Breakdown of house closing cost

For many first time home buyers, it is a common mistake to fail to consider ALL relevant costs when purchasing a home. Here is a hopefully complete cost breakdown:


1. Down payment
2. Home inspection fee
    This is case by case, usually ranging from 300-500 CAD.
3. Land transfer tax
    The Ontario land transfer tax for residential property (refer to Ontario Ministry of Revenue website) is   calculated based on the following:
    

Percentage	Explanation
0.5%	amounts up to and including $55,000
1.0%	amounts exceeding $55,000 up to and including $250,000
1.5%	amounts exceeding $250,000
2.0%	amounts exceeding $400,000 where the land contains one or two single family residences

Calculation Examples

Example #1

Value of the consideration equals $95,000.

1. Multiply $55,000 by 0.5% (55,000 × 0.005) = $275
2. Multiply the amount exceeding $55,000 up to $250,000 by 1.0% (40,000 × 0.01) = $400
   
   Total land transfer tax payable = $ 675

Example #2

Value of the consideration equals $450,000 for land not containing one or two single family residences.

1. Multiply $55,000 by 0.5% (55,000 × 0.005) = $275
2. Multiply the amount exceeding $55,000 up to $250,000 by 1.0%
   (195,000 × 0.01) = $1,950
3. Multiply the amount exceeding $250,000 by 1.5% (200,000 × 0.015)= $3,000

Total land transfer tax payable = $5,225

Example #3

Value of the consideration equals $450,000 for land containing one or two single family residences.

1. Multiply $55,000 by 0.5% (55,000 × 0.005) = $275
2. Multiply the amount exceeding $55,000 up to $250,000 by 1.0%
   (195,000 × 0.01) = $1,950
3. Multiply the amount exceeding $250,000 up to $400,000 by 1.5% (150,000 × 0.015) = $2,250
4. Multiply the amount exceeding $400,000 by 2.0% (50,000 × 0.02)= $1,000

Total land transfer tax payable = $5,475

   Also, different city may imply different municipal land transfer tax. In Toronto, the land transfer tax (refer to city of Toronto website) is calculated as follows: 

Value of Consideration	MLTT Rate
Up to and including $55,000.00	0.5%  plus
$55,000.01 to $400,000.00	1.0%  plus
Over $400,000.00	2.0%

   FOR EXAMPLE: A home with a consideration value of $500,000.01(excluding GST):

MLTT Rate	Calculation
0 to $55,000.00	55,000.00 x 0.005 = $275.00
$55,000.01 to $400,000.00	$344,999.99 x 0.01= $3,450.00
$400,000.01 to $500,000.00	$99,999.99 x 0.02= $2,000.00
Total MLTT= $5,725.00

  


  4. Legal fees on purchase
     This is the fee that you have to pay your lawyer for legal issues, and it would depend on lawyers. Based on what I found from the internet, it is probably feasible to put an estimate of 0.2 ~ 0.5 % of the house price.

  5. Registration cost/disbursements on purchase
     This is the cost that your lawyer has to pay on your behalf for house registration or etc. It is sometimes included in the legal fees but it really depends on how your lawyers design their fee structure. I couldn't find a more detailed estimate of this cost. It seems that 400 - 600 CAD would be a reasonable estimate for this cost.

  6. Survey/title insurance
      The lender sometimes requires a recent property survey. The cost for the survey may range from 600 - 900 CAD. To my understanding, this is to make sure that your property doesn't have any known title issues. Instead of survey, the lender may accept if you purchase a title insurance. Title insurance is an one-time only purchase. It protects you in future years from any losses or damages resulting from unknown title issues. The cost of title insurance is roughly, based on what I found (from homelegalcost.com), 500 CAD if house price is under 500,000 CAD. This cost would depend on your house price and the lawyer who charges you.

  7. Adjustment/incidentals
      This refers to the share of payments between you and the seller. For example, tax for the year of purchase, utility cost, condo fees, or etc. 

  8. Mortgage application/appraisal fee
      The lender may charge you for the mortgage application fee or appraisal fee for your house (usually around 200 CAD). However, this or at least part of this should be able to be waived after negotiation.

