Now that you know what you can afford, the next step is to determine the additional costs of the home-buying process. According to 3 insurers in Canada – CMHC, Genworth, and Canada Guaranty, one should have, in addition to the downpayment, at least 1.5% of the purchase price for closing costs. The costs vary across provinces, and for that matter, cities. Below you will find a brief explanation of these costs, but a mortgage specialist at Homefund, your realtor, and lawyer or notary, could provide a fairly close estimate.
The appraisal provides the lenders with a professional opinion of the market value of the property. This cost is normally the borrower the borrower’s responsibility and it ranges as low as $150 for a drive-by appraisal to as much as $350 for a full appraisal plus H.S.T. Occasionally, the costs could be slightly higher for larger, and/or custom-built homes, or homes in remote parts where distance and/or access become a factor.
Home Inspection Fee:
A professional inspection of the home, top to bottom, and is for the benefit of the buyer, and it’s at their option to have one done and paid for at their cost. A typical home inspection can cost anywhere from $250-$400, but our opinion is that they are well worth the investment. New home buyers may not worry about it, but a definite must for buyers purchasing properties older than 5 years. When hiring a home inspector, make sure the inspector has liability insurance, just in case a mistake is made.
All mortgage lenders will require a certificate of fire insurance to be in place from the time you take possession of the home. The amount required is generally at least the amount of the mortgage or the replacement cost of the home. This cost can vary on the property size and extras being insured, as well as the insurance company and the municipality. This cost can be upwards of $500 to $1500 annually for most homes.
Provincial Sales Tax of 8% (P.S.T.):
If your mortgage is above 80% of the purchase price, by law the lender will need to insure the mortgage against default. In Ontario, being insurance, there is P.S.T. of 8% payable on the insurance amount, and that’s paid at closing and becomes part of your closing costs. While the insurance premium can be added to the mortgage amount, the P.S.T. must be paid at closing.
Title Insurance Fee:
Title insurance is an insurance policy that protects residential and commercial property owners and their lenders against losses related to the property’s title or ownership. For a one-time fee(from $250-500), the title insurance policy may provide protection from such losses as: unknown title defects, existing liens against the property, encroachment issues, title fraud, errors in surveys and public records, and other title-related issues that can affect your ability to sell, mortgage, or lease your property in the future. There may be some exclusions of coverage, such as known title defects that were revealed to you prior to purchasing the property, environmental hazards, native land claims, matters not listed in public records, and zoning bylaw violations from changes, renovations or additions to property and/or land you are responsible for creating.
Legal Costs and Disbursements:
A lawyer or notary will charge a fee for their professional services involved in drafting the title deed, preparing the mortgage, and conducting the various searches. The disbursements, on the other hand, are out-of-pocket expenses incurred, such as registrations, searches, supplies, etc., plus G.S.T. Please make sure you discuss these costs with your chosen legal representative.
Land Transfer Tax:
Most provinces charge a land transfer tax, payable by the purchaser, and the amount varies from province to province. This tax is based on the purchase price (refer to mortgage ABC’s for exact calculation). In Ontario, first time home buyers who purchase a home, whether it’s new or re-sale (as of December 13, 2007) get an instant credit up to $2000 towards the cost of the tax.
The Ontario land transfer tax (LTT) is a marginal tax and each portion of your home’s value is taxed at a unique rate.
These tax rates are as follows:
price of home
|First $55,000||0.5%||The Ontario first-time home buyer rebate covers the full land transfer tax up to a maximum of $2,000. It is only available to first time home buyers.|
|On $55,000 to $250,000||1.0%|
|On $250,001 to $400,000||1.5%|
In addition, if you are purchasing a home in Toronto, Toronto City Council approved a new Municipal Land Transfer Tax (MLTT) effective February 1, 2008. If you are a first-time buyer of a new home or re-sale home, you are exempt of this tax if the purchase price is under $400,000.
The MLTT will be charged on a graduated basis depending on the value of consideration paid for the property.
For property containing at least one, and not more than two, single family residences with a consideration value of:
|Value of Consideration||MLTT Rate|
|Up to and including $55,000.00||0.5% - plus|
|$55,000.01 to $400,000.00||1.0% - plus|
For all other property with a consideration value:
|Value of Consideration||MLTT Rate|
|Up to and including $55,000.00||0.5% plus|
|$55,000.01 to $400,000.00||1.0% plus|
|$400,000.01 to $40,000,000.00||1.5% plus|
FOR EXAMPLE: A home with a consideration value of $500,000.01 (excluding GST):
|0 to $55,000.00|
$55,000.01 to $400,000.00
$400,000.01 to $500,000.00
|55,000.00 x 0.005 = $275.00|
$344,999.99 x 0.01 = $3,450.00
$99,999.99 x 0.02 = $2,000.00
|Total MLTT= $5,725.00|
New Home Warranty:
In many provinces, new homes are covered by a new home warranty program. The cost to the purchaser for this warranty is approximately $600-$1000 and should the builder default or fail to build to an agreed-upon standard, the fund will finish or repair the deficiencies.
Mortgage Application and Processing Fee:
On a high-ratio insured mortgage (mortgages above 80% of the purchase price), the mortgage insurers(CMHC, Genworth, Canada Guaranty) used to charge a fee of $165-$185 for applying and processing the file, as well as appraising the property, and on new homes, this fee drops to $75. However, it’s been a few years since they have waived this fee (for now).
An estimate should be made for closing adjustments for bills that the seller has prepaid such as property taxes, utility bills, and other charges. Any bills after the closing date are the purchaser’s responsibility. Your lawyer/notary will let you know what they are exactly once the various searches have been completed.
On the purchase of a newly constructed home, HST is payable, but make sure you know who pays this, you or the builder. Therefore, on the offer, the purchase price will say “Plus HST” or “HST Included”, and who gets the HST new home rebate. A lot of builders have included this cost into the purchase price so that the buyer does not have to come up with that at closing. (As well, this tax is also charged on all professional fees).
You can rent a truck for around $75-100 per day and do-it-yourself, friends and family, or hire professional movers (who carry insurance for damaged goods) which can cost several hundred dollars, depending how much stuff is being moved and how far.
These include utility hook-ups, any repairs, painting, etc.
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