What Are Your Closing Costs?
By Lorne Shuman
For many people, buying a home is the largest financial investment decision you will ever make. Seeing that most of your savings will go towards the deposit, that may not leave much money for the closing costs. Being unaware of some of the more common closing costs will create a problem at the worst possible time, precisely when you need to close the deal. This column will examine what the most common closing costs are so that homebuyers are prepared for a smooth and hassle free closing.
Homebuyers need to budget somewhere between 1 per cent and 3 per cent to cover the closing costs associated with buying a home. Closing costs are just that-the costs in dollars for items that need to be paid for on closing. The closing costs on newly built homes will likely be more expensive as compared to resale homes. If you are buying a newly built home from a builder, it is wise to have your lawyer review the builder’s contract so that a dollar ceiling may be placed on some of the closing costs. In addition, your lawyer can point out the closing costs well in advance of closing so that you are not surprised. Here are some of the closing costs that you need to be aware of:
Legal Fees: There are several components to the fee your lawyer charges you to complete your transaction. First, there is the basic fee for the service that the lawyer performs. In addition, there are disbursements which are charges that your lawyer incurs on your behalf. Examples of these are title searches, document registration, title insurance, couriers, etc. Your lawyer should be able to tell you in advance what the approximate legal fee will amount to, but you should expect to pay between $1,000 and $1,500. Do not select a lawyer on price alone. There are many other factors to consider.
Land Transfer Tax: Land Transfer Tax is payable by the purchaser when either a new or resale home is bought. This is a provincial tax and is calculated based on the purchase price of the home. If your house costs $250,000, you can expect to pay $2,225 on account of land transfer tax. A higher purchase price will result in a higher land transfer tax payable. Your lawyer will be able to tell you the exact amount of land transfer tax payable. There may be a slight variation on new homes due to the HST being factored in. If you are a first-time homebuyer, you may be eligible for a rebate of your land transfer tax up to a certain amount. There are rules around who may qualify for this rebate and you should check with your lawyer to determine if you qualify. In addition, be advised that the City of Toronto has its own municipal land transfer tax which is in addition to the provincial land transfer tax.
Adjustments: Adjustments come in many forms. They are more numerous and more expensive when the property is a newly built home as opposed to a resale home. In any event, adjustments are items for which you may be charged pursuant to the terms of the agreement you made with the seller. On a newly built home, some of the costlier adjustments are lot levies, development charges and Tarion Fee which is the enrollment fee the builder has paid to register your home with Tarion for the new home warranty. Other common adjustments are the cost of installing water and hydro meters, grading deposits, tree planting and realty taxes. On resale homes, the usual adjustments are for realty taxes and common expenses if a condominium has been purchased. In the case of the latter two, you need to reimburse the vendor if the vendor has prepaid these expenses beyond the closing date. Finally, if you are arranging a high ratio mortgage, mortgage insurance premiums and applicable taxes will apply as well.
The list of closing costs noted above is not a comprehensive list. However, these are the most common closing costs which you should be aware of to avoid being placed in a financial dilemma just prior to closing. It is prudent to plan ahead and anticipate these costs.