Ready to purchase your first home?

Let’s see…  You’ve figured out your down payment, started working with a great real estate agent, and have partnered with a mortgage broker to develop a game plan for your mortgage financing, including getting several pre-approvals. You’re off to the races, right? Well, that depends…. Did you review your mortgage closing costs?

Make sure you understand and prepare for the costs that you will need to pay when you “close”, or finalize, your home purchase.  If you don’t have the money to pay your mortgage closing costs, your purchase will not go through. Not a good thing!  It’s also important to note that mortgage closing costs are unique to each municipality. So, you need to do your research. Costs in Toronto differ from those in Mississauga and the rest of the GTA, for example.

Mortgage closing costs – so what’s the total?

The exact amount is based on a number of factors related to your specific situation. For the GTA, I usually recommend that you budget about 1.5% – 3% of your purchase price. If you’re buying in Toronto, budget at the higher end of the range, just to be safe.

This will cover costs such as the following:

• Reimbursements – repaying the home seller for amounts that they’ve paid in advance, which are now owed by you. These are things like property taxes, utilities, and so on, that the current owners of the property have pre-paid.
• Ontario Land Transfer Tax (purchasing anywhere in Ontario) plus the Toronto Municipal Land Transfer Tax (if you’re purchasing in the city of Toronto). Click on each of these for the calculations and explanation.
• Home inspection fee – this is the amount for the inspector you hired to check out the physical structure of your home prior to buying it.
• Appraisal fee, if applicable – typically about $300 – $500 in the GTA; it depends on the uniqueness, value, and complexity of your property.
• HST on your  default insurance premium, if your down payment is less than 20% of your purchase price.
• Legal fees – speak to your lawyer about their fee schedule. Typically the range is around $1,500 – $2,000.
• Title insurance or property survey – many lenders will accept title insurance instead of needing a full property survey. Title insurance protects you against a number of situations that could threaten your ownership of your home, and most mortgage lenders require you to obtain it.
• Property insurance – this insurance, especially to protect against fire damage, must take effect the moment you are the owner of the home.  Your lender will require proof that you have arranged it.
• Status certificate fee of $100 – this applies to condos only.
• Interest adjustment amount – if your closing date and your first mortgage payment date are more than a month apart, there may be interest owing.

What can you do if you don’t have the money for closing costs?

There are a couple of options for you in this scenario:

• Wait a little longer to purchase your home, until you have the money saved for closing costs.  Or,
• Consult with your mortgage broker. Some lenders offer “cash back” programs where you can get up to 5% of the mortgage amount paid to you on your closing date. You can then use the funds for closing costs or another purpose.

What about programs to help first-time homebuyers?

There are programs and rebates available to you if you’re buying your first home. Check out my post here for more details.

And if you have any questions about this or another Ontario mortgage situation, please get in touch with me. I would be happy to help. There’s no cost or obligation.

Enjoy your (well-prepared) house hunting!

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