In addition to the actual purchase price of your home, there are a number of expenses that are directly related to your closing which must be paid. Most of these additional expenses (legal fees and disbursements, land transfer taxes, mortgage costs, and closing adjustments) are paid on the closing day itself and usually through your lawyer’s office. Each purchase transaction will be unique as to the exact costs involved, although it is possible to make an ‘educated guess’ as to what is usually involved with most purchases. You are always best to consult with the various professional whose services and expertise you will need to complete the deal to get the best estimate of their costs with respect to your particular purchase. The following is a description of the types of costs you may incur. Please note that all costs are approximate.
If the Agreement of Purchase and Sale negotiated between you and the Seller does not require that the Seller provide you with an up-to-date or acceptable existing survey (i.e. one showing the existing location of buildings, structures, and fences), it may be necessary for you to arrange to have one prepared. Many mortgage lenders require that you have a new or up-to-date existing survey in hand before closing.
Even if you do not require a survey for your mortgage, it is a good idea for you to have one prepared to ensure that there have been no additions to the property which would contravene municipal zoning by-laws and regulations. The cost of a new survey ranges from $650.00 to $800.00 plus G.S.T., and the cost in a particular case depends upon the size of the property, its location, and the number of improvements and/or structures on the property.
As an alternative to obtaining a new survey, your mortgage lender may permit you to obtain a title insurance policy. The policy would insure you and the mortgage lender against possible title defects, building and zoning violations, and other similar issues without the need to obtain a new survey. Your lawyer can provide you with a more comprehensive explanation about title insurance. The cost of title insurance is based upon the type and value of the property. On typical resale properties valued up to $500,000.00, the premium to insure you and the mortgage lender is a total of $250.00 plus G.S.T. There are small increases in the premium above $500,000.00 and the following is the premium formula above $500,000.00 when there is one mortgage:
$249.00 plus $1.00 per $1,000.00 over $500,000.00
The premiums are slightly less for newly-constructed homes and condominiums, and your lawyer can obtain a quotation for you in those cases. If you decide to go with title insurance, the title insurance policy will be arranged for you by your lawyer.
Land transfer tax is payable by buyers on all purchases, although first-time buyers of newly-constructed and resale homes may qualify for a refund of up to $2,000.00 of the land transfer tax otherwise payable.
Unfortunately, land transfer tax is similar to income tax, the higher the amount, the more you pay. Therefore, the higher the purchase price for the property, the more land transfer tax that you will be required to pay. The amount of land transfer tax payable is calculated as follows:
The land transfer tax is payable at the time of closing and will be remitted to the Provincial government through your lawyer at the same time as the registration of the transfer of title (deed).
There is also a municipal land transfer tax for the City of Toronto in addition to and similar to the Ontario land transfer tax with some conditions for first time buyers.
This varies according to the individual lawyer although most estate lawyers charge similar professional fees. As with the selection of any professional, you may wish to ask friends or associates if they know the name of a lawyer who has experience in real estate law. It is important to find a lawyer with whom you feel comfortable and who has the right expertise to handle your needs. Your realtor/sales representative may be able to refer a few lawyers to you if you do not already have one in mind.
When asking a lawyer for a fee quote, make sure you ask what the professional fee includes (example, does it include the title searching fee, and if not, what will the search fee be?). It is also important to clarify whether the quoted fee includes the charge for doing whatever legal work may be required on behalf of the mortgage lender. Most lawyers charge a flat fee (including the title searching fee) for doing whatever is required in connection with your purchase. Usually there is an extra charge for the work associated with the preparation, registering and reporting on the mortgage part of your transaction.
The lawyer’s fee for a purchase may start as low as $525.00 to $550.00 with an extra fee of $100.00 to $200.00 for the work required on the mortgage. So, the typical lawyer’s fee for a purchase and one mortgage will be in the range of $625.00 to $750.00. If there will be a second mortgage to prepare and register, the additional fee regarding the second mortgage will be in the range of $100 to $200.00.
There will be other costs which the lawyer will have to pay on your behalf such as obtaining municipal tax certificates, building and zoning clearance reports, registration of the deed and your mortgage(s), searching title, searching executions, Law Society transaction levy, or the obtaining a status certificate in the case of the purchase of a condominium. All of these are out-of-pocket expenses incurred on your behalf by your lawyer. The lawyer will also charge for incidental expenses, such as courier fees, photocopies, postage, bank certification charges, etc. which are related to your purchase transaction.
