Closing costs and fees can be a critical part of the buying – and sometimes the selling- decision. Whichever side of the transaction you find yourself on, it’s important to have an accurate understanding of your financial obligations long before closing day.
Read on to see the breakdown of costs you can expect to see on your final statement.
Buyer closing costs will vary depending on where you live and the purchase price.
As a buyer, expect to pay most of the following:
This is not to be confused with your down payment in its entirety. We’ll get to that. A deposit is one of the first expenses when buying a home. It’s required whenever there is an accepted offer on a property.
Formally speaking, a deposit is a mandatory monetary expression of your intent to buy. It’s a sign of good faith and a crucial part of the process. If you don’t submit a deposit within the agreed-upon time period (typically one or two business days), your offer could be considered null and void. Even if the offer is conditional, the deposit still has to be delivered. (Keep reading to find out what happens if you can’t fulfill the conditions.)
There’s no pre-determined deposit amount. The seller will request an amount they’d like to see, and they show this in the REALTOR data sheet. The exact amount can often be negotiated.
As a general rule of thumb, as the price of the home increases, so does the deposit. Using the average $800,000 dollar home, a typical deposit would be between $20,000 – $40,000.
Real Estate offices hold your deposit in a “Trust account”. These are safe, insured accounts where the funds are only released under three conditions:
- A successful sale: On closing day your deposit is credited toward your purchase. It’s the first part of your down payment.
- A mutual release: If you have conditions in your offer, such as arranging satisfactory financing or completing a home inspection, these conditions allow for the deposit to be returned in full, without deduction, if things don’t work out. In Ontario, there’s no penalty for backing out of a conditional deal (for example, if you’re unhappy with your inspection or your lender appraises the house too low during the conditional period.)
- Court order: This is rare. If a judge rules that the funds must be released after hearing a dispute about a transaction that did not come to completion, the brokerage holding the deposit money will comply.
*If you have an accepted offer on a property with no conditions (we call this a firm offer) and now want out of the deal, you could lose your deposit and be sued for other damages by the seller.
The most obvious closing cost for buyers will be the down payment. It’s the biggest upfront cost. Down payment amounts vary based on buyer ability and purchase price.
In Ontario, you can buy a home with a down payment of as little as 5%, depending on the price of the home.
Here is a breakdown of MINIMUM down payment requirements:
$500,000 or less = 5% down payment
$500,000 – $999,999 = 5% down payment on the first $500K, 10% down payment on the remaining between 500K and purchase price.
$1,000,000(+) = 20% down payment required.
Down payments can’t be made in cash. They can come from an RRSP or an account at a financial institution, and buyers must provide a paper trail to prove where the money has come from.
In most cases, you can’t borrow your down payment. If borrowed, it must fit within your GDS / TDS ratios.
If you’re getting your down payment directly from a family member, the lender will require them to sign a “gift letter” stating that the funds are not repayable.
Mortgage Application Fee
This fee doesn’t apply to all mortgage applicants. It largely depends on your financial position and what type of mortgage you need.
If you have good credit and fit the criteria of an “A” lender (think big banks), there’s usually no fee. This is true whether you approach the bank directly or use a skilled mortgage broker.
(We always recommend a broker. Feel free to ask us for a few names!)
If, however, your credit or job situation requires you to use a “B” lender (called equity lenders) or to secure private financing, there’s usually an application fee.
Fees range from 1-2%, depending on circumstances. Typically, 1% goes to the broker and 1% to the lender. Private loans always carry a 2% fee.
Example: $700,000 mortgage x 2% fee = $14,000.
With “B” lenders, you usually pay this fee up front, which can really add to your out-of-pocket expenses on closing. With private funds, your fee is built into your monthly payments.
Whether this fee is “reasonable” is entirely subjective. For many it may seem high, but if its the only way for you to fulfill a need, or to achieve your dream of home ownership, it may be justifiable.
Side note: If you have a 20% down payment and need to use private funding for the remaining 80%, a 2% fee is about the same as what the Canadian Housing and Mortgage Corporation charges for mortgages with smaller down payments.
