Whether you’re buying a house or a condo, you likely need to budget for additional closing costs beyond the amount you’re paying as a down payment. These costs do vary by province, but here’s a look at some of these costs and what they mean:
- Appraisal fee: In some cases, your lender will hire an independent appraiser to establish the value of the property and whether it meets the lender’s standards (for instance, it’s unlikely that a lender will finance a $500,000 property if the appraiser deems the fair value to be $350,000). You may need to cover the cost of the appraisal.
- GST/HST: New homes may be subject GST or HST sales tax in lieu of transfer taxes, but this is sometimes included in the property’s purchase price. Service Canada has a GST/HST New Housing Rebate available for homes used as a primary residence.
- Interest adjustments: If you have a gap between closing date and the date of your first mortgage payment, then your lender may require you to pay interest for that gap period. The amount would depend on the size of your mortgage, your interest rate and the length of the gap.
- Legal fees: It’s a good idea to have a real estate lawyer review your agreement of purchase and sale and check for a clear title before you close on a property. Depending on the province, this may cost $1,000 or more and may be subject to GST or HST. Ask your lawyer to quote you on all your legal costs including fees for pulling titles, filing paperwork and so on so you can budget accordingly. In Quebec, a notary handles these transactions.
- Mortgage default insurance: If you’re putting less than 20 percent down, your lender may require you to pay for mortgage loan insurance or mortgage default insurance. This cost can be rolled into the cost of your mortgage.
- Property transfer tax: Whenever real estate changes hands, it may be subject to property transfer tax or land transfer tax to the province or municipality. In B.C., for instance, the tax is charged at 1 percent for the first $200,000 of the price and 2 percent for any portion greater than $200,000. So, if you were buying a $300,000 home, your transfer tax would be $4,000 ($2,000 on the first $200,000 and $2,000 on the remaining $100,000). First-time home-buyers may be exemption from transfer tax if they meet certain requirements.
Another cost that you might want to consider is a home or condo inspection. The inspection would be performed before closing and should alert you to potential issues such as foundational problems, leaks, faulty wiring or broken appliances. Inspection costs vary depending on where you live, the size of your home and whether you’re buying a house or condo. Some buyers make the inspection a condition before buying.
Additionally, some buyers purchase title insurance. Your lender may require you to pay for title insurance to protect them against potential issues such as land disputes, and some buyers want the same protections for themselves.