A typical list of disbursements is as follows:
| Municipal Tax Certificate | $35.00 to $65.00 |
| Building & Zoning Reports | $75.00 to $150.00 |
| Building & Zoning Reports | $75.00 to $150.00 |
| Execution Certificates | $80.00 to $150.00 |
| Land Registry Searches | $100.00 to $150.00 |
| Utility Arrears Searches | $20.00 to $40.00 |
| Register Deed | $70.70 |
| Register Mortgage (each) | $70.70 |
| Law Society Levy | $50.00 |
| Copies, Postage, Courier, Bank | $40.00 to $75.00 |
| $541.40 to $821.40 |
The usual range for most purchases would be $550.00 to $625.00, and the actual amount will vary on the location of the property and the complexity of the transaction. Your lawyer should be able to give you a good approximation of the total costs of the disbursements on a particular transaction.
Most Agreements of Purchase and Sale contain a condition in favour of the Buyer permitting the Buyer to have a qualified home inspector examine the property and all structures and improvements to determine if there are any defects and to generally view the state of repair. Your realtor can likely supply the name of an experienced home inspector who can provide you with a detailed inspection report. Most inspectors are insured and bonded and you should inquire about this issue before engaging the inspector. The inspector’s fees would usually start at a minimum of $325.00 and may increase from that point depending upon the age, size, and value of the property.
Every homeowner should have adequate fire and extended coverage insurance to protect the value of their property. All mortgage lenders insist that the Buyer place sufficient insurance coverage effective the time of closing. You may already have a contact with an insurance agent/broker who is able to quote on your coverage requirements. If you do not have an insurance agent/broker, your realtor may be able to provide you with the names of local agents/brokers who can quote on your needs. The premiums are usually quoted on an annual basis and can range from $500.00 and up.
There are various costs and expenses associated with your mortgage, some of which depend upon whether you arrange a (i) conventional mortgage or (ii) a high-ratio mortgage (less than 25% downpayment). Also, if your arrange a mortgage through a mortgage broker (as opposed to through your bank or credit union), there may be brokers fees payable. All mortgage lenders, whether a bank, credit union, or any other source, are required to fully disclose all costs associated with the arranging and placement of the mortgage. It is important to ask your mortgage officer/broker about the fees and costs at the beginning of the application process. The following are typical mortgage arranging costs:
| Application fee: | $nil to $250.00 |
| Appraisal/Inspection fee: | $100.00 to $300.00 |
| Lender’s Commitment fee: | $nil to 1.0% of the principal amount of the mortgage |
| Mortgage Broker’s fee: | $nil to 1.0% of the principal amount of the mortgage |
| High-Ratio Mortgage fee: | a percentage of the principal amount of the mortgage ranging from 1.75% to 2.5% of the principal amount; this fee is usually added to the principal amount of the mortgage and is repaid through the regular mortgage payments |
| Retail Sales Tax on the High-Ratio Mortgage fee: | 8.0% R.S.T. payable on the amount of the High-Ratio Mortgage fee |
| High-Ratio Mortgage Application fee: | $85.00 to $165.00 |
In addition to the above costs, there may be other costs or amounts payable at the time of closing which relate to the actual date of the closing and how the closing date relates to the commencement date of your mortgage payments. Here are two ‘costs’ that should be kept in mind:
Interest Adjustment: Many mortgage lenders like the ‘official’ start date for the mortgage to be the first day of the month, however not all closing dates can occur on the first of the month. This ‘official’ start date is called the “interest adjustment date” or “IAD”. At the time of closing, most lenders deduct from the mortgage monies sent to the lawyer, an amount equal to the interest on the mortgage principal from the closing date until the first day of the next month. Depending upon the closing date, this can be a significant amount. The following is an example of an IAD calculation/deduction:
| Principal amount of mortgage: | $175,000.00 |
| Interest rate on mortgage: | 5.25% per annum |
| Closing Date: | March 14th |
| Interest Adjustment Date (IAD): | April 1st (first day of the month following closing date) |
| No. of Days from Closing to IAD: | 18 (March 14th to April 1st) |
| IAD amount: | ((175,000.00 x .0525) x 18) / 365 |
| = $453.08 |
Obviously, the amount of the interest adjustment increases as the mortgage amount increases and/or the time between closing date and the IAD gets longer. Therefore, it is important for the Buyer to ask his mortgage officer/broker whether they will be an interest adjustment and how much it will be.
Realty Tax Holdback: Some mortgage lenders prefer to collect the amount of the realty taxes from the Buyer with every mortgage payment so that each payment consists of principal, interest, and taxes, hence the term “P.I. & T.”. If the lender believes there will be a realty tax installment due to the municipality soon after the mortgage payments begin, the lender may deduct the amount of the upcoming realty tax installment from the mortgage advance and then pay the upcoming installment immediately. Whatever is deducted from the mortgage advance on closing increases the amount that the Buyer will have to provide to his lawyer to have sufficient monies in hand to pay everything due on closing.
If the Buyer is arranging a second mortgage, many of the same costs listed above with respect to the set-up of the first mortgage will be repeated. The Buyer should clarify with his mortgage officer/broker and with his lawyer as to the amount of the additional costs. A quick estimate would be an additional $400.00 - $500.00.
