Marian Ferguson

At the Lawyer’s … Closing Costs

In addition to the price of the house, the buyer must be prepared to pay for taxes, insurance and other purchase costs.

 

1. The Price of the House

Obviously the Buyer will be required to pay the Seller the amount agreed. The Buyer will pay a deposit at the time the offer is accepted. This deposit is negotiated between the two parties and is typically in the neighbourhood of 5%. I’ve found that in a bidding war, personal cheques are often not acceptable to the seller and must be in the form of a banker’s draft or a certified cheque. The deposit sits in a Trust account and is not given to the Seller until after the deal closes. The deposit goes towards the price of the house (i.e. it is not in addition to the price of the house).

 

2. The Mortgage

Most Buyers need to arrange for a mortgage to cover the cost of a house purchase. Buyers are advised to shop around to find the best mortgage for their needs. The aid of a Mortgage Broker can be beneficial. Please be advised that the maximum the Buyer can borrow from a Mortgage Lender is 80% of the total cost of the house; the Buyer must contribute at least 20% downpayment. However, if Mortgage Loan Insurance is purchased, the Downpayment required is reduced to 5%.

 

3. Mortgage Appraisal

The Mortgage Lender will want to do an appraisal to extimate the value of the house. This cost is usually between $250 and $350 but some banks will waive this fee in return for your mortgage.

 

4. Mortgage Loan Insurance

Mortgage insurance is required by lenders for downpayments of less than 20% of the purchase price. Mortgage insurance is used to protect lenders against default and allows homebuyers to purchase homes with a minimum downpayment of 5% for houses up to $500,000.  If the purchase price is greater than $500k but less than $1 million, then 10% downpayment is required.  CMHC insurance is not available on homes greater than $1 million; this means that for homes greater than $1 million, purchasers must have a minimum downpayment of 20%.

 

The Mortgage Lender typically adds the mortgage insurance premium to the mortgage or the Buyer can pay it in full upon closing. Provincial Sales Tax is payable on the CMHC premium itself and it is due in full on the day of closing. Note that the tax payable on the CMHC fee is the PST amount only (8%) and not the HST of 13%. Note: the insurance premium rates are set to change on March 17, 2017

 

Downpayment
(% of Home Price)
CMHC Insurance Premium **(before March 17 2017)
(% of Total Mortgage
5% – 9.99% 3.60%
10% – 14.99% 2.40%
15% – 19.99% 1.80%
20% or higher 0%

 

Downpayment
(% of Home Price)
CMHC Insurance Premium **(as of March 17 2017)
(% of Total Mortgage
5% – 9.99% 4.00%
10% – 14.99% 3.10%
15% – 19.99% 2.80%
20% or higher 0%

*Please visit the CMHC website for more comprehensive information.

 

5. Land Transfer Tax (LTT)

The dreaded Land Transfer Tax is payable by the Buyer whenever a property changes hands, whether the property is new or resale. This tax is due upon closing.

In Ontario, all properties must pay the Provincial Land Transfer tax .

Purchase Price Ontario LTT Rate
Up to and including $55,000.00 0.5%  plus
$55,000.01 to $250,000.00 1.0%  plus
$250,000.01 to $400,000.00 1.5%  plus
Over $400,000.00 2.0%
Over $2,000,000 2.5% **new as of Jan 2017

Buyers of property within the City of Toronto must pay the Toronto Land Transfer tax in addition to the Ontario LTT.  There is proposed change to the Toronto Land Transfer tax which if approved would take effect on March 1, 2017.

Purchase Price (note: possible changes coming on March 1, 2017) Toronto LTT Rate
Up to and including $55,000.00 0.5%  plus
$55,000.01 to $400,000.00 1.0%  plus
Over $400,000.00 2.0%

Following are some example purchase prices with the corresponding Land Transfer Taxes:

Purchase Price Toronto LTT Ontario LTT Total LTT
400,000 $3725 $4475 $8200
700,000 $9725 $10475 $20200
1,000,000 $15725 $16475 $32200
1,500,000 $25725 $26475 $52200
2,000,000 $35725 $36475 $72200

Happily, First-Time home buyers can enjoy some rebates. In order to qualify as a first time home buyer, the Buyer cannot have ever owned a home, or an interest in a home, anywhere in the world. There are also restrictions on the Buyer’s spouse.

The First Time home buyer may qualify for a maximum $3725 rebate on the Toronto LTT, and a maximum $4000 on the Ontario LTT.

 

6. HST on New Homes

The purchase price of resale homes are exempt from the HST. The purchase price of newly constructed homes are subject to HST (13%) and it is due on closing.

