciate and need this peace of mind in a time of crisis, and you'll save your family the extra burden of wondering if they would need to sell their home (even while they're coping with a loss). Your Ontario mortgage broker can often help you find a policy that works for your situation.
Home Inspection Fee
This is the fee you owe the inspector you hired to check out the physical structure and mechanicals of your home before you decided to buy it.
Home Appraisal Fee
Your lender requires this appraisal before they hand over any mortgage money. Naturally, they want to be assured that the property is worth an investment of their monies, and naturally, the cost of this appraisal is passed on to you, the customer. This fee normally ranges between one and two hundred dollars - dependent upon location and complexity of the property.
The Survey
A legal survey of your land - its borders, perimeters, house placement, etc. -- is sometimes required by the lender, and will be performed by a professional surveyor. If you're lucky, a recent survey is already available; if not, a typical survey can cost you up to one thousand dollars. In the last few years, lenders have accepted title insurance (highly recommended anyway) in lieu of a survey document.
Title Insurance
This covers a myriad number of oddball situations that could threaten your title to the property. Title insurance is much less costly than a new survey, for example, and would cover most survey concerns anyway. Most homebuyers now look at title insurance as a great way to protect their biggest investment!
Don't Forget GST
This tax is charged on all professional fees. There is no GST on the purchase price of a resale home. Legal Fees and Disbursements. Speak to your lawyer about their fee schedule. Typically between $1,000 & $1500.
Closing Day!
Today is the day legal title to the property changes hands. You've been busy packing, cleaning, and organizing the moving procedure at either end. The last thing you need to do is traipse down to the lawyer's office... but that's exactly what you'll have to do. Your lawyer will sit down with you, carefully go through a pile of papers for signing, point out closing costs. But a good mortgage broker can help you be well-prepared for all the things that happen before the new house keys are finally in your hand.
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