Buying a New Home Blog Series – Part Three – Closing Costs

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Buying a new home can get very expensive, very fast. When people think of closing costs, they may think about their down payment and legal fees but there are many additional small costs that are incurred when buying a new home and they can add up. The 5 most common closing costs are the down payment, land transfer tax, inspection fees, legal fees and homeowners insurance.

While there is “no money down” mortgage financing available to those who have very good credit and income, it is always best to make at least a 5% down payment. When buying a new home you will qualify for a lower interest rate if you have at least a 5% down payment. “No money down” mortgages often bear a slightly higher interest rate. The more money you can raise towards a down payment on a home, the lower your mortgage payment will be.

When buying a new home, your land transfer tax is usually 1% of the amount of the property purchase price, except for in the City of Toronto. In Toronto, the land transfer tax is higher because there will be a land transfer tax payable to both the City of Toronto and the Province of Ontario. First time home buyers can qualify for a rebate of up to $2,000.00 of the land transfer taxes payable.

Home inspections are important. Even if you are buying a new home you should have a home inspection done. Home inspections usually cost about $500. The home inspector will ensure that your home is in good condition and there are no surprises when you take possession of the home.

When buying a new home you will need a lawyer both to handle the purchase of your property and to close your mortgage. Using a lawyer that can represent you in both the purchase of your home and in the financing of your mortgage will save you money. Usually the cost of a single lawyer who handles the property purchase and your mortgage closing will cost between $1,000 and $1,500 including disbursements.

Homeowners insurance is mandatory and required by the bank. It protects both you and the bank in the event that there is a fire in the home or other disaster. Homeowners insurance can be purchased and paid for up front or you can make payments on a monthly basis. If you are concerned about the cost to carry your new home, you can reduce your monthly carrying cost by purchasing your homeowner insurance up front.

Another consideration that many people don’t think of when purchasing a new home is their property tax holdback. Anytime you buy a new home where the bank includes your property tax payment into your mortgage payment, there will be a property tax holdback. Your property tax holdback is usually equal to 3 months of property taxes. When your property and mortgage closes, your bank will hold back your property tax and so you will have to pay the amount of your property tax holdback in addition to your down payment. Your land transfer taxes are also due on closing.

Being aware and planning for costs that you will have to pay on closing will ensure that you are financially prepared when making the decision to buy a new home.

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