Understanding Closing Costs and Fees

If you are considering making a home purchase, you need to be fully armed with as much information as possible.  That includes understanding all of the ancillary fees, including closing costs.

These are one-time and take care of the legal and administrative expenses, but they can be a surprise when you sign the final papers…if you are not aware.  Some are mandatory, but some are optional, and the amounts can vary depending on the location of the property and the purchase price.  A general rule of thumb is to budget between 1.5% and 4% of the purchase price to cover these expenses.  Some of these costs are:

  • Home inspection – While this is an optional expense in Canada, it is a good idea to hire an independent inspector to carefully look over the house to identify both major and minor issues. You may be looking at the aesthetics of color and design, but the inspector will check the safety of the roof, the condition of the pipes and electrical and structural, among other things.  The average cost is between $300 and $500.
  • Survey – This is a document that outlines the specific boundaries and property lines so that you know what is yours and what belongs to your neighbour.  It is sometimes available during the mortgage application process, but if not, expect to pay between $1,000 and $2,000.
  • Title insurance – This protects the buyer from real estate fraud, like if the person selling the property is not the legal owner, zoning violations, or other issues.  If you are lucky, it will cost $150 to $300, but may be higher.
  • Property insurance – This is mandatory, and you will need to show proof of coverage before the mortgage is written and the funds disbursed. 
  • Mortgage default insurance – If you are putting down less than 20% in a down payment, you will be required to secure mortgage default coverage.  The cost is usually incorporated in the mortgage payments, but any provincial sales tax must be paid at closing.
  • Land transfer tax – In Canada, all properties are subject to this tax and are a percentage of the purchase price –   First-time home buyers may be able to file for a rebate on a portion of the cost.
  • GST or HST – New construction is subject to GST or HST.  It can be included in the builder’s fee or itemized at closing.  Check for rebates.
  • Legal fees – The attorney you hired to do the technical work will be due a fee. 

Realize that closing costs will vary from one province to another, as well as the requirements established by the lender.  As you are shopping for a mortgage, be sure to ask about them and compare the prices, including any incentives that may be available.  You can also ask that the closing costs be included in the purchase price of the home.  Some costs may be negotiable.  Check with a reputable dealer like easyhouseloan.ca that deals with these issues every day.  They will be able to provide suggestions and advice as well as help you shop for the best mortgage for your needs.