  9. CMHC insurance premium
      CMHC (Canadian Mortgage and Housing Corporation) is the largest mortgage insurer in Canada. When the down payment is less that 20 % of the purchased price, all lenders would require you to purchase a mortgage insurance from CMHC (or other institutions). The insurance premium would be added to your mortgage principal. However, PST (8%) of the premium would be required to pay at the time of closing. The current formula for mortgage insurance premium calculation from CMHC is as follows:

Loan-to-Value	Premium on Total Loan		Premium on Increase to Loan Amount for Portability and Refinance
	Standard Premium	Self-Employed without 3rd Party Income Validation	Standard Premium	Self-Employed without 3rd Party Income Validation**
Up to and including 65%	0.50%	0.80%	0.50%	1.50%
Up to and including 75%	0.65%	1.00%	2.25%	2.60%
Up to and including 80%	1.00%	1.64%	2.75%	3.85%
Up to and including 85%	1.75%	2.90%	3.50%	5.50%
Up to and including 90%	2.00%	4.75%	4.25%*	7.00%*
Up to and including 95%	2.75%	N/A	4.25%*	*
90.01% to 95% — Non-Traditional Down Payment***	2.90%	N/A	*	N/A
Extended Amortization Surcharges Add 0.20% for every 5 years of amortization beyond the 25 year mortgage amortization period.†

  Another quick way to estimate mortgage premium is to use this website (Canadian Mortgage Information).

  9. Interest adjustment (excerpted from Toronto Real Estate and Neighbourhoods Blog )
      Most lenders would like to start mortgage contract from the first day of the month. However, it is usually not the case for your closing dates. Between the closing date and the first scheduled payment date for the mortgage, you would need to pay an interest adjustment.  It works out to a little less than you would be paying if your mortgage term started on the same day you bought your house because it doesn’t include any principle repayment (it’s an interest only charge). 

 10. Property tax holdback ( excerpt from Mortgage Intelligence)
       If the lender is collecting and paying property taxes you may be required to pay to the lender an amount to ensure sufficient funds are available to pay the next instalment of property taxes when due.  An alternative to a property tax holdback is for the lender to increase the tax portion of the regular payment proportionately to ensure sufficient funds are on hand in time to pay the taxes when due.

 11. Home insurance
       If you need to get a mortgage, the lender usually requires you to have a home insurance. However, I would think that it's better to have one even if you don't need to get a mortgage. KANETIX would be the best website to get a quote/estimate for home insurance.


 12. HST for new home buyers (for details see Ontario Ministry of Revenue)
       In Ontario, if you buy a new house, you will be subjected to HST for the portion exceeding 400,000 CAD. HST does not affect resale homes or new homes under 400,000 CAD.


  13. Status certificate (excerpted from Toronto Real Estate and Neighbourhoods Blog )
        This applies to condo only. Condo buyers need to pay for a status certificate, which their lawyer will review at closing. It includes the condo corporation’s financial statements and bylaws and it will give you a sense of the overall financial health of the partnership you are about to join. Your lawyer will use this document to gauge the probability of a significant increase in your condo fees. The good news (aren’t you ready for some good news on closing costs?) is that the fee for this certificate is capped at $100.


  14. Moving expenses/utility hook ups/condo fees
  15. Repairs/renovation/painting  
  16. New appliances/furniture      
        Item 14 -16 would vary case by case.

The above are all costs that I can relate to purchase of a home so far. If I am going to buy a 450,000 CAD resale freehold house in the city of Toronto with at least 20% down payment, I would expect to pay roughly 13000 CAD (consider item #2, 3, 4, 5, 6 only), or 3% of the house price for the closing cost. A more general rule of thumb would be roughly 2 - 4 % of the house price. Note this is for reference only. There may be still other costs. Just be as prudent as possible when budget is a significant factor.


Other reference websites:
http://www.johncahill.ca/closing-costs
http://www.virtual-law.com/index.php/realty/how_much_do_i_need_to_close_my_purchase/
http://www.ramforhomes.com/toronto_closing_costs
http://homebuying.about.com/od/financingadvice/qt/BuyClosingCosts.htm