Between squirreling a downpayment away, setting aside the dough for mortgage payments each month and being on the hook for repairs — we all know buying a house is expensive. But some first-time homebuyers aren’t prepared for the transactional fees associated with the actual home purchase itself. These are called closing costs, and they can really add up if you aren’t prepared for them. The long list includes land transfer taxes, title insurance, appraisal fees, home inspection fees, legal fees and more.

Livabl spoke to a mortgage specialist, a realtor, and a mortgage agent to round up the closing costs you need to know about and how much you should expect to pay for each.

Photo: James Bombales 

How much should you put aside?

“When speaking with homebuyers, we typically recommend setting aside between three percent and four percent of the purchase price of a home to cover closing costs,” explains Darrell Majdell, the Regional Vice President of the Mortgage Specialist Sales Force at BMO. “That acts as a good benchmark and should cover homebuyers in most scenarios. For example, on a $400,000 home, you would want to set aside between $12,000 and $16,000 for closing costs, which would cover expenses like legal fees, moving, taxes, and utilities.”

Toronto-based mortgage agent Lisa Okun calculates it a little differently. “When I’m working with a client, if I know the purchase price they’re considering, I’ll tell them the land transfer tax on the particular property, because that’s usually the biggest closing cost. Some lenders require that you show 1.5 percent of the purchase price available in your bank account for closing costs. Even if they end up being more, they want to see you have those funds.”

Land transfer tax

When you acquire land, you have to pay land transfer tax — a provincial and/or municipal tax that is calculated based on the purchase price and varies across provinces. Generally, it only applies to resale homes. New construction homes are usually exempt — although some provinces will still require you to pay some tax on them.

“What’s interesting to note on land transfer tax is that it’s not consistent across the country. In Alberta, for example, there is none, so homebuyers don’t have to factor it in. Toronto is a different story,” says Majdell.

Torontonians are especially unlucky, because they have to pay both Ontario land transfer tax (OLTT) and Toronto land transfer tax (TLTT). The percentage varies based on the purchase price and can range anywhere between 0.5 percent and 2.5 percent for each. Say you want to buy a $500,000 condo. Prepare to hand over two percent of the purchase price for OLTT, and 2 percent for TLTT. That’s a $10,000 sticker price, my friends.

“There is a rebate for first-time homebuyers, where they can get some relief. If you’re in Toronto, you can get a City of Toronto rebate and a provincial one. If you’re buying outside of Toronto, you only get the provincial one. On a lower purchase price, the rebate sometimes covers the whole thing,” says Okun.

Photo: James Bombales 

Land survey fee

To avoid confusion between where your property stops and your neighbour’s begins, most lenders require you to do a land survey (although some may accept the last one done on the property by the previous owners). This can run anywhere between $1,000 and $2,000.

CMHC insurance on a downpayment under 20 percent

Planning to put down less than 20 percent on a downpayment? You’re going to get dinged with CMHC insurance, which protects the lender in the event you default on your mortgage payments. While technically not a closing cost (as it’s lumped into your monthly mortgage payments), it’s an additional cost outside of the purchase price that can easily run you thousands of dollars.

That said, if you live in Manitoba, Ontario or Quebec, you need to make some cash liquid on closing day for the provincial sales tax (PST) on your CMHC insurance. In Toronto, for example, it’s 8 percent. So if your CMHC insurance is $8,000, you’ll have to contribute $640 for PST.

Appraisal fee

Lost your head in a bidding war? Appraisals protect the lender to ensure you paid an appropriate price for the house and that it aligns with the market value.

Who pays? “The appraisal fee is negotiated between the mortgage representative and the homebuyer. On average, the cost will typically sit around $300 to $400. In some instances, the bank will cover this fee,” says Majdell.

Property tax

If you own a property, you’re going to have to pay tax on it. This helps pay for things like schools and street lights in your neighbourhood.