Mortgage Insurance Fees (CMHC, Genworth, and Canada Guaranty)
In Ontario, financial institutions such as TD, RBC, CIBC, etc., can’t lend over 80% of a home’s value. Since many buyers don’t have a 20% down payment, they have to purchase mortgage insurance.
CMHC, Genworth and Canada Guaranty are mortgage insurance companies. Their function is to assume and absorb the risk of a “high-ratio” mortgage (one with 5-19% down payment). These insurers offer a way for buyers to purchase a home with as little as 5% down payment. You can read more about high ratio mortgages here.
This insurance is not cheap but, fortunately, you don’t pay the entire cost up front.
Your lending institution buys the insurance and the cost is passed on to you. It’s built into your mortgage and paid over the amortization period (typically 25 or 30 years)
Here are the current premiums:
5% down payment = 4% Insurance premium.
(example: $500,000 – 5% ($25,000) = $475,000 + 4% insurance premium ($19,000) = $494,000 total mortgage)
10% down payment = 3.1% Insurance premium.
(example: $500,000 – 10% ($50,000) = $450,000 + 3.1% insurance premium ($13,950) = $463,950 total mortgage)
15% down payment = 2.8% Insurance premium.
(example: $500,000 – 15% ($75,000) = $425,000 + 2.8% insurance premium ($11,900) = $436,900 total mortgage)
up to 20% down payment = 2.4%
(example: $500,000 – 19% ($95,000) = $405,000 + 2.4% insurance premium ($9,720) = $414,720 total mortgage)
*IMPORTANT* = Although you don’t pay the insurance premiums up front, there is an 8% provincial tax on the premium amount that must be paid in full on closing.
Land Transfer Tax (LTT)
Land transfer tax is an upfront fee based on the price of the home you buy. There are only a few scenarios where land transfer tax is exempt.
Exemption 1: Transfer from spouse to spouse.
Exemption 2: Being a first-time buyer. If you are buying your first home, and have never owned a home anywhere in the world, you are exempt for up to $4,000 (equal to a purchase price of $368,333). If your purchase price is above the exempted amount, you pay the difference.
Exemption 3: If your spouse HAS owned a home in the past but NOT during your marriage, you may receive 50% of the $4,000 exemption.
If your spouse has owned a home at any point during your marriage, you no longer receive any exemption.
This chart shows how land transfer tax is calculated:
- First $55,000 x 0.5%
- $55,000.01 to $250,000 x 1%
- $250,000.01 to $400,000 x 1.5%
- $400,000.01 to $2,000,000 x 2%
- Over $2,000,000.00 x 2.5%
Using the chart, this is how we would calculate a home purchase of $500,000.
- First $55,000 x 0.5% = $275.00
- $55,000.01- $250,000 ($195,000) x 1% = $1950.00
- $250,000.01 – $400,000 ($150,000) x 1.5% = $2250.00
- $400,000.01 – $500,000 ($100,000) x 2% = $2000.00
Total Land Transfer Tax = $275 + $1,950 + $2,250 + $2,000
If you meet the qualifications for a first-time buyer, the total payable would be:
In almost all cases you’ll need to pay for an appraisal, so it’s wise to add this cost to your list of expenses. In some circumstances, if your mortgage is with an “A” lender, the appraisal could be waived.
Typical cost of an appraisal: $600.00
Lawyer Closing Fees.
Lawyers usually charge a base fee for their services.
This fee typically ranges between $1500-2000 + HST
Additional disbursement fees (on top of the base fee) are costs incurred by the lawyer as they complete the deal. They pay these costs and then charge you for them on closing. Typical disbursement fees include;
- Long-distance calls
- Process server fees
Lawyers must disclose disbursement costs as soon as possible and may not profit from such fees. Some choose to include the disbursements in a flat fee. It’s a good idea to get a fee quote before making a final decision.
Title insurance is purchased for a one-time fee through your lawyer. Be sure to clarify whether it’s included in the fee quote.
