Some people are surprised when they are faced with the additional costs over and above the price of their new home. But in addition to your down payment, it is recommended to have 1.5% or 2% of the purchase price to cover the closing costs that you incur when buying a home.
These costs vary among provinces and cities. We’ve estimated average costs based on the Greater Toronto Area but note that not all of them may apply to your specific situation, or there might be others that do. Use this as a guideline but talk to your realtor and real estate lawyer who can provide a more accurate estimate of the costs.
Appraisal Fee: The appraisal provides the lenders with a professional opinion of the market value of the property. This cost is normally the borrower’s responsibility and it ranges as low as $100 for a drive-by appraisal to as much as $250 for a full appraisal, with the average being $180, plus G.S.T. Occasionally, the costs could be slightly higher for larger, custom-built homes or those located in distant areas.
Home Inspection Fee: A professional inspection of the home, from roof to basement, is for the benefit of the buyer, therefore, that is who absorbs the cost. A typical home inspection can cost anywhere from$300-$400, but our opinion is that they are well worth the investment, especially when purchasing older homes. When hiring a home inspector, make sure the inspector is a professional with liability insurance.
Fire Insurance: All mortgage lenders will require a certificate of fire insurance to be in place from the time you take possession of the home. The amount required is generally at least the amount of the mortgage or the replacement cost of the home. This cost can vary on the property size and extras being insured, as well as the insurance company and the municipality. The cost can vary anywhere from $250-$600 for most properties.
Provincial Sales Tax of 8% (P.S.T.): If your mortgage is CMHC or GE Capital insured (less than 20% down payment), there is P.S.T. of 8% in Ontario, payable at closing, on the CMHC or GE Capital fee. While the insurance premium can be added to the mortgage amount, the P.S.T. must be paid at closing. For example, a mortgage that results in a $1,000 fee, will have to pay $80 in PST upon closing.
Land Survey Fee or Title Insurance Fee: A recent Survey of the property is usually required by the lender, and if one is not available, it normally costs anywhere from $600-$900 for a new survey. In lieu of the Survey, most lenders today will accept Title Insurance, at a much lower price of approximately $225. (Click here for more on Title Insurance.)
Legal Costs and Disbursements: A lawyer or notary will charge a fee for their professional services involved in drafting the title deed, preparing the mortgage, and conducting the various searches. The disbursements, on the other hand, are out-of-pocket expenses incurred, such as registrations, searches, supplies, etc., plus G.S.T.
Land Transfer Tax: Most provinces charge a land transfer tax, payable by the purchaser, and the amount varies from province to province. This tax is based on the purchase price (click here to calculate how much tax would apply to your new home purchase). In Ontario, first time home buyers who purchase a new home get a refund up to $1725.
New Home Warranty: In many provinces, new homes are covered by a new home warranty program. The cost to the purchaser for this warranty is approximately $600 and should the builder default or fail to build to an agreed-upon standard, the fund will finish or repair the deficiencies.
Mortgage Application and Processing Fee: On a high-ratio insured mortgage (mortgages above 75% of the purchase price), the mortgage insurer (CMHC or GE Capital) charges a fee of $165-$185 for applying and processing the file, as well as appraising the property. On new homes, this fee drops to $75. Closing Adjustments: An estimate should be made for closing adjustments for bills that the seller has prepaid such as property taxes, utility bills, and other charges. Any bills after the closing date are the purchaser’s responsibility. Your lawyer will let you know what they are exactly once the various searches have been completed.
G.S.T.: On the purchase of a newly constructed home, GST is payable. Most builders will include the tax in the home’s purchase price but make sure you know who is paying it before you buy.