New home buyers can apply for a 36% rebate of the federal portion of HST applicable to the purchase price to a maximum of $6,300 for homes costing $350,000 or less. For new homes priced between $350,000 and $450,000, the rebate on the federal portion of the HST rebate starts to dwindle until it reaches $0 at $450,000. New homes priced $450,000 or higher would not receive a rebate of the federal portion of the HST.

New home buyers can apply for a 75% rebate of the provincial portion of the HST applicable to the purchase price to a maximum of $24,000. In effect, home buyers are paying 2% Ontario HST on the first $400,000 of the purchase price and 8% on the remainder. The rebate applies to all price ranges.

Most builders include the HST in the purchase price; Buyers must be careful because not all of them will do this. Most Ontario builders include any HST rebates in the purchase price and have the Buyer assign the rebate back to the builder on closing.

 

7. Condo Status Certificate (Optional)

A Status Certificate is a short report on the current status of a condominium corporation. It includes the corporation’s financial statements, declaration and by-laws. The Buyer will need to have it reviewed by a lawyer before a contract can be made. The Status Certificate costs $100 plus HST.

 

8. The Home Inspection (Optional)

The home buyer is advised to get a home inspection before firming up an offer to buy a house. The inspector will go through the house looking for clues about its condition. The price for this service varies but is usually between $300 and $1000 depending on the size of the house.

Often, a house buyer will make an offer to purchase conditional on a satisfactory home inspection. If the seller accepts this offer, the buyer will have a few days to perform the inspection and decide whether to remove the condition from the offer. If problems have been uncovered during the inspection, the buyer can choose not to waive the condition – thus the offer dies.

In a multiple offer situation (bidding war), the buyer will sometimes conduct an inspection prior to making an offer. If the inspection is satisfactory, the buyer can make an offer without putting in an inspection condition. A seller will look favourably on a ‘clean’ offer because there is no risk that the offer will die.

The buyer may be tempted to dispense with the home inspection. This is not advisable. There might be problems requiring substantial amounts of money to rectify such as structural problems, wiring and plumbing deficiencies, and water or pest damage.

House inspectors will usually provide the buyer with a written report that describes the condition of the exterior and interior, and the plumbing, electrical, heating, and air conditioning systems.

Always follow the inspector as he goes through the house. Watch and ask questions. This is your opportunity to find out about your house.

 

9. Title Insurance (Optional)

Buyers often encounter the option of purchasing Title Insurance for the first time when they are signing documents at their lawyer’s office. The word “title” refers to a person’s ownership interest in their property. By purchasing title insurance, homeowners are protecting their ownership to their property, and their lender’s priority in the mortgage against losses arising from various title and off-title risks. There is a one-time price for this insurance and it varies depending on the price of the property. It will cost $325 for a $500k home, $775 for a $1M home, and $1675 for a $2M home. The lawyer arranges it at closing time.

Two interesting articles from the Toronto Star will illustrate the importance of obtaining Title Insurance.

Title insurance as protection against home defects and problems – thestar.com

Title insurance as protection against fraud – thestar.com

 

10. Mortgage Life Insurance (Optional)

Mortgage Life Insurance is sometimes confused with Mortgage Loan Insurance. Mortgage Loan Insurance is the insurance required if a Purchaser’s downpayment is less than 20%. Mortgage Life Insurance is a life insurance policy that pays the balance of your mortgage to the lending institution if the mortgagee passes away.

When you obtain your mortgage, your lending institution will ask you if you would like to purchase life insurance. Most people would agree that it makes sense to insure a large debt such as a mortgage in case of death. However, Mortgage Life Insurance is not the only option. The following articles discuss Term Life Insurance versus Mortgage Life Insurance.

Perils of a mortgage life policy – thestar.com

 

11. Legal Fees and Disbursements

A lawyer will charge a fee for their professional services involved in drafting the title deed, preparing the mortgage, and conducting the various searches. The disbursements are out-of-pocket expenses incurred, such as registrations, searches, supplies, etc. HST is payable. Typically the legal fee will be around $1200 including disbursements. When searching for a lawyer, the Buyer is advised to ask for a quote that includes dispersements as they may cost $400-$500 of the total legal fee.

 

12. Adjustments

The Buyer will be required to reimburse the seller for any prepaid property taxes or utility bills.

 

13. Property Survey

A survey is a document that illustrates the property boundaries and measurements, specifies the location of buildings on the property, and indicates any easements or encroachments. A Survey typically costs between $1000 and $2000. A Survey may not be required if Title Insurance is obtained.