Buying A Home? Don’t Forget To Budget For Closing Costs

When buying a home, it can be easy to become so focused on the purchase price of the property and obtaining a mortgage, that the other cash outlays required to close the real estate transaction are forgotten.

Well, that can be a costly mistake – before the keys can be handed over, there are a number of costs that must be paid upfront in cash. Unlike the mortgage, which is amortized and paid in installments over time, buyers need to save for these expenditures beforehand, as they are due on closing day.

What Are Closing Costs?

Common closing costs include the down payment, land transfer tax, PST on your mortgage insurance premiums, and legal fees. Depending on the price of your property, they can easily total tens, if not hundreds, of thousands of dollars.

Here’s a breakdown of what buyers can expect to pay

Down Payment

You will need the full amount of your down payment in a draft cheque on the day of your closing. Ensure you’ve given yourself enough time to obtain one from the bank to avoid delays. 

PST On Your Mortgage Loan Insurance Premium

If your down payment is less than 20% of the home’s purchase price, then you would have had to take out mortgage default insurance, which protects your lender in the case you default and stopped paying your mortgage. While the cost of your insurance is rolled into your mortgage, the tax on the insurance is not. The PST, or 8% of your insurance cost, is due the day you close.

Land Transfer Tax

This tax can be the most expensive closing cost besides your down payment and is calculated as a percentage of your purchase price:

• First $55,000: 0.5%
• Amounts over $55,000, up to and including $250,000: 1.0%
• Amounts over $250,000, up to and including $400,000: 1.5%
• Amounts over $400,000, up to and including $2,000,000: 2.0%
• Amounts exceeding $2,000,000: 2.5%

That means you could be on the hook for around $36,500 on a $2-million home. And, since Toronto charges a double land transfer tax, that same $2-million home located in the 416 would mean you pay around $72,950 in tax)

Legal Fees And Title Insurance

Unfortunately, there’s no real way to escape legal fees, unless you find a real estate lawyer friend who is willing to do this for free. You’ll pay a lawyer around $2,000 to register the transfer of your property and mortgage and purchase title insurance, which protects your property from any claims against it.

Overall, you should try to have around an extra 3-5% in cash on top of the down payment to cover any potential closing day costs that come up. 

Closing Costs Depend On Price Of Market

The amount buyers will pay can vary widely depending on their local market. For example, in the City of Toronto, that buyers must pay an additional municipal land transfer tax on top of the provincial one will totals roughly 1% of the purchase price, contributing to the city’s affordability challenges. In all, buyers in the 416 looking to purchase the average-priced home at $884,385 can expect to shell out $63,439.

However, in terms of total closing costs, Toronto ranks 4^th; buyers will actually pay the most when buying Oakville homes for sale and Vaughan real estate; because these markets are simply so pricey, closing costs are inflated alongside home prices. 

In Oakville specifically, the average home price comes to $1,104,796, which requires a full 20% down payment of $220,959. While buyers can skip the need for mortgage default insurance, they can expect to pay $237,530 to close their home transaction.

It’s a similar situation in Vaughan, as the average home price clocks in at $1,054,681; buyers can expect to pay a down payment of $210,936, leading to a total closing cost bill of $226,505.

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