Closing Costs

By Mark Salerno

For most Canadians, owning their own home is a lifelong dream. Homeownership offers a source of pride, long-term security during economic ups and downs, and control over which changes or improvements are made. There's also a good chance your home will increase in value over time, making it a sound financial investment, as well as a lifestyle choice.

How much will it really cost?

Once you have figured out the home price range you can afford and the type of mortgage you qualify for, you will need to calculate all of the associated costs of the transaction to make sure you are financially ready.

One potential additional expense is mortgage loan insurance. Many Canadians either do not have, or have made the financial decision not to provide, a down payment of 25 per cent or more. By insuring lenders against default, mortgage loan insurance allows you to buy a home with a high ratio mortgage for as little as five per cent down. Your lender or mortgage broker will calculate the applicable mortgage loan insurance premium amount and application fee for you.

Plan to set aside at least 1.5 per cent of the purchase price of the home to cover the other closing costs you may incur. These can include legal fees, GST and PST, land transfer taxes, survey and home inspection fees, water quality and Estoppel certificate fees, appraisal fees, mortgage broker?s fees, moving expenses and service hook-up fees.

Up-front costs

You will need to plan ahead to cover the many up-front costs of buying a home. Timing is important to help make sure things go smoothly.

Mortgage Loan Insurance Application Fee and Premium If yours is a high ratio mortgage (less than 25 per cent down payment), you may need mortgage loan insurance. To get this insurance, you may be asked to pay the required application fee. Your lender may add the mortgage insurance premium to your mortgage or ask you to pay it in full upon closing.

Appraisal Fee Your mortgage lender may require that the property be appraised at your expense. An appraisal is an estimate of the value of the home. The cost is usually between $250 and $350 and must be paid when you contract for those services.

Deposit This is part of your down payment and must be paid when you make an offer to purchase. The cost varies depending on the area, but it may be up to 5 per cent of the purchase price. If you wish to make a down payment of 5 per cent and you give a deposit of 5 per cent, then your down payment is considered to be made.

Down Payment At least 5 per cent of the purchase price is usually required for a high-ratio mortgage and at least 25 per cent of the purchase price is usually required for a conventional mortgage.

Estoppel Certificate Fee This applies if you are buying a condominium or strata unit and could cost up to $100.

Home Inspection Fee Remember that this may be a condition of your offer to purchase. A home inspection is a report on the condition of the home and may cost over $200, depending on the complexities of the inspection. For example, it may be more costly to inspect a home that has large square footage, one that is expensive or one where contaminants are suspected.

Land Registration Fees Sometimes called a land transfer tax, deed registration fee, tariff or property purchases tax. You may have to pay this provincial or municipal charge upon closing in some provinces. The cost is a percentage of the property's purchase price and may vary. Check with your lawyer/notary to see what the current rates are.

Prepaid Property Taxes and/or Utility Bills To reimburse the vendor for prepaid costs such as property taxes, filling the oil tank, etc.

Property Insurance The mortgage lender requires this because the home is security for the mortgage. This insurance covers the cost of replacing the structure of your home and its contents. Property insurance must be in place on closing day.

Survey or Certificate of Location Cost The mortgage lender may ask for an up-to-date survey or certificate of location prior to finalizing the mortgage loan. If the seller does not have one or does not agree to get one, you will have to pay for it yourself. It can cost in the $1,000 to $2,000 range.

Legal Fees and Disbursements Must be paid upon closing and cost a minimum of $500 plus GST. Your lawyer/notary will also bill you direct costs to check on the legal status of your property.

Title Insurance Your lender or lawyer/notary may suggest title insurance to cover loss caused by defects of title to the property.

If you feel you cannot cover all of the up-front costs, you can ask your lender for a loan. Remember that payment for this loan amount, based on a 12-month repayment period, will have to be included in your total debt service ratio calculation.

Once you own the home, general maintenance and repairs may come along faster and cost more than you expect. If you're buying an older home or 'fixer-upper,' you may want to consider setting up a separate maintenance fund of $500 to $1,000, and then add to it regularly to cover the inevitable costs of repairs or replacement.

Other Costs

Besides up-front costs, there are other expenses to consider:

Appliances: check to see what comes with the house, if anything

Gardening equipment

Snow-clearing equipment

Window treatments: check to see what comes with the house.

Decorating materials such as paint, wallpaper, flooring and tools for redecorating

Hand tools you will need some basic hand tools for your new home

Dehumidifier may be required to control moisture levels, especially in older homes

Moving expenses

Renovations or repairs

Service Hook-Up Fees are charged for utilities. You may be required to pay a deposit for utilities such as telephone and heating services

Condominium Fees: you may have to make the initial payment for these monthly fees

For more information about buying a home or to obtain a free copy of CMHC's Home buying Step by Step Guide, please call our toll free line at 1 800 668-2642 or visit our website at www.cmhc.ca