What are closing costs ?

Closing costs are any fees in addition to the purchase price of the home. Closing costs can vary significantly from deal to deal, so it’s important to work with a professional who can estimate costs for you ahead of time. 

We’ll start with closing costs that are due on every transaction, and then discuss closing costs that are only due sometimes. 

 

Closing costs due on every transaction:

• Land transfer taxes: Approximately 1.6-4% of the purchase price. These are provincial and sometimes municipal taxes based on your purchase price. Land transfer tax calculator.
• Legal fees & title insurance: Approximately $2,000-$4000
• Adjustments: Any fees prepaid by the sellers, like property taxes, condo fees, or utilities, are credited back to the sellers on closing. For example, if the sellers paid $3000 in taxes for the first 6 months of the year, but closed at the end of March, the buyers would owe the sellers approximately $1500.

 

Potential closing cost fees: 

Depending on your circumstances, you might also encounter these fees: 

• Appraisal: $300-400.
• Lender fees: In rare cases, you might owe your mortgage broker a commission if the bank does not pay them. 
• Inspections: home inspection, mould inspection, etc. $350-700 each.
• Status Certificate fee: $200-300.
• HST: HST is charged on new or significantly upgraded homes. 
• Mortgage insurance: If your downpayment is less than 20%, you will need mortgage insurance. Insurance rates range from 2.8% to 4% of the purchase price. That one-time insurance fee is usually rolled into the mortgage, but in rare cases, it is due on closing. 
• PST on mortgage insurance: Even if the mortgage insurance is rolled into the mortgage, you still owe PST on the insurance on closing day.  
• Elevator booking fee: If you’re moving into a condo, it is common to place a damage deposit. Slowly, more buildings are also charging a fee for moving in. While the damage deposit is refundable, the move-in fee is a lost cost.

 

Closing costs on preconstruction homes: 

Preconstruction homes come with the most fees of any type of home. Plan for most of the fees mentioned above, plus the fees mentioned below: 

• Development levies: The city charges development fees on almost all new builds. However, every year these fees increase. The developers charge buyers any increase in development levies on final closing. That means if the city increased the fees from $50,000 to $80,000, that $30,000 is charged to the buyers. Most experienced preconstruction agents negotiate a cap on how much developers can charge for development levies. 
• Lawyer fees: If you’re buying a condo, you pay your lawyers twice — Once for interim occupancy closing and once for final closing. (Freehold homes and some condo townhomes skip interim occupancy). 
• Utility hook-up fees: These can range from a few hundred to a few thousand dollars. 
• Administration fees: Expect somewhere between $50-250
• Tarion Enrolment Fee: Tarion is the home warranty covering defects in your new home. Calculate the fee here. 
• Home Construction Regulatory Authority (HCRA): A few years ago, Tarion lost its position as the preconstruction regulator in Ontario and the HCRA was created. The fee is approximately $145. 
• Reserve fund top-up: If you’re buying a condo, the closing costs will include a small contribution to the condo’s reserve fund — usually the equivalent of two months of maintenance fees.
• Registration and discharge fees: These cover the registering and discharging of the builder’s loans. Put a few hundred dollars aside for these. 
• HST: The advertised preconstruction price is the price with HST and any potential rebates. There is a HST rebate that exists for end users, and another rebate for investors. The developers will claim the rebate on behalf of end-users. However, investors need to claim their own rebate after closing, so the developer will charge them a portion of HST on closing to remit to the CRA. 
• Interim occupancy rent: If you move-in before final closing, the developer will charge you a monthly rent. Monthly rent is based on the 1-year mortgage lending rate, plus maintenance fees.
• Anticipated property taxes: Property taxes are due from the date the home is ready for occupancy — sometimes the bill comes at closing, sometimes it comes 6, 8, or 12 months later!
• Fines: The developer will fine you for missing minor deadlines. Fines range from $200-$500 and are levied for things like: If your cheques bounce, if you’re late with lawyer information, if you’re late with design choices, etc.
• “Kickel and dime charges”: We’ve tried to cover as many fees that developers tack onto closing costs. But builder’s contracts are not standard, so their fees are not standard either.

 

Deposits and downpayments 

Real estate deposits are a crucial part of the Agreement of Purchase and Sale (APS), signifying a buyer’s serious intent. Typically, deposits are around 5% of the purchase price, due the next business day, and held in a secure trust account. These funds are credited towards the down payment at closing. On final closing, the buyer’s deposit is credited towards their downpayment. If a buyer is planning a 20% downpayment, and they have already placed a 5% deposit, they only owe another 15% on final closing. 

Read more about deposits and downpayments here. 

 

When are closing fees due? 

A few days before final closing, your lawyer will send you the Statement Of Adjustments (SOA). This outlines your final “bill” to purchase the home. The SOA can come very close to closing day, so it is important to calculate your approximate closing costs before hand so you can prepare the funds. 

 

Final Notes:

Every buyer’s situation is unique. Consider this blog for informational purposes only… your specific eligibility for credits and rebates might be different from another buyer. Speak to realtor or real estate lawyer to learn about closing fees for any home that interests you. Pro Tip: always overshoot the closing costs, it is better to be over prepared than under, right?