Basically, the Balance Due on Closing is the difference between the sale price and the amount of the Buyer’s initial deposit made with the offer and any other further deposits made by the Buyer prior to the closing date. However, there are certain items which will be ‘adjusted’ between the Seller and the Buyer at the time of closing to reflect payment of other costs related to the property:
Realty Taxes: The Seller is responsible for the payment of the realty taxes up to the closing date. Depending upon when the realty tax installments are due to the municipality during the calendar year, the Seller may have prepaid the taxes beyond the closing date. On the other hand, the Seller may owe an amount to the Buyer on account of taxes because the Seller has not paid enough to pay his share of the realty taxes up to the time of closing. The lawyers for the parties calculate the amount due or owing, as the case may be, and the amount is either paid by the Buyer to the Seller on closing or the Buyer receives a credit from the Seller for any shortfall. Contact your lawyer prior to closing to get an estimate of the amount of any realty tax adjustment.
Fuel Oil and Propane: If the property is heated by fuel oil or propane, the Seller is entitled to be paid for whatever fuel oil or propane there is in the tank at the time of closing. Since the gauges on the fuel tanks are not very accurate, it is usual to have the Seller fill the tank and then the Buyer pays the Seller for the cost of the full tank at the time of closing. The cost of the fuel (oil or propane) fluctuates based upon commodity prices, and currently the usual fuel oil adjustment is between $750.00 and $850.00. A typical adjustment for propane may cost between $500.00 and $650.00 depending upon the size of the storage tank. Most propane tanks are rented from the propane supplier, and the Seller and Buyer will also pro rate the propane tank rental fee between them on closing.
Utilities: Most utilities (hydro, gas and water) are metered and the meters are read on closing. The Seller is responsible for all utility costs up to the date of closing and the utility supplier sends the final bill to the Seller for payment. Therefore, there is no need to adjust for utility costs between the Seller and Buyer. Usually, the lawyers arrange to have the meters read on the closing date and the final bill is sent to the Seller for payment.
If you intend to retain the services of professional movers, the cost varies from $85 to $125 per hour, depending upon the company selected and the number of people the mover will have on site. The length of time to load and unload will also depend on the size of the vehicle, the amount of furniture, how much pre-packing you may have completed yourself, and the distance the movers must travel between your existing and new residence. Some movers have a surcharge for busy times of the month, and you should inquiry about estimated loading and unloading times, surcharges, etc. before retaining the particular mover.
Just a note at this point about the procedure on the actual closing date and when might expect to receive the keys to your new home. The Buyer’s lawyer will receive the keys from the Seller’s lawyer in exchange for the payment of the balance due on closing. The Buyer’s lawyer is permitted to release the keys to the Buyer after the transfer of ownership is recorded in the Land Registration system. Depending upon the amount of time required for (i) the Buyer’s lawyer to receive the mortgage advance on the morning of closing, (ii) the Buyer’s lawyer getting closing cheques certified, (iii) the exchange of documents and closing funds between the lawyers, and (iv) other possible slowdowns, etc., the keys may not be released to the Buyer until mid to later in the afternoon on the day of closing. Unfortunately, Murphy’s Law has a way of showing up on some closing days and the release of the keys is delayed.
Therefore, it is strongly advised that you do not arrange to have your moving truck arrive real early on the day of closing since you may not get your keys and be permitted access to your new home until late in the day. You will not be happy seeing your movers sit around drinking coffee and eating donuts at $125.00 per hour while you are waiting for the keys! You may wish to discuss these timing issues with your lawyer.
Whether G.S.T. is payable on the amount of the purchase price depends upon the nature of the particular property. Some of the rules regarding the applicability of G.S.T. to unique types of property are complicated, but for the most part, the rules are easy to apply. The following is a simplified listing of whether G.S.T. applies:
| TYPE OF PROPERTY | G.S.T. PAYABLE |
| Used Residential Housing (“Resales”) | No |
| Newly-constructed Residential Housing | Yes |
| Extensively Renovated Housing | Maybe |
| Commercial Properties | Yes |
| Recreational Properties (eg. Cottage) | Maybe |
| Land Only | Maybe |
Apart from the possible application of G.S.T. to the purchase price, most fees and costs incurred in relation to the purchase transaction are also subject to G.S.T., such as survey costs, legal fees, most lawyer’s disbursements, title insurance premiums, fuel and utility adjustments, home inspections, home insurance and moving costs.
Buying a new home should be an exciting time and is likely the most significant acquisition and important financial decision of your life. Do your homework about the costs involved and be prepared for the various possibilities. Seek out and consult with all of the professionals involved in the several aspects of your transaction so you will better understand the process and will avoid those nasty surprises. Don’t be afraid to ask the hard questions because you will find that most professionals are more than willing to help to make your experience an enjoyable one.