A Complete Homebuyer's Guide to Closing Costs in Ontario
Often property buyers overlook the closing costs associated with purchasing a home in the Niagara Region. These costs obviously need to be paid before being handed the keys on your new home purchase. While you can't avoid these extra expenses, it’s important to know what they are ahead of time so you can factor them into your budget. If you're in the home buying process and starting your budget, here are some closing costs and their breakdowns that you can expect...
Home Inspection Fee
Before you go ahead and actually make a purchase, it is wise to find out the true condition of the property you are planning to purchase. You need to procure the services of an inspector to find out any faults that will likely result in expensive future repairs. The inspection fee is usually $450 and can help avert wasting your hard-earned money. In some situations, the seller can give a discount to cater for the faults. All in all, better safe than sorry.
As soon as your offer is accepted (even if it's conditional) your deposit to the sellers brokerage is usually due within 24 hours (so it's important to have this sum liquid and available. This number isn't fixed but usually runs at about 4% of the purchase price here in the Niagara Region (though including a higher amount with your offer may make sellers sit up and take notice).
A deposit shows you’re a serious buyer, since it means you have something at stake. If your purchase doesn’t make it to closing, the seller may have the right to hold onto it under certain circumstances (like if you back out of the deal for a reason not specified in your contract).
You may also pay an appraisal fee although many lenders will cover this cost if you ask, since having an appraisal done is part of the process of securing a loan. In the case you'll be requiring a mortgage on your home purchase (as most do), your lender will likely opt to carry out an appraisal of the Niagara property to confirm its worth. If it has been overpriced, lenders will either decline or allow the buyer offset the amount themselves. You might pay for the appraisal fee or the lender might agree to settle it. The costs usually range up to $500.
One of the sneakiest potential closing costs is centered around this appraisal - and is often overlooked, and that's the different between the appraised value and the purchase price. For example; you see a property you like on Vine Street in St. Catharines listed for $600,000 and you with the bidding war with an offer of $675,000. You're pre-approved which is great but the appraisal the bank does to finalize your mortgage on this specific property comes back conservatively at $650,000 - they believe you've overpaid for the property by $25,000 and ask that you make up that difference.
Land Transfer Tax
Buyers of houses and condos in Ontario pay land transfer tax when they purchase a property – Sellers never pay. Your lawyer will arrange for land transfer taxes to be paid when the deed to the new home is transferred in your name on closing day. This amount is on a sliding scale dependant on the price of the home your purchased.
0.5% of the value of the property up to and including $55,000
1% of the value which exceeds $55,000 up to and including $250,000
1.5% of the value which exceeds $250,000 up to and including $400,000
2% of the value between $400,000 and $2,000,000
2.5% for amounts exceeding $2,000,000, where the land contains one or two single family residences
If that doesn't make much sense you can always just search for an Ontario based land transfer tax calculator to figure it out quickly for you.
If you're upset about paying this you should note that just up the QEW our neighbours in Toronto are especially unlucky – they also get to pay the Toronto Land Transfer Tax which is the same amount all over again!
Property Tax & Utility Adjustments
Sometimes, the sellers may have already paid their property taxes and utilities in advance. When the period they’ve paid for overlaps with your ownership of the property, you’ll have to reimburse them for the time and costs that you'll be the homeowner. Figuring if there's overlap and if so how much is definitely tricky but don't worry your lawyer (and the seller’s) will do the heavy lifting by working this out for you.
Legal Fees & Title Insurance
Hiring qualified legal counsel make sure your purchase is above board is an absolute must. The cost for this service varies from lawyer to lawyer and will often depend on the price of your home and if there are any unique complexities in your transaction. Many buyers pay around $1000 - $2000 —though your bill may be less, or significantly more.
Title insurance, which costs around $250, will protect you if future challenges to your ownership, existing liens against your property, and other similar issues arise. Many lawyers will include this amount in their fees, so be sure to ask yours if you have any questions about what it covers.
CMHC Insurance Premium
If your home is less than $1,000,000 you may be able to pay less than the required 20% downpayment to qualify for a mortgage, maybe as low as 5%. Should this be the case you'll be considered a "high ratio mortgage" (anything less than 20% typically). If this is the case the Canadian Mortgage and Housing Corporation (CMHC) charges a premium on your mortgage insurance varying according to each province. In most cases, the cost ranges between 1.8% and 4% of the principal amount of the mortgage. CMHC insurance is there to protect your lender if you default on your mortgage. This cost will be built into you monthly mortgage payments and paid down over the span of your mortgage. However the PST (8%) of that amount will be due on closing upfront.
As a buyer so far you might feel overwhelmed but there is a fee where the seller is meant to meet the costs - commission for real estate agents. The seller pays the Meanwhile, there are cases where a seller in the bid to lure a good buyer in a difficult market can offer to pay all the closing costs. Now wouldn’t we all wish to be the lucky buyer? Either way, it is crucial to know the total amount of closing costs required. You can easily find out the total amount by using an online closing costs calculator provided by several law firms.
While it's not technically a closing cost factoring into your budget for buying a house for moving expenses would be a smart thing to do. The amount you’ll pay will depend on a few factors.
Do you plan to rent a truck and do the work yourself, or hire professionals to help? Another factor would be how far do you have to move? Shop around to get a good price— but don't cheap out and get the cheapest company if their profiles are riddled with negative experiences.
Buying a home can definitely be stressful, but hopefully this article and determining the costs associated with the process won't be one of them. Planning ahead a knowing what's coming and working with a local real estate agent in Niagara will make all the difference to laying the path to a smoother, stress free home purchase here in Niagara!\