Are you thinking about buying your first home and wondering how much you can afford? Before you start the house hunting process, it's important to factor in closing costs so you know how much purchasing power you have.
What are closing costs?
Closing costs refer to the expenses you’re required to pay in addition to your down payment, shortly before or on closing day. The amount you owe depends on the final purchase price of the property and can often add up to thousands of dollars. Generally, closing costs range from 1.5- 4% of the purchase price. However, many of these costs cannot be rolled into your mortgage, so it’s essential to put money aside to cover these expenses.
1) Land transfer tax
All provinces–except Alberta and Saskatchewan–charge a land transfer tax (LTT), which is a provincial or municipal tax based on a percentage of your property value. This is a one-time fee and only applies to resale homes, not new construction. The amount varies depending on where you live, ranging between 0.5% and 2.5% of your purchase price. If you are a first-time buyer in Ontario, you may be eligible for a land transfer tax rebate.
2) Land survey fee
It’s important to know your property boundaries, so many lenders require home buyers to obtain a land survey if the current owners don’t have a recent one available.
3) Mortgage default insurance fees
If your down payment is less than 20%, you will need to pay CMHC insurance. This cost, which can be rolled into your monthly mortgage payments or paid upon closing, is meant to protect the lender if you default on your payments. And for homeowners in Quebec, Ontario, or Manitoba, you will pay provincial sales tax on your mortgage insurance fee. Remember, if you lump in this fee with your mortgage, you’ll be charged interest on it as well.
4) Legal fees
Once you have an accepted Agreement of Purchase and Sale, you will need to hire a lawyer to represent you and as your real estate agent, I can make recommendations for local real estate lawyers. Your lawyer will protect you by doing a title search, obtaining title insurance proving you’re the legal owner, preparing and filing the mortgage paperwork, registering the transfer of property, and making sure the transaction goes through smoothly. Expect to pay anywhere between $1000 and $2,000 depending on where you live and what you require. Many lenders also require you purchase title insurance–available from your lawyer for about $200-300–that protects against losses in case there is a property ownership dispute.
5) Property insurance
You must have property insurance in place by closing day, which insures your house against fire, or major damage for an amount that matches the value of the home. Costs vary depending on the type of coverage you purchase, so be sure to shop around before you purchase your policy. As your REALTOR® , I can recommend a few options for insurance agents in the Kingston area.
6) Adjustment fees
At closing, you will likely owe a portion of the utilities, property taxes, and other bills for the property, which will be reimbursed to the previous owner of your home. These are calculated by your lawyer and based on your closing date within a given monthly payment cycle. You will also owe the interest on whatever gap there is between your closing date and your first mortgage payment date.
Your REALTOR® can help guide you through the entire buying process, including what you need to pay in advance. Then, on closing day, you will finally get the keys and legal possession of your new house.
Information sourced from Wendy Helfenbaum's article on REALTOR.ca - June 2, 2021.
I have been working as a Realtor in Kingston for over 6 years now and work under the Sutton Group Masters Realty Inc., Brokerage. I especially like working with first-time buyers, first-time sellers and clients interested in buying or selling condominiums in the area. I was born and raised in Kingston and know the city and local real estate market very well. If you are considering a move , please reach out to me by phone or email and I will answer any real estate questions you may have. I look forward to hearing from you!
Kim Purcell - Kingston Real Estate Agent
1650 Bath Road
Kingston, ON K7M 4X6