Closing Cost on Home Buying in Canada
Closing costs is consists of all kinds of administrative and legal cost required to be paid on day when you get the keys and legal entitlement to your new home. Such cost normally varies from 1% to 5% of the selling price of home.
Land Transfer Tax
Land transfer tax is a provincial or municipal charge required to be paid in some provinces and territories. It varies from one to another city and province of Canada as per rules of the governing body. The cost is charged as percentage of the purchase price of property. Some cities like Toronto also charge municipal land transfer tax. One can get details about land transfer tax through official municipal websites or one should check with lawyer/notary to know what the current rates are.
CMHC Insurance Premium
If you are paying less than 20% of the purchase price of your home as down payment, it is mandatory to pay one time insurance premium on your mortgage amount. You can make arrangement to pay the premium before the closing date. Otherwise, it can also be added to the principal amount of your mortgage, interest on which will be charged at the same rate that you pay on the principal amount of your mortgage. CMHC premium usually vary between 0.5% and 2.75% of the principal plus applicable fees (subject to sales tax which cannot be added to principal amount of the mortgage).
Legal Fees and Disbursements
Legal fee is charged by a real estate lawyer for providing assistance for preparing, reviewing and recording official documents.
$500-$900 + disbursements
Title insurance safeguards the interest of the owner in any event of a property ownership dispute. It provides existing liens against the property's title, title fraud, non-discharged mortgages and other issues relating to the property's previous owners. Title insurance covers only lenders and buyer are required to arrange on their own. For instance, if the son of the previous owner claims that he owns the property because his father used to. If he wins the case, title insurance will pay the worth of the home to the lender. The typical cost is about $300 on a $500,000 home.
$300 – $500
A professional home inspector inspects the condition of property to make sure its structure is fine. Home inspection should be included as condition in the ‘Offer to Purchase’. A home inspector looks for flaws in the property such as cracks, leaks, electricity problems and other issues which can cost you money. It is an optional cost but you must spend on home inspection to assure you are investing in a sound property.
Approx.: $250 – $400
Closing Costs applicable to specific properties only
There are certain costs which are applicable to specific properties only and you can negotiate most of them with previous owner and list them in your ‘Offer to Purchase’ at the stage of making an offer to purchase property.
Septic Inspection Test & Water Test
If the house you are buying has a septic tank, it should be tested to assure it is working appropriately. Lender generally asks for a copy of water portability tests. Similarly if there is well in your property, you will want to get it tested for quality, portability and adequate supply of water through it. You can negotiate the cost with previous owner and list it in your “Offer to Purchase”.
Estoppel Certificate Fee
When you buy a Condominium or a strata unit, you are required to pay estoppel certificate fee for it.
An appraisal is the estimate value of the property. A professional appraiser is hired to perform property appraisal. An appraiser certifies the resale value of the property to the lender in case you default on mortgage. Your mortgage lender may require that the property be appraised at your expense (Not usually required for high ratio insured mortgages).
The cost is usually between $250 and $350.
Property InsuranceIt is also known as home owners insurance or fire insurance. As the home is a security to the lender, he requires property insurance to protect property against fires, floods, and disasters. Such insurance must be in place on closing day. It is generally paid in monthly or annual premiums.
Approximately $400 – $800 yearly
Property tax is calculated as a percentage of the purchase price of your home. It varies from one to another municipality and must be paid each year. If the closing date is in the middle of the year, you will be required to reimburse the previous property owner if he/she has already paid property taxes for the full year. Your lawyer will include it in final bill and disperse it properly.