When purchasing a home, it’s essential to be aware of various costs involved both before and during the closing process. Here’s a breakdown of the different categories of cash expenses and costs associated with buying a home:
Cash Expenses Required Before Mortgage Closes
1. Home Inspection Fee:
A home inspection is recommended to assess the property’s condition.
Fee: Around $500, depending on the inspection complexity.
2. Deposit:
A mandatory deposit shows your commitment and financial capability.
The amount varies but is part of the down payment.
Costs Financed in Your Mortgage
1. Mortgage Default Insurance (CMHC Insurance):
Required if the down payment is less than 20%.
Protects the lender in case of borrower default.
Added to the mortgage amount and amortized over its term.
Mandatory Closing Costs Covered by The Home Buyer
1. Land Transfer Tax (LTT):
Calculated as a percentage of the purchase price.
Required in all provinces except Alberta and Saskatchewan.
Amount varies by province and sometimes by city (e.g., Toronto).
2. Legal Fees and Disbursements:
Covers the preparation and recording of official documents.
Cost: Approximately $1,500 plus GST/HST.
3. Title Insurance:
Required by lenders to protect against ownership disputes.
4. HST on Mortgage Default Insurance:
Payable in cash at closing, even though the insurance itself is financed through the mortgage.
5. Septic Tank Inspection:
Required if the property has a septic tank.
6. Water Test:
Ensures water quality and potability.
Costs may be negotiated and listed in the offer.
7. Status Certificate (for condominiums/strata units):
Fee: Up to $100 + processing fee and taxes.
Mandatory Closing Costs Often Covered by The Lender
1. Appraisal Fee:
An appraisal estimates the home’s value for the lender.
Typically covered by the lender.
Cost: Between $250-$350.
Other Costs to Consider
1. Property Insurance:
Covers the cost of replacing the home and its contents.
Usually paid monthly or annually.
2. PPrepaid Utility Bills:
Reimbursement to the previous owner for prepaid costs like property taxes and utilities.
3. Property Taxes:
A percentage of the home’s value varies by municipality.
You may need to reimburse the previous owner if they have prepaid for the year.
Option to set up an automatic payment plan with your lender for budgeting purposes.
Closing Day
On closing day, you take legal possession of your home. Key actions include:
Transferring the down payment to your lawyer in advance.
Mortgage funds are provided to your lawyer by the lender.
The down payment, closing costs, and deposit must be given to your lawyer/notary.
Your lawyer/notary pays the previous owner, registers the house in your name, and gives you the deed and keys.
Understanding these costs and their timing will help you prepare financially for the home-buying process and avoid surprises along the way.