“Property tax fluctuates based on the different neighbourhoods, schools, lot size, and type of house,” says Roger Travassos, a Toronto-based realtor. “When you’re looking at a home listing, it will always include the property taxes from the previous year. Most mortgage calculators can calculate property tax, and some of them will also determine what your land transfer tax is going to be.”

Your mortgage agent will also take a look at the property tax when they’re qualifying you for a mortgage. It’s included in your gross debt service ratio (GDS) — which lenders use to determine what portion of your income will go towards your housing costs each month (you must come in under 32 percent to qualify for the loan). They will also factor property tax into your total debt service ratio to see what portion of your income is going towards all of your debts combined — including all costs related to shelter, credit card bills, student loans, etc. If your total debt servicing comes in under 44 percent for a particular property, you’re approved.

If the seller prepaid for property tax or utilities, you may need to reimburse them. This is also referred to as “adjustments,” and will be managed by your lawyer who calculates the amount owing.

Photo: alyssacloyd_/Instagram

Legal fees

As soon as you’re ready to sign the Offer to Purchase — the contract between the buyer and seller — it’s time to lawyer up.

Lawyers ensure your mortgage paperwork is filed correctly, your rights are protected and that the transaction goes through. They’re also the ones to hand over the keys when the deal is done. Lawyer fees can start at $500 but easily climb north of $1,000 depending on the attention you receive.

“The price varies a lot — it really depends on the lawyer, the size of the firm, how much emphasis they put on client care. Just like choosing a realtor or a mortgage agent, you can interview a few and see who you’re comfortable with. They should be able to answer questions — especially for first-time homebuyers who feel they want to have a bit more attention and explanation. It’s totally reasonable to call a few lawyers offices and see how much they charge for that type of transaction and what kind of service they offer,” says Okun.

Your lawyer will also conduct a title search and get title insurance in place which proves that you are the legal owner. Should there be an error in the public registry or you encounter a property ownership dispute, you’ll be fine. This typically costs between $100 and $300.

Photo: Milivoj Kuhar on Unsplash

Inspection fees

While not mandatory, it’s always a good idea to get a home inspection before buying a house. You can expect to pay around $500 for this.

In some cases, sellers hoping for multiple offers will have a pre-listing inspection done. It’s up to you if you’re comfortable taking their word for it. If the thought of a flooded basement keeps you up at night, you can do your own inspection before you make an offer or you can make your offer with an inspection condition to protect you. If the home inspector finds a significant structural concern, you’re off the hook.

“Home inspection is at the buyer’s discretion — they can get it before they make their offer so they can go in firm. If they don’t get the house, that’s an upfront cost for them that they won’t get back. When I was buying my house, I did that a few times,” says Okun.

Property insurance

Everybody needs to have property insurance in place upon closing. At a minimum, it must insure your home against fire or significant damage that matches the value of the house. It’s also a good idea to insure the stuff inside: furniture, electronics, jewelry and the like.

Again, the cost of insurance will vary based on who you go with, the value of what you would need to replace, the coverage type, etc.

“It’s a good practice to do your due diligence and get quotes from different insurance companies,” says Majdell. “People tend to think that insurance is going to be the same, no matter who they choose. But there can be a variation on what is being covered. Homebuyers should ask for detailed overviews of what is being covered so they can make the best decision that fits their situation (and what they are looking to protect).”

Photo: thelittlegreenbean/Instagram

Moving costs

You can certainly move by yourself but if you’ve got a sore back, a grand piano, lots of heavy furniture or you’re on a tight timeline, you may want to call in the pros. The price will vary depending on the vendor you go with, but expect to pay up to $2,000 for professional movers.

“If my clients tell me they have $100,000 for a downpayment, I tell them, ‘we’re not putting $100,000 on a house, we’re going to keep some money so you have some left when you move, and we’re going to take closing costs out of this pot, as well.’ I never want a client to spend every penny they have on a downpayment, leaving nothing left for closing costs or moving into your new house.”

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