It is not always mandatory, but highly recommended. The price of Title insurance will vary depending on purchase price and company. See a sample pricing breakdown from Stewart Title:
$500,000 ($325.00 + 8% tax = $351.00)
$600,000 ($415.00 + 8% tax = $448.20)
$750,000 ($550.00 + 8% tax = $594.00)
$1,000,000 ($775.00 + 8% tax = $837.00)
$2,000,000 ($1625.00 + 8% tax = $1755.00)
*There’s usually a $50 “Lender Policy Fee” in addition to the owner’s policy mentioned above.
To calculate your title insurance amount based on your purchase price and lender click here.
Inspections – Home, Septic, Well, Pool, Etc.
When purchasing a property it’s wise to include the proper inspections whenever possible.
Typical inspections include:
General Home Inspection: Cost $500-$600. This is a visual inspection of the home’s key (visible) components. It will give you a detailed look at the overall condition of the house. A good inspector will flag any major concerns. Other inspections mentioned below are usually in addition to this inspection. Should the general inspection reveal concerns such as vermiculite insulation, mould, knob & tube wiring, foundation issues, or other findings that require specific professionals, there will be additional costs to investigate.
Septic Inspection (Country Properties): Cost $400-$500. The inspector will open the septic lid(s) and determine the condition of the septic tanks and leeching bed. Replacing a septic system can be very costly, so it is wise to have it inspected.
Well Water Inspection: Cost $300-$550. This is another critically important inspection if the property you’re purchasing has a well as the principal water source. The inspector will determine if there is adequate water flow to meet household needs.
Pool Inspection: Cost $300. Assuming an existing pool when purchasing a new home can be daunting. Expenses can easily add up if something such as the liner, pumps and equipment are damaged. We always add clauses to protect our clients the best we can, but it’s always better to inspect the pool if you’re buying in the warmer months.
Service Line inspection: Cost $200-300. This inspection is of the sewer line between the house and property line. It’s much more important to inspect older homes and homes that have large trees in the front yard. Over time, tree roots can grow around and through these lines, severely damaging them and causing sewage to back up into the home. The city of Hamilton provides coverage options for the service lines for $96 + HST per year. This is a must-have because replacing a sewer line can cost close to $10,000. If no coverage is possible in your area, it is wise to have it inspected by a professional before purchasing the home.
*There are other forms of due diligence that we have not mentioned in this article because we take care of them and there is no cost to you. These include:
- Zoning questions – Eg: Farm animal allowances, home businesses, auxiliary apartments, etc
- TSSA Requests – This will inform us if there are any buried oil tanks on the property.
- Legal Description Review – There are common “red flags” to look for. We dig up exactly what the issues are and let you know ahead of time if you need legal advice.
Realtor fees / Commissions
Sellers typically pay all the commission when they sell. This means that most of the time there is no cost to a buyer to have a Realtor work on their behalf. In rare circumstances where the seller refuses to pay commission, the buyer would pay their own agent. The amount payable would depend on the circumstances but would range from 1%-2.5% of the purchase price.
Bridge financing is often available when you have a firm, unconditional sale on your current home and have bought a new home with an earlier closing date. This overlap technically means you will own two properties for a brief period. Bridge financing is a fantastic way to make your move less stressful, but it comes at a cost. To get an accurate estimate of the true cost of a bridge loan, it’s best to sit down with a professional who knows your situation and can work out the numbers for you. We have a list of trusted mortgage partners that we would be happy to recommend.
Moving expenses can vary dramatically based on the size of your home, how far you’re moving from your current location, and whether you hire professional movers. Using personal vehicles or a rental truck and ordering pizza and beer is obviously cheaper than hiring a full-fledged professional moving company. The cost to hire movers can range from $1500-4,000+. Be sure to get a few quotes and ask for references.
Word to the wise: If you do hire a professional moving company, be sure to inquire about their insurance coverage and policies in case there are damages or unexpected delays on closing day.