CLOSING COSTS – THE BUYER'S PERSPECTIVE
Wednesday Mar 17th, 2021
Everyone’s heard of it! If you haven’t, don’t worry — you’re are going to find out what its all about! When buying your home, a good chunk of people are surprised about the amount of this final bill. For a transaction, both the buyer and seller incur closing costs and they differ. Let’s see what the buyer’s closing costs are – shall we?
What are closing costs?
Well, it’s just that — costs associated to closing the deal on your home. These costs are one way — meaning, you are not going to see a penny of it later on. There are several factors that add up to these costs.
The closing costs can vary significantly from one purchase to another, so if you’ve come across closings costs in the past, and think the costs will be the same — think again.
So what are the different factors associated to closings costs? Let’s take a look:
Land Transfer Tax — This is probably the biggest chunk of the closing costs for a buyer. This depends on the location as well as the price of the home. If you purchase a home in Toronto, you will be paying an extra land transfer tax than others that buy outside of Toronto. For first time home buyers – you will get a rebate to help you offset the costs.
Mortgage Loan Insurance Fee Tax — You may have heard of the Canada Mortgage and Housing Corporation (CMHC) Insurance fee that you pay if you don’t put down at least 20% of the purchase price. Usually, this insurance fee is added to the mortgage amount, however the tax on this insurance cannot be added to your mortgage. The tax needs to be paid in full at time of closing.
Home Appraisal Fee – Simple as it sounds, it is a fee charged by your bank to complete an appraisal of the home you are purchasing. Most banks will or can waive this fee for you, just simply ask to do so! You can never lose by asking.
Title Insurance - Similar to other insurances you come across, this insurance is purchased to protect your ownership ‘interest’ in the property and your bank’s priority in the mortgage against any losses arising from various title risks.
Disbursements – This cost varies for each closing. These are expenses paid by your lawyer on your behalf for the closing which are not covered by their legal fees. Some examples that you will see as part of these costs are:
- Prepaid Utilities & Property Taxes
- Courier Fees, Photocopying & Faxes
- Registration of Deed payable to Land Registry Office
Legal Fees – This is the charge from your lawyer for their professional services related to the closing.
Home Inspection – If you are being a smart buyer, you would make sure you get a home inspection done. This cost can vary as well, depending on the size of the house.
Survey – Your bank may require you to provide an up-to-date survey. If you were not provided with one from the seller, you will have to obtain an updated survey from a surveyor. In most cases, the survey is provided by the seller.
Note: Not all costs are incurred for all transactions.
Sample Buyer's Closing Costs
Before we take a look at a sample Buyer’s Closing Costs, bear in mind that these costs are above and beyond your down payment — you need to have funds allocated for these costs. If you allocate these costs as part of your down payment – your actual down payment will decrease and thus potentially increase your closing costs (HST on CMHC Insurance).
|Land Transfer Tax (LTT)||$6,950|
|Legal Fees + HST||$900|
|HST on Mortgage Insurance||$732|
|LTT Rebate for 1st Time Home Buyer||-$5,225|
|1st Time Home Buyer Total||$4,407|
Sample Scenario & Example:
- Purchase Price: $350,000
- Down payment (Including Deposit): $17,500 (5%)
- Location: City of Toronto
- Square Footage: 2000 sq ft
- Disbursements vary drastically. The cost shown is simply an example.
- Costs for Home Inspection and Legal Fees are approximates and only used for illustration purposes
Typically, you can expect closings costs to range from about 1.5% to 4% of the purchase price. Each transaction is unique and costs will differ!