Closing Costs: What you need to know

One often misunderstood concern when buying a new home involves closing costs. While incredibly important, your closing costs are something that can be easily understood and managed. Those who neglect to consider their closing costs however are bound for a surprise.

Closing Costs can include utility connections, education levy's, closing adjustment and lawyers fees. When calculating how much your fees will cost you, its wise to plan for an extra 2-3% of your home’s final purchase price.

If you are in the process of buying a new home, do your homework. Communicate with your builder, mortgage company and lawyer to ensure there are no surprises on closing day. Doing so will take away any extra costs that could creep up on you, and allow you to focus on moving into your new dream home.

Closing Costs Examined

Land Transfer Tax: A tax payable to the provincial government by the purchaser of a home upon the transfer of title. This is without a doubt the biggest fee that will be attached to your closing costs. It is calculated by taking your purchase price and multiplying it by defined percentages.

To find out what you would pay in land transfer taxes, click here for a Land Transfer Tax calculator provided by the Toronto Real Estate Board.

Remember, Toronto has its own separate tax from Ontario, which acts the same way as the provincial tax. Both the Toronto Land Transfer Tax and the Provincial Land Transfer tax will be attached to any property purchased in Toronto. First time home buyers are also eligible for a $2000 rebate of this tax when they file their yearly income tax.

Lawyer's Fees and Expenses: Each lawyer will offer different scopes of work depending on the transaction that you are closing. Generally, it’s fair to estimate $700-$1300 cost attached for your lawyer, however that is something you should discuss with your lawyer once you have made your purchase decision.

Mortgage Application Fee: This may or may not affect your purchase. The Bank will usually waive this fee, however it is not a certainty. Ask your personal banker if this is a fee that you should be planning for. The fee will range from $200-$300.

Property Insurance: This usually is a mandatory demand of your bank, as it is part of your responsibility as a homeowner to secure your investment. This protects the bank against any loss of value, and protects you against any unexpected damage. 

Title Insurance: Although it is optional, it is never a bad idea to include this in your calculations. Title insurance is a tool that home owners can use to protect their ownership in a home. From title issues (Liens registered against your home that may have been missed by a lawyer, or registered retroactively) to someone trying to defraud you of your ownership of the property, title insurance protects you. It protects the owner from issues involving title, fraud or forgery. The cost is minimal when looking at the value of your home, roughly $200-300. Ask your bank if title insurance is something that is required, or if it is included as part of your mortgage.

Closing Adjustments: Rarely will you buy a home on the first of a month, which means that at times bills or fees will have to be split between the buyer and the seller. Examples of these fees include condo fees and property taxes. Water and hydro bills could also fall under closing adjustments.

Pre-Delivery Inspection (PDI) Fees: When purchasing a new home, you will have to go through a pre delivery inspection with the builder. There is usually a fee attached to this, which can range from $250-$500, depending on the type and size of the purchase.

HST for New Construction Homes: As of July 1st, 2010, HST must now be attached to all new home sales in Ontario. There is a rebate of $24,000, however depending on the purchase price ($185,000 and up) there will still be a balance due. Most builders will pay this on behalf of the buyer, however it is smart to discuss this when signing off on your agreement of purchase and sale.

Tarion New Home Warranty Program: All new construction homes are required to be enrolled in the Tarion New Home Warranty Program. Your payment will depend on the size of your home. Some builders will include this in the purchase price of the home, however it is important to check with the staff to ensure if it is or is not included.  Fees range from $600 and up, depending on the purchase price of the house.

To see a detailed break down of the fees, click here.

Once you have taken a look at all of these prospective costs, is important to incorporate them into your budget. Waiting until your final meeting with your lawyer is not the best route to take, and could lead to a surprise come closing day. A responsible budget with a little bit of homework will go a long way in taking the stress out of the purchase of your home.