Closing Costs: What to Know Before You Get to the Lawyers

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When it comes to finding your dream home, do you know the full scope of the costs associated with your purchase? Many mortgage lenders have a standing guideline of ensuring the home buyer has 1.5% of the purchase price in closing costs. For example: 1.5% of a $500,000 home would be $7,500. Closing costs can be more than the predicted 1.5%, but to understand that guideline better, let’s review the sources of these costs.

Closing Costs: What to Know Before You Get to the Lawyers

  • Appraisal- An appraisal isn’t always required by a lender, but if it is, the cost can vary depending on where the property is located. If you are in a main urban centre, the cost can range from $200 to $350. This can increase for a rural property, which might be a fair distance from the nearest appraisal company. These appraisals can cost $450 or more, depending on travel time and comparable properties within the area.
  • Home Inspection- Home inspections are not required by mortgage lenders, but are recommended for any home buyer. Buying a home is likely one of the greatest financial obligations you will have, and you will want to ensure the home doesn’t have hidden and potentially costly faults or defects. Home inspection companies create their own fee schedule, and pricing can be based on square footage, property price, or extra services added to an inspection report. The cost of these inspections can run from $400 to more than $1,000, depending on your needs.
  • Legal fees- When it comes to signing papers to finalize your purchase, of course the lawyers also need to be paid. A typical real estate lawyer or a notary costs $1,000 to $1,500. The lawyer would be responsible for registering your new mortgage, conducting a title search, getting title insurance, and creating the statement of adjustments.
  • Land Transfer Tax- This tax is applied when completing your purchase and would be calculated by your real estate lawyer and shown on the statement of adjustments. Land transfer tax is calculated based on the purchase price of the property. In essence, the more you pay for the property, the more you can expect to pay in land transfer tax. Some provinces do not apply a land transfer tax, and instead have a set-amount transfer fee.
  • Title Insurance- Title insurance would be obtained by your lawyer during the closing. Title insurance protects you and the lender from possible title fraud or defects that may occur with the title. With the increase in real estate fraud, title insurance protects your investment in your home. Title insurance is around $250 and well worth it.
  • Property Taxes- The lawyer will calculate property taxes, and this adjustment will appear on the statement of adjustments. In the case the current owner has already paid the current year’s property taxes, you will be reimbursing the previous owner for the amount of time the property will be in your name. Property taxes vary based on your housing price as well as the municipality in which your home resides.
  • Home Insurance- Insurance for your home is required to protect against fire, flood, earthquake, lightning, vandalism or even theft, if your insurance includes contents. This gives you coverage should you need to have your property fixed or contents replaced. The average cost for home insurance is $450 per year, depending on how much coverage you place on your home.
  • Form B (if applicable)- Form B is only applicable for home buyers purchasing stratified properties, such as townhomes, apartments, or condominiums. This Form B, or estoppel certificate, is a copy of the strata document for the property. The reason for this will be to ensure there are no arrears in condo fees or any other arrears on the property.
  • Utilities- Utilities are arranged by the lawyer on the statement of adjustments. If the previous owner paid any utilities past the date on which you take possession, you pay the difference for the days in which ownership is transferred to you.