In Ontario, as with most provinces in Canada, it is customary for the home buyer to pay the majority of the closing costs. Typically, the lender will reimburse you for the appraisal fee (which may range from $250 to $350). This covers things like legal expenses, land transfer tax, and home inspection costs.
However, it is important to note that these costs are negotiable and can be paid by either the buyer or the seller depending on what is agreed upon during negotiations.
To make things easier, it’s important to understand the steps involved in real estate purchases. One of them is the costs associated with closing the deal. In this article, our real estate lawyer from GK Law will take an in-depth look at the various expenses you’ll have to deal with to complete your home purchase.
Closing Costs Calculator 2022 Canada
The most common type of closing cost is legal fees. These are typically charged by the lawyer or notary handling your purchase. They can range from a few hundred dollars to a few thousand, depending on the complexity of the transaction.
Use our calculator for a detailed estimate of your legal fees.
What Are Closing Costs?
Closing costs are the various fees and expenses you’ll need to pay in order to finalize your home purchase. They can range from a few hundred dollars to several thousand, depending on the price of the home and other factors.
How Much Are Closing Costs?
As we mentioned before, closing costs can vary greatly depending on the price of the home and other factors. In general, you can expect to pay anywhere from 1-4% of the purchase price of the home in closing costs. For example, if you’re buying a $300,000 home, your closing costs could range from $3,000 to $12,000.
Common Closing Costs In Canada
As we mentioned, there are a variety of different expenses that can be considered closing costs. They may not all apply to your situation, but it’s best to be informed to avoid any surprises. Below is a list of closing costs that must be covered by the home buyer:
Legal Fees
These are the fees charged by your lawyer for their services in handling the paperwork associated with your home purchase. They can range from a few hundred dollars to a few thousand, depending on the complexity of the transaction.
Land Transfer Tax
This is a tax levied by the provincial government on the purchase of the property. The amount you’ll need to pay depends on the province in which you’re buying and the purchase price of the home. For example, in Ontario, the land transfer taxes are 1.5% of the purchase price for homes under $400,000, and 2% for homes over $400,000.
Provincial Sales Tax on CMHC Premium
If you’re putting less than 20% down on your home, you’ll be required to purchase Mortgage Default Insurance from CMHC or Genworth Canada. The premium for this insurance is added to your mortgage and will be paid off over the life of the loan. In addition, you’ll also need to pay provincial sales tax on this premium. For example, in Ontario, the PST is 8% of the premium.
Home Inspection Fee
This is a fee charged by a professional home inspector to assess the condition of the property. It’s typically a few hundred dollars and is paid upfront.
As you can see, there are a variety of costs that must be covered by the home buyer when closing the deal. It’s important to be aware of these expenses so you can budget accordingly.
Appraisal Fee
An appraisal is ordered by the lender to ensure that the value of the property you are buying is worth at least the amount of your mortgage. The fee for this service is typically around $300-$400 and is paid upfront.
Title Insurance
This is a type of insurance that protects you from any errors in the title of the property. It’s not required, but it’s recommended if you’re taking out a mortgage. The cost of this insurance varies depending on the price of the home and is paid upfront.
Property Taxes
You’ll also need to pay property tax on the home you’re buying. The amount you’ll need to pay depends on the municipality in which the property is located.
In this situation, the seller will be responsible for any taxes paid in relation to the time period during which they will not own the home. As a credit to the seller, this amount may be subtracted from closing costs.
Additional Closing Costs For Rural Properties
If you’re buying a property located in a rural area, there may be additional costs that must be covered. These include:
- Septic tank and well inspection fees
These are fees charged by the municipality to have the septic tank and well inspected. They vary depending on the municipality but typically range from $100-$200.
- Water and sewer connection fees
If the property you’re buying is not connected to municipal water and sewer, you’ll need to pay the connection fees. The cost of this varies depending on the municipality but typically ranges from $1,000-to $2,500.
As you can see, there are a variety of expenses that must be covered when closing on a home purchase. It’s important to be aware of these costs so you can budget accordingly.
How Do I Pay For Closing Costs?
Closing costs, along with the down payment, are paid to your lawyer when you meet to sign the mortgage registration documents. This is usually done about a week or so before the closing date. Your lawyer will let you know the total amount of the required payment in advance, and he will distribute the various amounts to the appropriate recipients.
Withdrawing RRSP Funds For Your Home Purchase
In Canada, the first-time home buyer can borrow money from Registered Retirement Savings Plan (RRSP) to pay the down payment and closing costs. I use the word “borrow” because the Home Buyers Plan (HBP) requires that withdrawals be returned to the RRSP within 15 years to avoid penalties.
If you use the first-time homebuyer plan, make sure you have enough time before closing to withdraw funds. Depending on how your RRSP is invested, there may be a delay in withdrawals. My advice to first-time buyers is to consult with financial institutions, banks or investment advisors ahead of time to find out when you should withdraw funds.
A Final Word on Closing Costs
As you can see, there are many things to consider when it comes to closing costs. With so many different expenses and fees, it can be very difficult to keep track of them. Keep it simple and focus on setting aside at least 2-3% of your purchase price to cover closing costs. That way, you’ll be sure you’ll have enough money to complete your home purchase. After that, you can look for ways to cut some of the costs using the tips above.
