Closing costs are the additional fees associated with purchasing a home, beyond the actual purchase price. These can include legal fees, disbursements, land transfer taxes, and moving expenses. The exact amount of closing costs is typically unknown until close to your closing date, as certain details from the seller and their lawyer may not be confirmed until then.
As a general guideline, closing costs are approximately 1.5% - 2% of the purchase price, but this amount can vary depending on your specific situation. For CMHC (Canada Mortgage and Housing Corporation), Canada Guaranty, and Sagen insured mortgages, you must provide evidence of available cash for closing costs equal to 1.5% of the purchase price. This ensures you have enough funds to cover these additional expenses at closing.
Below, we break down what is included in closing costs.
When purchasing a property, you must pay a land transfer tax to the provincial government and, in some areas, to the municipality as well. The amount of land transfer tax varies significantly depending on the province and the value of your property. For most Canadians, this tax is calculated based on the purchase price of the property.
Some provinces have a marginal land transfer tax rate, meaning the tax rate increases with the purchase price, while others have a flat rate. To make this easier, you can your provinces provincial transfer tax calculator.
First-time homebuyers in Ontario, Prince Edward Island, and British Columbia can benefit from land transfer tax rebates. For instance, first-time buyers of a $500,000 home in Toronto would save $8,475.
In BC the first time buyer exemption is for up to $8,000 or a savings on the transfer tax up to $500,000 as long as the purchase price is $835,000 or less, for any price up to $860,000 there is a partial exemption.
First Time Buyer Rebate
Most first time buyers are exempt from or receive a discount on these taxes if they meet certain criteria and always confirm with the lawyer you are using for the purchase. The main criteria are:
Legal representation will cost you approximately $1100 - $1500 for a purchase and a mortgage, add another $900 if you are selling a property at the same time. The lawyer sets their own pricing but this is the approximate range you should expect when buying or selling.
The interest adjustment date is the date from which your lender actually starts calculating the interest you’ll pay. It’s basically the date on which the term of your mortgage really begins. Interest adjustment generally takes place on the 1st day of the month after the completion date.
For example, if your completion date is June 20th and you choose the monthly payment frequency option please see the dates:
A bank will either require title insurance or a survey certificate. The majority of banks are now requiring title insurance and the lawyer or notary you choose will be able to explain the differences and go over pricing.
Approximate cost for Title Insurance: $150 - $300
The property is evaluated by a professional appraiser to determine the market value of the property. This is done on conventional mortgages (down payment is 20% or greater, private transactions and properties to be used for investment purposes. This is to ensure that:
Approximate cost for appraisal : $375 - $800
An inspection is a thorough evaluation of the structure, systems and components of a home. The inspection report is usually multi-paged, and comments on the condition of, but not limited to foundations, electrical, plumbing, heating, water heaters, appliances, fireplaces, drainage, roof, walls, floors, attic, crawl spaces, patios, etc. This report is for the sole benefit of the buyer and is not required by the bank.
Approximate cost for standard inspection: $550 - $800
Generally, property taxes for the calendar year are paid at the beginning of July. If you purchase a property before July 1st, the seller will be paying you for the days they owned the home from January 1st to the completion date.
You then are responsible for the entire amount to be paid to the municipality on July 1st.
If you purchase a property after July 1st, you will pay the seller for the days you own the property from completion day to December 31st, as they will already have paid the entire amount to the municipality on July 1st.
To calculate this amount: one day’s taxes on owner-occupied properties are the annual taxes, less the $570 (estimate) homeowner grant, divided by 365.
This is a requirement by the bank to ensure that the borrower has arranged sufficient insurance to cover any losses that may be incurred on the purchase. The lender will typically provide a specific address they want this to be sent to your lawyer. Proof of coverage by way of an insurance binder supplied by the insurance agent.
The mortgage lender will insist that you purchase an insurance policy which guarantees that, in the event of a fire, the home will be rebuilt to a standard that ensures the bank’s collateral is not in jeopardy. Fire insurance is normally applicable to only houses and not strata units (ie townhouses and condos).
*PLEASE NOTE:
Lenders will want proof that you have at least 1.5% of the purchase price for closing costs. This is not how much they will actually be, but rather a generic estimate.
Every home will have different costs associated with purchasing it.
*Closing costs are estimated only and may be higher or lower than estimated. Please contact your lawyer/notary to verify.
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