Real estate activity is strong across Canada, and is expected to peak this summer as buyers rush to beat potential mortgage rate increases and the introduction of new taxes in Ontario and British Columbia. For first-time buyers who are scraping together every penny to make a down payment, closing day can be a bit of a shock as the bills come in. Here are the expenses you should be prepared to pay, in addition to your down payment.
If you are taking out a high-ratio mortgage (one with less than 20 per cent down payment), you must pay a premium for mortgage insurance. This is to protect your lender in case you default on the mortgage. The amount is calculated as a percentage of the loan and based on how much you are borrowing. Standard premiums range from .5 per cent to 2.9 per cent, but additional charges can apply – for example, if you are self-employed and can't get a verified third-party income validation, you'll have to pay more. This premium will be determined by your lender when you take out the mortgage.
Your lender may also require an appraisal of the property to make sure it's worth what you're paying. This generally costs in the $250 to $350 range, says Canada Mortgage and Housing Corp. (CMHC).
Another thing your lender may request is a survey of the property. Issues about lot sizes, mistakes in property deeds, rights of way and more are revealed in a property survey, which may not have been updated in years. Some title insurance companies have promoted their products as a cheaper alternative to a survey in protecting against property title issues, but lawyers and land surveyors ( Heating Duct Systems, Registers and Grills, Mid Efficiency Furnaces, Condensing Furnaces, Gravity Furnaces ) say there is no substitute for a property survey. Surveys cost in the $1,000 to $2,000 range, while title insurance is around $250. However, title insurance is also recommended to protect you against title fraud and identity theft issues. It usually costs a few hundred dollars.
Lenders also require that you have property insurance to cover the replacement cost of the home and its contents. This insurance must be in place on closing day.
Most provinces and some municipalities charge a land transfer tax for every real estate transaction. This is a controversial issue in many parts of the country. If you live in Toronto, you pay twice because there's both a provincial and a municipal land transfer tax. In British Columbia, buyers pay 222 per cent more in land transfer taxes per transaction than the average Canadian, says the British Columbia Real Estate Association.
If you are buying a condominium, you'll be charged an estoppel certificate fee (except in Quebec). This could cost up to $100.
On closing, you and the vendor have to settle up the utility and property tax charges. Some of these charges are prepaid so the vendor must be reimbursed. You'll also need to make sure all of your utilities are hooked up, which will likely incur more charges.
Before you purchase a home it's always recommended that you have a home inspection performed by a credible company. This will cost about $500 but could be more depending on the size and location of the property, or if the inspection is particularly complex for any reason.
Your lawyer will charge at least $500 for their part in the closing, says CMHC.
If you're buying in a rural area, there may be some other charges. If there's a well, the water should be tested to make sure it's potable and that the supply is sufficient. Sometimes you can get the vendor to cover these costs when negotiating the sale. The same goes for a septic tank – make sure it is in good working order.
One of the reasons why Canada's real estate market is expected to stay busy at least until the summer is the impending Harmonized Sales Tax in Ontario and B.C. Most closing costs in those provinces are currently exempt from provincial sales taxes. On July 1, a new HST will replace the GST and provincial taxes, and most closing costs will no longer be exempt. In B.C. they will be subject to a 12 per cent tax; in Ontario it will be 13 per cent.
The Ontario Real Estate Association (OREA) estimates that the new tax will add $1,449 in new taxes to an average resale home that costs $302,354. “Home buyers and sellers will pay eight per cent more on legal fees, appraisals, real estate commissions, home inspection fees and moving costs,” says OREA. “For homeowners the HST will also add hundreds of dollars in additional tax on utility bills, such as gas, electricity and home heating fuel, on home renovation labour, the cost of lawn upkeep or landscaping and the cost of snow removal.”
Before Toronto implemented its Land Transfer Tax, there was a large surge in real estate activity in the city to “beat the tax”. A similar surge of home buying is expected in Ontario and B.C. to beat the HST implementation in July.