When buying a new home it is important to remember that there are additional costs on top of the purchase price of the property. These costs are payable on closing day and according to the CMHC can range anywhere from 1.5% to 4% of a homes selling price. Below I have outlined a number of potential additional closing costs (please note that not all of them may apply to your transaction) that you should be aware of when determining your budget for hunting for a new home.
- Mortgage Loan Insurance: If you decide to put down less than 20% of the house value, you are required to get mortgage loan insurance. Depending on the lender, the premium will either be paid in a lump sum or added to your mortgage payments. It is important to not confuse this type of insurance with mortgage life insurance which guarantees that your remaining mortgage at the time of your death will not be a burden to your estate; mortgage loan insurance protects lenders against possible mortgage default.
- Appraisal fee: Typically lenders will loan a percentage of the home’s purchase price or the market appraisal of the property. The appraisal provides lenders with a professional opinion of the market value of the property. Cost will usually depend on the size, complexity, and location of the property.
- Land Survey: The lender may ask for a current survey or certificate of location before agreeing to the loan. If this is the case and a survey doesn’t exist there can be a substantial cost for having a new survey done on the property.
- Insurance: Make sure to have insurance arranged for the property as the lender will require proof of property insurance for the replacement value of the house and its contents from the day you take ownership.
- Title Insurance: This insurance provides coverage if there are problems with the property title including; unknown title defects, existing liens against the property title, encroachment issues, title fraud, and errors in surveys and public records.. The cost is usually relatively low. Click here for more information.
- Application Fee: Some lenders will pass along the cost to process your application. The fees vary and it is important to note that some lenders may waive the fee entirely if you have other accounts with them.
- Mortgage Broker’s Fee: If you are using a mortgage broker to arrange your financing then there may be an additional fee charged by them for arranging the mortgage on your behalf.
- Home Inspection Fee: When purchasing the property you may decide to have an inspection done on the property to find out if there are any problems with the property that you would want to know about before finalizing a deal (ie. faulty wiring, structural issues or roofing problems).
- Legal Fees: These fees include disbursements which are the costs involved in drawing up the title deed, conducting a title search, and preparing and registering the mortgage. You may be able to save some of the legal fees usually charged by the lender if your lawyer draws up the mortgage.
- Land Transfer Tax: In Toronto you will pay both the Ontario Land Transfer Tax and the Toronto Land Transfer Tax. There are some exemptions for first time home buyers for both taxes. Click here for more information about the Toronto Land Transfer Tax; click here for more information about the Ontario Land Transfer Tax.