Understanding Closing Costs

Closing costs — the list of charges that you need to pay to complete a real estate transaction — come as a surprise for many home buyers. Since closing costs are additional costs over and above the price of a home, you should budget at least 2.5% of the purchase price for closing costs, in addition to the down payment.

Your exact closing costs depend on where you live, how much you are borrowing, and how you are financing your mortgage.  The rules and regulations surrounding the various mortgage fees can be complex and can vary from lender to lender. 

Below you will find a brief explanation of these costs. Some of these fees may (or may not) apply to your specific situation. Use this is a guideline and then talk with your lawyer or real estate agent who can provide a more realistic estimate for your situation.

Home inspection fee: A professional inspection is a definite must for buyers purchasing properties for older than 5 years. A typical home inspection can cost anywhere from $300-$400, but that they are well worth the investment. Typically, a home inspection is not required if you are purchasing a new home.

Legal costs and Disbursements: A lawyer or notary will charge a fee for their professional services for work involving 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, title search, supplies. These fees usually cost between $600-$800.

Mortgage appraisal fees: Lenders usually require a professional appraisal of the market value of the property in order to process your loan. This could range from $100-$250. This may be waived depending on how you negotiate the mortgage with your lender.

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 a survey, most lenders today will accept Title Insurance, at a much lower price of approximately $225.

Land Transfer Tax: Most provinces charge a land transfer tax payable by the buyer. This tax, which is based on the purchase price, varies from province to province.

High ratio mortgage insurance: This is required if your down payment is less than 20%.

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 cost can vary depending 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.

GST/HST is payable for newly constructed homes. Many builders include this cost in the purchase price so that the buyer does not have additional fees at closing. Therefore, on the offer, the purchase price will say "Plus GST" or "GST Included", and it will identify who will receive the new home GST rebate.