Purchasing a home in the Canadian real estate market will be one of the most significant decisions of your life. Therefore, you need to know what you are paying for as you find a home to budget the home-buying process accurately.
One of the expenses associated with buying or selling a detached house, a townhome, or a condominium is closing costs. These are a wide range of fees generally paid at the end of the transaction, accounting for roughly one percent to four percent of the overall purchase price, depending on where the home is located.
So, what can you anticipate paying when you complete the acquisition?
What Closing Costs Must Be Paid When You Buy a Home?
Here are six closing costs you may expect to pay when you buy a home in Canada:
Land Transfer Tax
A land transfer tax is a levy based on the amount paid for the property. Some provinces, and in the case of Toronto, municipalities set the land transfer tax rate for real estate transactions. This will represent the bulk of your closing costs. However, because they can be exorbitant, some jurisdictions will offer partial rebates to first-time homebuyers to reduce the size of the tax bill.
Legal and Agent Fees
Another closing cost that buyers will face is real estate agent fees and attorney fees. These closing costs range from a few hundred dollars to thousands of dollars, depending on what is needed to be done, the size of the property price tag, and where the home is located.
Property Tax Adjustments
For most homeowners in Canada, property taxes are usually paid on a pro-rated basis. However, when you purchase a home, you might pay a portion of the property taxes for the year of the transaction. For example, if the owner has already paid the property tax for the year and you purchased the home mid-year, you would need to pay the adjustment to finalize the balance.
Pre-Builds
Did you purchase a pre-build? If so, you should determine if there are any additional closing fees. These are extra costs that the builder is owed due to fresh levies issued by the province or municipality.
Here are some other closing costs you may need to familiarize yourself with when acquiring a pre-build property since it will differ from a resale property:
- HST or GST: A tax charged on the property’s purchase price and due at closing.
- Development and Education Levy: Some cities will apply development and education taxes on construction projects to help cover the cost of infrastructure and services.
- Mortgage Application Fee: Applying for a mortgage to purchase a pre-build property might require a mortgage application fee.
- Pre-Construction Costs: Buying a pre-build property might also require paying occupancy fees, upgrading finishes, and deposits to adjust original plans.
Home Inspection and Appraisal Fees
A home inspection is a crucial step in the home-buying process to determine the property’s condition. The home inspector will examine everything from the foundation to the roof to the plumbing. This will help you identify any prior issues before taking the title of the property. The home inspection cost will depend on the size and age of the house, townhome, or unit.
Appraisal fees originate from professional evaluation of the home’s value. Mortgage lenders sometimes request this to ensure the property’s value is sufficient to secure the loan. If you opt for a “purchase plus improvements” type of mortgage, you will need an appraisal before receiving the mortgage approval and a second appraisal once the work has been completed to receive the improvement portion of the funds.
Mortgage Broker Fee
For most people, using the services of a mortgage broker to find and secure a mortgage requires no fees. In most circumstances, the broker is paid by the lender. In some cases, however, typically more complex situations, you may have to pay the mortgage broker yourself for finding you a lender and handling the necessary paperwork.
The More You Know
There are many costs associated with buying a home in the Canadian real estate market. All three levels of government maintain some type of tax, while industry participants typically have fees. While buyers and sellers expect closing costs, many are unaware of what these may be or how much they will add to the final balance. This is why it is critical to equip yourself with the knowledge of what you will be spending beyond the home’s purchase price. By working with real estate agents, attorneys, and mortgage lenders, you and your family can make the best and most informed financial decisions when searching for your next home.