A Closer Look at Closing Costs
Purchasing a new home is expensive enough (especially these days!). Here is your guide to preparing your pockets for closing costs associated with home-buying.
Resale Purchases
Closing costs when buying a resale property are typically around 1.5-2 per cent of the purchase price.
These costs consist of the following: legal fees, home inspection, closing adjustments (refund to seller of pro-rated pre-paid property taxes, condo fees, utilities), Land Transfer Tax (LTT), title insurance, CMHC insurance and moving costs.
There are some ways to lower those costs. First time home-buyers can get up to $4,000 rebate on the LTT. You can avoid paying for the CMHC insurance by increasing your down payment to 20 per cent. Also, make sure to ask your mortgage specialist to cover the appraisal fee, if possible.
New Construction
In many cases, closing costs are higher when buying a new property than a resale home. These consist of development charges, Tarion warranty fee, taxes and other miscellaneous fees (examples: utility meter installation, mortgage discharge fee), all of which can add up to thousands of dollars. In addition, the land transfer tax is payable on new construction as well! Lawyer fees, title insurance, CMHC insurance and moving costs also apply.
For investor buyers, it’s also important to note that HST is not included in the sale price and will need to be paid on the day of closing. While it’s possible to eventually get that refunded, this is a high closing cost to consider and I recommend seeking an accountant’s advice.
To avoid unexpected surprises on the day of closing make sure the development charges are capped in your purchase agreement, and that you know exactly what’s included in your purchase price in terms of upgrades. While most experienced developers include all applicable taxes in the purchase price for end-users, I suggest triple-checking this. I have seen developers charge additional taxes on parking spots, storage lockers and upgrades. Hiring a lawyer who is comfortable with pre-construction contracts is very important.
As well, something to note is that while homebuyers are able to put down five per cent when buying their first property, most developers require a deposit of 15-20 per cent on all pre-construction sales. Occasionally though, developers do offer deposit promotions for first-time homebuyers, usually when the building is nearing completion.
In closing, buying a house is amazing, but being house-poor is not so great.
Knowing your financial comfort level is the key to a stress-free home buying process. Lean on the team of professionals around you for personalized advice and trust the process. Happy shopping!
