Closing Costs-Get The Facts!

I'm often asked by my clients, what are closing costs and how much should they budget. It is a very common question, especially among first time buyers and there are a lot of myths out there about what your closing costs include. The other day, one of my buyer clients told me that they heard from a friend that they should budget 7% of the asking price for closing costs, that's a lot, especially since they are first time buyers!!!

So I thought I would set the record straight for everyone out there scratching their heads. This only applies to resale properties, not new homes or condos as there are other factors to consider. I will start by doing a break down for 1st time buyers...

First Time Buyers:

• Lawyer fee to close the deal, $1000-$1500, make sure to shop around, also ensure the quote given includes all disbursements and title insurance
• Title insurance, $250-$650, this one is a no brainer people and should be taken by ANY buyer (done through your lawyer), this is a one time fee and the best and cheapest insurance you will ever buy! If the previous seller has something on the title of the property that your lawyer didn't discover during the title search (mortgage liens, etc) and costs money to reprimand or any outstanding property taxes or water bills, title insurance will pay for it in a heartbeat, no battling it out with your typical insurance companies, so why not take it and give yourself a peace of mind! I've had to use my title insurance a few times in the past and it was a pleasure and took no time at all.
• Ontario Land Transfer tax, for any property purchased in Ontario, you must pay this tax, good thing for first time buyers is that you can receive up to a $2000 rebate, just remember, all buyers on the agreement of purchase and sale must be first time buyers! This tax is a percentage of your purchase price so it's hard for me to estimate here, but I have a great LLT calculator you can use on my blog, just click here. Keep in mind this tax is only paid on the closing date and not before!
• Toronto Land Transfer Tax, this tax is paid only on properties purchased in Toronto and again it's a percentage of the purchase price. The good news for first time buyers is that they can receive a rebate up to $3,725 (equivalent to the Toronto LLT payable on a $400,000 property). First time buyers are NOT exempt completely, it all depends on the purchase price!
• Insurance tax, if you are receiving a high ratio mortgage (less then 20% down payment) the bank automatically insures your mortgage, either with CMHC or Genworth. An insurance premium is charged to the buyer, this premium is a percentage, but lots of factors, that I won't be getting into, come in to play when deciding what percentage the buyer will be paying. Not to worry as this premium gets added to your mortgage amount, but what doesn't get added is the HST the buyer has to pay on the premium. The buyer must pay the HST on the premium during closing and therefore should be factored in as an important closing cost. Please also keep in mind that some banks even insure mortgages with a 20% down payment or more, but the bank will usually absorb the cost.
• Mortgage broker fees, all banks and most mortgage brokers do not charge a fee to the buyer when arranging a mortgage, but there is some that do and this cost must also be considered in a buyer's closing costs, as the fee, if any, will need to be paid on the closing date

Non-First Time Buyers:

• all the same fees apply like above
• the difference is that as a non first time buyer, there will be no rebate on the Ontario Land Transfer Tax
• as a non first time buyer purchasing property in Toronto, the rebate for the Toronto Land Transfer Tax will not apply, the buyer will have to pay both taxes, Ontario and Toronto, yuck!

I hope that has helped you solve some of the questions and myths you may have regarding closing costs. Please keep in mind that other various costs associated in purchasing a property apply. Those are, but not limited too, movers, cleaners, deliveries, etc, but these are the main ones that always stay consistent, unfortunately, unless our Mayor Rob Ford does good on his promise and eliminates the Toronto Land Transfer Tax, but I will leave that discussion for another day!

Let me know if you have any questions or comments and I will do my best to answer them!
***Image via San Francisco Chronicle***