4 Closing Costs To Keep In Mind When Purchasing

By: Christopher Toste

4 Closing Costs To Keep In Mind When Purchasing

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Home buying can be defined as one of the biggest purchases in someone’s life and besides the cost of the home itself, there are a few other closing costs associated with home purchasing.

Here are four closing costs to keep in mind when purchasing a home.

  1. Land Transfer Tax
Land Transfer Tax (LTT) is paid by everyone who purchases property. The LTT is a marginal tax that is paid to the province when “buying land.” This payment is done only once the transaction has been closed. Certain municipalities, such as Toronto, have an additional municipal land transfer tax.

To get a better idea of how much LTT you may need to pay, check out this great calculator.
  1. Legal Fees and Disbursements
Real estate lawyers manage all of the legal paperwork involved when acquitting a mortgage. They ensure there are no outstanding debts or liens on the property.

Another cost in hand with legal fees would be title insurance. Title insurance protects you from such things as title defects, errors and omissions. It may also protect you from undisclosed heirs who may try to claim your property and/or fraudulently discharged mortgages. It is a cost that is worth of mind and can be inquired with your lawyer.
  1. Default Insurance (P.S.T.)
If you don’t save enough to make a down payment of 20% or more on a home, you will need to purchase mortgage default insurance. Most commonly known as CMHC Insurance, mortgage default insurance protects your lender in the event that you ever had to default on your mortgage. CMHC insurance is added to your mortgage and paid off over the life of your loan.

However, one cost associated with CMHC insurance that you need to pay at closing is the P.S.T (8%).
For example, if your CMHC insurance premium amounts to $6,200, the P.S.T on your CMHC insurance would be $496.
  1. Adjustments
Real estate lawyers also provide a breakdown of any adjustment’s costs associated with the purchase. For example, there might be adjustments with property taxes and condominium maintenance fees.
Adjustments are individually based as each case can differ.

Here is an example scenario of closing costs and what it may look like (each case will differ).

Kawhi purchased a home in Toronto but is not considered a first-time home buyer. The current home owner has paid the property tax ($3,650) for the entire year but the expected closing date on the home is July 2, 2019.

Purchase Price: $600,000

Closing Costs

Land Transfer Tax: $16,950 (For first-time home buyers $8,475)

Legal Fees & Disbursements: $1,101.75 + Disbursements (Includes Administration costs, courier fees, etc.)

Default Insurance Tax: $1,808 (Default Insurance $22,600 *P.S.T. of 8%)

Adjustments: $1,830 (Owner is reimbursed for 183 days of unused property tax).

Total: $21,689.75 + Disbursements

Knowing these closing costs in advance will help you plan for a smooth closing and avoid any unpleasant surprises. You should allow at least 1.5% of the purchase price for closing costs and it is recommended to anticipate 2% to be on the safe side.

If you are looking to purchase a home and questions around closing costs, don’t hesitate to contact me as I would be happy to help.

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