Buying a home can be a bit of a rollercoaster, and one of the twists is dealing with closing costs. So, what are these costs all about? Let’s break it down.
What Are Closing Costs?
When you’re on the road to homeownership, there’s a pit stop you need to make: closing costs. So, what are they exactly?
Decoding Closing Costs:
- Definition: Closing costs are the extra expenses you handle to wrap up the deal on your new home. Think of it as the finishing touch on your home-buying adventure.
Breaking Down the Dollars:
- Land Transfer Tax: Consider it your parting gift to the government as the property officially becomes yours.
- Legal Fees: Your real estate superhero, aka a lawyer, charges a fee for ensuring all the paperwork is in top shape.
- Home Inspection: Giving your new abode a thorough check comes at a cost, ensuring it’s in tip-top condition.
- Title Insurance: Safeguarding your home title from unexpected surprises requires a little insurance investment.
- Appraisal Fee: An expert gives your home a thumbs-up, ensuring its value aligns with the price tag.
- Property Tax Adjustments: Settling up property taxes with the seller is like passing the tax baton.
How Much Are Closing Costs?
- Budgeting Wisdom: Always budget around 1.5% – 4% of the home’s purchase price for closing costs. For a $300,000 home, that’s $4,500 –$12,000. Check out our closing cost calculator for a deeper dive based on your specifics.
Common Closing Costs In Canada
Getting your dream home involves more than just a down payment. Let’s uncover the often-overlooked closing costs you’ll need to navigate.
1. Legal Fees:
- What: Lawyers ensure the paperwork is in top shape.
- How Much: Varies, covers document preparation, disbursements, and mortgage registration.
2. Land Transfer Tax:
- What: A provincial tax based on your home’s purchase price.
- How Much: Percentage varies; first-time buyers may be exempt.
3. Provincial Sales Tax On CMHC Premium:
- What: Tax on mortgage insurance premium (if down payment is <20%).
- How Much: Varies based on CMHC premium and province.
4. Home Inspection Fee:
- What: A buyer’s expense for a thorough property inspection.
- How Much: Usually $300 – $500.
5. Appraisal Fee:
- What: Confirming your home’s value with a lender-requested appraisal.
- How Much: Typically $350 – $550.
6. Title Insurance:
- What: Protection in property ownership disputes post-purchase.
- How Much: Usually over $300.
7. Property Taxes:
- What: Annual expense, but you might pay a portion at possession.
- How Much: Variable; may include reimbursement to the seller for prepaid taxes.
Additional for Rural Properties:
- What: Well water and septic system tests for rural homes.
- How Much: Buyer’s responsibility, cost varies.
Understanding these costs ensures a smooth ride to homeownership. 🏡💰
Closing Costs That Are Specific To Some Buyers
Closing on your dream home might bring some unexpected costs. Here are specific expenses that could apply to your home purchase:
1. CMHC Mortgage Insurance:
- What: Required for mortgages with less than a 20% down payment.
- How Much: About 2.8% – 4.0% of the mortgage; paid in full at the start.
2. Property Tax Adjustments:
- What: Reimbursement to the seller for property taxes already paid.
- How Much: Prorated amount; listed on the Statement of Adjustments.
3. Non-Resident Speculation Tax (NSRT):
- What: A 15% tax on residential property for non-residents in Ontario’s GGH Region.
- How Much: Additional to general land transfer tax.
4. Interest Adjustments:
- What: Extra charge for interest accrued between closing and the first mortgage payment.
- How Much: Calculated based on the daily interest rate.
5. GST/HST on New Construction Housing:
- What: Applicable if not included in the purchase price for new homes.
- How Much: Can add up quickly; clarify with the builder in advance.
Navigating these additional costs ensures a smoother journey to homeownership. 🏡💸
Ways To Reduce Closing Costs
Closing costs can add up, but here are savvy ways to reduce them:
1. Compare Legal Fees:
- How: Call around and compare rates from different lawyers.
- Why: Choosing a lawyer with competitive fees can save you money.
2. Seek Lender Rebates:
- How: Look for lenders offering rebates on new mortgages.
- Why: Rebates can help offset some of your closing costs.
3. Opt for a Lower Purchase Price:
- How: Explore homes with lower price tags.
- Why: A lower purchase price means reduced land transfer taxes.
Smart strategies can make closing on your dream home more budget-friendly! 🌟🏡💰
Who Pays For Closing Costs In Canada?
While the buyer typically covers most closing costs, some may vary. Here are key points:
1. Common Buyer Costs:
- Legal Fees: Buyers handle transaction legalities.
- Land Transfer Tax: Paid by the buyer, varying by province.
- Provincial Sales Tax on CMHC Premium: Applicable in certain cases.
- Home Inspection Fee: Recommended, buyer’s expense.
- Appraisal Fee: Often covered by the lender.
2. Estimated Costs:
- Legal Fees: Varying rates, choose wisely.
- Down Payment: Essential buyer contribution.
- Home Inspection: Buyer covers inspection costs.
3. Caution in Estimation:
- Why: Costs may differ; plan for a 1.5% minimum of the purchase price.
- Selling a Home: If selling, aim for 4% – 5% for additional costs.
Be prepared and budget wisely for a smooth home buying experience! 🏡💰
How Do I Pay For Closing Costs?
When it comes to settling closing costs and your down payment, here’s what you need to know:
1. Timing of Payments:
- When: Typically, a week before the purchase closing date.
- What’s Due: Closing costs and down payment.
2. Lawyer’s Role:
- Your Lawyer: Handles the payment process.
- Notification: Informs you of the total amount due.
- How: Your lawyer distributes the amounts to respective recipients.
This straightforward process ensures a smooth transaction as you approach your home purchase.
Withdrawing RRSP Funds For Your Home Purchase
In Canada, first-time home buyers can tap into their RRSP for down payment and closing costs through the Home Buyers Plan (HBP). Here’s a simple breakdown:
1. Borrowing from RRSP:
- Purpose: For down payment and closing costs.
- Repayment: Must be repaid within 15 years to avoid penalties.
2. Planning Ahead:
- Timeline: Withdraw funds well before closing.
- Inquiry: Check with your bank or advisor about withdrawal timing.
Taking advantage of the HBP can be beneficial, but early planning ensures a smooth process for your home purchase. 🏡💰