Closing Cost Is High
The total closing cost is roughly 4% of a purchase price. If you buy a home for $300K, you have to spend around $12K to close the transaction. Expect to pay more for closing on a new house or a condo bought from a builder.
Financial Steps For Closing
Review your expenses with a lawyer and an agent to know exactly when and how much you have to pay. Identify every charge which will apply to you. Once you get the ball rolling, it might be too late to look for the money.
Legal Fees - On average, a legal fee is $1K plus expenses, like municipal searches or a title registration fee which you'll have to reimburse.
Land Transfer Tax - This tax is levied on properties changing owners, and has to be paid by a buyer. It can range from 0.5% to 2% of the property price, depending on the location. The tax isn't collected in Alberta, Saskatchewan and rural Nova Scotia.
Most provinces use multi-tiered taxation systems. For example, if you buy your property for $300K in Ontario, 0.5% is charged on the first $55K, 1% on $55K to $250K, and 1.5% over $250K. Use a land transfer tax calculator for an estimate of the tax in your province.
Homebuyers in Toronto have to pay another tax to the municipality. Rates are 0.5% of the first $55,000, 1% on $55,001 to $400,000, and 2% above $400,000.
Appraisal - Home value assessment costs around $300 - $500. You'll pay more if a house is larger than average, or located in an area with no comparable properties.
Inspection - Property inspection fee for a typical house is from $350 to $600, and even more for a very large house.
Survey / Title Insurance - Depending on your decision how to secure the title you will need an up-to-date survey or title insurance. If the seller doesn't have a survey or doesn't agree to pay for it, you'll have to spend between $1,000 and $2,000.
This expense can be often avoided since most lenders accept title insurance instead of a survey. Your policy can be purchased for around $300, depending on the property type and the price.
Mortgage Insurance - High ratio mortgages require mandatory insurance against defaults. The cost of insurance is between 1.25% and 3.60% of the mortgage amount.
Down Payment - When your offer of purchase is accepted you'll have to deposit $500 - $1000. Once all conditions are met you have to increase your deposit to 5% of the price. If your down payment is bigger than 5% the rest of it is due on the closing date.
Financing Fee - Most lenders waive mortgage application fees. If you are using a mortgage broker they usually pay finder's fee to the broker as well. However, homebuyers who have a poor credit record have to pay the broker's fee themselves, which is 2% (or more) of the mortgage amount.
Property Insurance - Lenders require property insurance against typical perils, including damages from fire. Your insurance has to start on the closing date, and the average cost is $450 to $800 for basic coverage.
Adjustments - You have to reimburse a previous owner for hydro, water and property taxes if they have been paid beyond the closing date. Set aside a few hundred dollars to be on a safe side when they finally show up on your payments list.
Interest Adjustment - is the amount of interest charged between the closing date and the date the first mortgage payment is calculated from. No adjustmet will be needed if you ask the lender to make your first payment exactly one payment period after the closing date.
New Home Warranty - The cost is a one time fee of few hundred dollars, depending on your coverage and the price of a house. For instance, the warranty for a $400,000 house in Ontario sells for around $750.
Tax Rebates and Credits
These tax breaks are only available to qualified first-time homebuyers: