What Are The Costs of Purchase
1. Purchase Price
The starting point in your calculation…if you’re like the average first-time homebuyer you’ll need a mortgage for the majority of this!
2. Lawyer’s Fees
Depends entirely upon the deal between you and your lawyer. Be sure to ascertain exactly what this will amount to in a worst-case situation. Usually ranges from $350 to $2,500 depending upon whether one or more mortgages are to be drafted and registered.
3. Land Transfer Tax
A tax payable to the Provincial Government by the purchaser upon the transfer of title from a seller. In Ontario a simple formula applies*:
- First $55,000; One half percent. (0.5%)
- $55-250,000; One percent.
- Over $250,000; One and a half percent.
Example: Price = $370,000: LTT = ($55,000 * 0.5%) + ($195,000 * 1%) + ($120,000 * 1.5%)
= $275 + $1,950 + $1,800 = $4,025.
*Please check with your Realtor as to the rates applicable in your location. SUBJECT TO CHANGE
4. Registration Fees
Fees paid to the provincial government for recording a title transfer, mortgage registration or other instrument such as an Assignment or Lien with the local authorities.
5. Default Insurance
This is a Federal requirement for lending institutions which helps many people in Canada purchase their first home, or re-purchase after they have lost equity. If you are buying a home for less than 20% down payment, or in other cases where the lender requires insurance against your possible default, a sliding scale of fees applies, depending on the percentage of the purchase price required in a first mortgage (some minor exceptions). For example, as of May 1997 Canada Mortgage and Housing Corporation (CMHC) and its competitor MICC (operated by GE Capital) charge a 2.5% one-time fee - which can be added to the mortgage - for any mortgage over 85% of the purchase price. See also Mortgage Insurance for a definition.
6. Compliance Letter
Required in many municipalities throughout Canada before a property transfer can take place. This is an acknowledgement from the building department that the property either has, or is clear of outstanding work-orders. Work-orders are specific clean-up or fix-up requirements that the owner must complete, particularly before a transfer of ownership.
7. Tax Certificate
At the time of a sale, the lawyer for the buyer must confirm that local taxes have been paid up to date. If they are, a Tax Certificate is issued, from which any adjustments can be made - usually requiring the buyer to compensate the seller for any prepaid taxes. If they are not up to date, the municipality requires that the seller pay them off from the proceeds of the sale. If there are insufficient proceeds, then it may fall upon the buyer to pay them.
8. Provincial "New Home Warranty Program" premiums - New Homes Only!
A third party (provincial) warranty program between a builder and a buyer. With the exception of Ontario and Quebec, membership in such a program is voluntary for the builder. Through these programs, your home is guaranteed against defects for at least one year. All homes with a high-ratio insured mortgage (greater than 75% loan to value) must be enrolled in such a program.
9. Miscellaneous Municipal Levies
Special levies can be charged by municipalities to recover the cost of special services, if these services cannot, for some reason, be funded out of general revenues, or apply primarily to homebuyers. Examples: Water meter installation; road improvements, sewer improvements.
10. Mortgage Appraisal and Application Fees
Although often paid by the Lending Institution, these fees (a few hundred dollars each at most, unless the property is exceptional) will usually have to be covered at the time of application for a mortgage.
11. Home Inspection
A report commissioned by a property owner or purchaser, usually to verify the condition of a property prior to the "firming up" of a Real Estate transaction. The scope and detail may vary, but most reports indicate the specific problem and the cost to repair. Unfortunately, no licensing is required, and this service is not specifically regulated other than by general consumer protection legislation. The best safeguard against inadequate work is to ask for the resume of the Inspector, and if possible check references from previous customers.
12. Land Survey
The legal written and/ or mapped description of the location and dimensions of your land. The survey should also show the dimensions and placement on the lot of any structure, including additions such as pools, sheds and fences. An up-to-date survey is often required by a lender as part of the mortgage transaction.
13. Connection Charges
Some local utility companies (hydro, gas, oil) charge a fee on closing to connect new buyers up to their service. More normal, however, is an extra charge on the first billing.
14. Property Tax and Prepaid Utilities Adjustments
If the previous owner prepaid property taxes or other utilities, they will be credited the prepaid portion on closing. If they paid all their taxes by April, expect a large adjustment cost on closing!
15. Interest Adjustment (IA)
If you arrange to make your mortgage payments monthly on the first day of the month, and your transaction closes after the first day of the month, your lender may charge you interest on closing up to the first theoretical payment date, called the Interest Adjustment Date (IAD). This can be a sizeable amount, and can often be negotiated down (or away).
16. GST
On new homes only. Fortunately the 7% is almost without exception paid by the builder. Not a bad idea to raise the subject, though. Don’t include in your calculation.
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EXAMPLE "CLOSING COSTS"
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| Lawyer’s Fees | (Local) | $1,000 | |
| Land Transfer Tax | (Provincial) | $2,000 | |
| Registration Fees | (Provincial) | $200 | |
| Default Insurance | (Federal) | $3,000 * | |
| Compliance Letter | (Local) | $100 | |
| Tax Certificate | (Local) | $25 | |
| New Home Warranty Program premiums | (Provincial) | $1,000 | |
| Miscellaneous Municipal Levies | (Local) | $250 | |
| Mortgage Appraisal and Application Fees | (Local) | $200 | |
| Home Inspection | (Local) | $300 | |
| Land Survey | (Local) | $750 | |
| Connection Charges | (Local) | $200 | |
| Property Tax/ Prepaid Utilities Adjustments | (Local) | $1,500 | |
| Interest Adjustment | (Local) | $1,000 ** | |
| _________ | |||
| TOTAL POSSIBLE COSTS | $11,700 | ||
| ADJUSTED FOR * ITEMS | $7,700 | ||
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| ** May be offset by Lender. | |||