Understanding Closing Costs When Purchasing Real Estate

As a first time home buyer you may have questions about how much money you will require purchasing real estate. 

Closing costs are fees you will have to pay besides your total down payment and they usually amount to 1.5 percent of the total purchase price.  Such fees include land transfer tax, municipal land transfer tax (if the property is in Toronto), legal fees, title insurance, home insurance or property insurance, appraisal fees, Status Certificate fees, if required and Mortgage Default Insurance if the mortgage is high-ratio.  

As a home buyer, here are the major costs you will have to budget for broken down to help you simplify the home buying process:

Understanding The Deposit With Your Offer To Purchase

When you make an offer to purchase real estate, you will have to provide a deposit together with your Offer to Purchase. A Deposit makes up part of your total down payment and will be credited against the total amount owing on the closing date. ​

Home Inspection Fees

It’s always a good idea to request a home inspection as a condition in your Offer to Purchase. Most accepted offers are contingent upon the results of a home inspection being satisfactory to the buyer. Home inspections often range from $350 to $550 and must be conducted by a home inspector. ​

Land Transfer Tax Fees

When you purchase land in Ontario, you will have to pay Land Transfer Tax to the Province. If you happen to be purchasing real estate in Toronto, you will have to pay both Provincial Land Transfer Tax and Municipal Land Transfer Tax. 

Tax rates are calculated on the value of the consideration otherwise known in this situation as purchase price. 
 
The tax rates calculated on the value of the consideration are:

• 0.5% on the first $55,000 of the purchase price, plus
• 1.0% on the amount exceeding $ 55,000 up to and including $250,000, plus
• 1.5% on the amount exceeding $250,000 up to and including $400,000, plus
• 2.0% on the amount exceeding $400,000 up to and including $2,000,000, plus
• 2.5% above $2,000,000.​​

Title Insurance 

Today, almost every single mortgage lender demands title insurance to safeguard against any damages and losses that may arise in the event there are any conflicts or debates related to title. Title Insurance is usually $100-350. ​

​Buying a house on Well and Septic Water

If you happen to be buying a home that uses well water and a septic tank and is not on municipal water, you will be required to get a few tests to ensure the water is potable. A potability certificate or water quality report is from your local municipality or third party company who can complete the appropriate testing. The potability certificate certifies the water meets public health requirements and is safe for human consumption. The certificate must be no older than 60 days at the time of closing. 

Septic Tank 

If the house you are purchasing has a septic tank, the tank may be required to pass an inspection prior to closing to ensure it is in good working order.

Costs Associated With Buying A Condo

If you are purchasing a condominium, you will require a Status Certificate or Estoppel Certificate which usually costs approximately $100. This document outlines the status and financial health of the Condominium Corporation along with any potential legal matters it may be involved in which could impinge on the reserve fund needed to maintain the building. It also indicates whether or not the previous owner has paid their common elements fees and is up-to-date. 

Home and Fire Insurance

You will require home insurance when purchasing a property. This protects your home from fire or other damages as well as provides a liability coverage. You will be asked to provide an insurance binder on closing which is a one-page document confirming that you are insured, your home is insured and who your lender is who will also be considered the “loss payee.” We recommend you consult with a few different insurance companies to find the right policy for you.

​First Time Home Buyer Land Transfer Tax Refund

If you are a first-time home buyer, you are eligible to receive a refund of up to $4,000 off the land transfer tax. This is credited to you right at the time of closing. ​

Legal Fees and Purchasing Real Estate

Legal fees usually range between $900-$2,000 plus HST. We usually can recommended three to four real estate lawyers to help you compare prices.

Including Closing Costs Into Your Mortgage

Mortgage default insurance can be included into your mortgage amount, however, land transfer tax, home inspection fees and legal fees cannot be included. 

The good news is high-ratio mortgage insurance also known as “Mortgage Default Insurance” is usually added to the mortgage amount requested and amortized out with the rest of the loan. 

The cost of Mortgage Default Insurance depends on how much of a down payment you have. If you have less than 20% of your purchase price as a down payment, you will be subject to CMHC default insurance. For more information about how much your insurance premium will be, call us. We'll help you calculate the premium you can expect to pay.

We help home buyers from day one all the way to closing day. To apply for a mortgage, call us today or Apply Now! We look forward to working with you! ​