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Before you purchase a home, you need to be aware of expenses that are over and above the selling price of your house.
These expenses are called closing costs, and they usually come in at around 1.5% – 2.5% of the total purchase price.
I want you to be prepared and not encounter any “surprises” in your home buying journey, so let’s go over what closing costs are and how you can budget for them!
Land Transfer Tax
This is the tax you pay when buying land by itself or with any home or building. Once the transaction closes, the buyer is responsible for paying the land transfer tax.
This is how land transfer tax is calculated:
0.5% up to and including $55,000
1% above $55,000 up to and including $250,000
1.5% above $250,000
2% above $400,000-$1,999,999 where the land contains one or two single family residences.
2.5% for homes priced $2 million or more
* some exemptions may be applicable particularly if you are a First Time Home Buyer
Every home purchase goes through a legal process that requires the services of a real estate lawyer. Average fees in Ontario for house closing are between $900 to $1,600, depending on how complex the transaction is. Make sure to include that number in your budget!
When you buy a home, you’re buying more than a physical structure; you’re also buying a title – the legal term for the right to own a piece of land. Title insurance protects you against any losses you might incur because of undetected or unknown title defects (i.e. forgery or fraud, liens, zoning issues, etc.)
Title insurers assume the risk in a real estate transaction – meaning that if there is something wrong with the title, the insurer will take responsibility.
The cost for title insurance varies based on the type of home (detached, semi-detached, condo, etc.), the home price and the mortgage size. As an example, a home worth $1,000,000 with a mortgage of $800,000, title insurance would cost approximately $918 – purchased through your lawyer.
During a home appraisal, a real estate appraiser determines the fair market value of your home. It’s a process that can assure you and your lender that the price you’ve agreed to pay for a home is fair. Appraisals are also used to determine property taxes, so they are required in most countries.
Appraisals are often required by the lender and can cost on average about $500, varies based on location and property type. Appraisals are ordered through the lenders approved appraiser list.
Property and Home Insurance
If you are applying for a mortgage, your lender will require you to obtain house insurance before the closing date. Your lender has a stake in your property, so ensuring it is adequately insured protects their interests.
Depending on your home value and location, you can pay anywhere from $400 to $1200 or more annually for house insurance.
This final closing cost is optional but highly recommended. A home inspection can save you thousands of dollars by detecting costly repairs before you purchase a home. A home inspection typically costs $500.
Buying a home is a significant process with many details. I can make the process as straightforward as possible – contact me today and let’s get started on your home buying journey.
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