More than 1/3 of homebuyers feel concerns over hidden costs.
The visible costs of buying a home have probably drained your life savings. Sorry, but we’ve got some bad news.
That 1/3 of homebuyers were right, you’re not quite done yet. Before you actually close on the house, there are several more fees you have to pay. Yes, closing costs.
These are all the legal and administrative costs that you incur along the way. They can end up being between 1.5% and 4% of the purchase price of the house.
Beyond the closing costs, there are other things you must account for on and after closing day as well. This house owning thing is pretty expensive.
Keep your eyes on the prize, you’ll be settling into the new place soon. Here’s our guide to closing costs in Canada and an estimate of how much you can expect to spend on them.
Closing Costs: A Brief Rundown
Closing costs come in all shapes and sizes, so to speak. From legal fees to land transfer fees, to title fees, to broker fees. Fees, fees, fees.
Let’s look at what the reasoning is behind all of these fees and how much you’re going to be spending to pay them.
Land Transfer Tax
Some provinces have a land transfer tax that must be paid before closing. It’s pretty self-explanatory, but each province sets their own LTT, which is a certain percentage of the cost of the home.
In Ontario, for instance, the LTT rate increases with the price of the home. Also in Ontario, however, the LTT is waived for first-time homeowners.
There are special rules when buying in our larger cities. In Toronto, there is a municipal LTT in addition to the provincial one.
While it is possible to close on a house without the help of a real estate lawyer, it’s not advised. There is a huge amount of paperwork involved in buying a house, and a ton of legal jargon in that paperwork. The perceived added cost of a lawyer is a deterrent for some people, but in the long run, it’s worth it.
A real estate lawyer can do a number of things for a home buyer. They’ll review all of the legal documents for you, including the Agreement of Purchase. They’ll also make sure that the property taxes are up to date and calculate the land transfer tax for you.
Depending on where you are and what services you require, a real estate lawyer can cost as little as $700 or as much as $2,000. It may seem like a lot, but when you consider how much you’ve spent on your house, it’s not much more to make sure things are done correctly.
Check here to learn more about choosing a real estate lawyer.
PST On CMHC Insurance
If you haven’t saved up the 20% that the down payment of your house cost, you probably got a loan to help out. CMHC insurance is what protects the moneylender if you default on your loan.
Don’t worry, you don’t have to pay this on closing day. It ends up being a lot of money, so it’s spread out over the duration of the loan. But what you will have to pay on the closing day, is the provincial sales tax on the CMHC insurance.
Once again, this calculation is done on a province-by-province basis, as PST varies between provinces. To use Ontario again as an example, the PST is 8%, so you pay 8% of the CMHC insurance premium on closing day.
Other Closing Costs to Consider
There are a few other costs that are dependent on the property that you purchased. Not everyone has to worry about these.
Something you should do upon inspection of the house is to check on the condition of the septic tank. Have a professional test it to make sure it’s in working order, then include it in the Offer to Purchase document with the former owner.
If your new property has well water, you should test it as well to ensure good water quality and pressure. Similarly, call in a professional and include it in the Offer to Purchase document with the seller if all is well.
Even after you’ve closed on the house and settled with your lawyer and the former owner, there are payments to be made. It costs a lot of money to own a house.
Your property tax, along with your mortgage payments, is the largest monthly cost of owning a home. Your property tax, once more, is calculated based on where you’re located. In Toronto, it’s 0.83% per year.
If you own a $500,000 home in Toronto (good luck finding that), your yearly property taxes would be $4,150. You can choose to set up monthly payments with your lender, so the monthly cost would be $346.
Property insurance is usually put in place soon after closing day as well. Simply put, it’s an insurance policy whereby you are protected in the event of theft or damage to the home.
If you’ve got particularly expensive items in the home, you can purchase additional insurance to cover those things. Depending on the value of your home, you can pay up to around $100 or more per month for property insurance.
It’s an unfortunate added cost of owning a home, but it’s absolutely necessary for peace of mind. Whether you live in an area with consistently bad weather or an area with a high rate of theft, you won’t regret having property insurance when something bad happens.
The Price of Owning a Home
These are the prices of owning a house in Canada. It’s a huge cost to save up for and it never really stops costing you money, however, it’s worth it to be a property owner. Closing day and closing costs are the beginning of the long road of ownership.
You’ll keep paying for your mortgage, property tax and insurance, utilities, and upkeep, but you’re lucky to have a place to call home.