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When new homebuyers are shopping for their first home, they tend to focus on the number one expense: the down payment.

But there’s a myriad of additional costs, all of which can add up and potentially overwhelm a first-time buyer who hasn’t planned ahead accordingly.

Below, we’ve reviewed some of the most common closing costs associated with buying a home.

While this list is a rough guide, new homebuyers are typically recommended to budget at least 1.5% of their purchase price for closing costs (i.e. $7,500 for the purchase of a $500,000 home). For additional peace of mind, some lenders even recommend budgeting up to 3% or 4% of the purchase price.

If that seems excessive, remember that there will be plenty of additional costs for new buyers after they’ve moved in. So, having this money on hand can always be used to help with renovations or upgrades, property taxes, furnishing the new home, or it can be put aside as part of an emergency fund.

Common mortgage closing costs

  • PST on mortgage default insurance: As mentioned above, default insurance is mandatory for any homebuyers making a down payment of less than 20%. If the property is insured through any of the three Canadian providers, insurance premiums will run anywhere from 0.65% to 4% depending on your loan-to-value.

While the cost of this insurance is typically rolled into the mortgage itself, as we covered, the provincial sales tax charged on that insurance for buyers in Ontario, Manitoba, Saskatchewan and Quebec is not. This can be an unwelcome surprise for buyers during the closing process. Be sure to confirm your province’s sales tax rate and budget accordingly.

  • Legal fees: Homebuyers will require the services of a lawyer/notary when closing the mortgage. This can run anywhere from $1,200 to $2,000.
  • Land transfer tax: Municipalities in all provinces, except for Alberta and Saskatchewan, levy a land transfer tax on the value of the home. Be sure to consult your municipality and/or province, which typically include the land transfer tax rates on their websites.
  • Appraisal: If the mortgage is not default-insured, lenders will generally request an in-person appraisal of the property. Budget at least $300 to $500 for this service, or potentially more for higher-priced or remote properties.
  • Home inspection: While home inspections are often forgotten in competitive markets, they help protect the buyer by identifying potential issues with the home prior to the buyer taking possession. This can include hidden issues such as mould or structural problems. Plan to spend anywhere from $400 to $700 for a home inspection.
  • Title insurance: This is another form of insurance that is required by most lenders in order to close your mortgage. It’s important to know there are two forms of title insurance; one that protects the lender (required by most lenders) and a homeowner policy that protects you, the property owner, which can be purchased at your discretion. You will be required to pay the premium in both cases. Title insurance protects against risks related to the title of the home, including fraud or forgery, zoning non-compliance, encroachments and easements over the property, for example. Budget a minimum of $300, although the cost can be higher for higher-priced properties.

Additional costs after closing

As mentioned above, the excitement of taking possession of a new home can be short-lived once some of the additional expenses come due.

Here are just some examples:

  • Moving costs
  • Property insurance
  • Condo fees
  • Property taxes
  • Furnishing the home
  • Minor repairs or upgrades

To make the process of taking possession and moving into your new home as seamless and stress-free as possible, prepare for these standard costs ahead of time to avoid any surprises. Consult with a mortgage broker to review your budget and plan ahead of time.

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