When you buy or sell a home, you need to anticipate closing costs, which are costs you can expect above the sale price of the property agreed to. Closing costs are commonly separated into two categories: nonrecurring and recurring costs. Nonrecurring closing costs are single time expenses, like appraisal fees for a mortgage, while recurring costs are ongoing, such as homeowner’s insurance and property taxes. In calculating your closing costs for budgeting purposes, you’ll need to plan each cost separately to ensure that you have sufficient funds to pay them.
Costs to the Vendor
When you sell your home, you can expect to incur up to six percent realtor fees unless you negotiate a discount or sell the home yourself. Typically, realtor fees are your largest expense when selling a home.
Beside realtor fees, the next largest cost to a seller is usually the provincial land transfer tax (between two and seven percent of the home’s price) and, in some municipalities (e.g., Toronto), there could be applicable municipal land transfer tax as well.
Any liens, property taxes and maintenance fees need to be paid before the home can be transferred to the new owner. If you have a mortgage on the property, it will need to be discharged as well.
Legal fees must also be considered as part of the costs, including a title search. If there are problems that occur in the sale of the property (e.g., the property does not meet a bylaw or property that the buyer expected to have included was removed), your lawyer may advise you to agree to compensate the buyer, by means of an abatement.
Any disposal fees and moving costs should also be factored into your budget. Many homeowners collect more over the years than realize until it’s time to stage the home or pack for the move.
Costs to the Purchaser
If you are the buyer of a home, you will need to provide an initial deposit with the Agreement of Purchase and Sale. If your deposit is less than 20 percent of the purchase price of the home, you will need to buy mortgage default insurance from the Canadian Mortgage Insurance Corporation (CMHC), which your lawyer will arrange for you.
If you need financing, you will also need to arrange for a mortgage and be prepared to pay for specific costs (e.g., appraisal fee for an assessment of the property’s worth) in addition to the monthly mortgage amount, which includes the interest fees.
Legal fees and disbursements and title insurance are further costs to you. A title search by your lawyer will ensure that property is clear to be sold and that there are no liens, unpaid taxes or other encumbrances outstanding on the property. Additionally, title insurance will be recommended by your lawyer to cover the loss of an interest in a property if there is a legal defect in the title.
Homeowner’s insurance is another requirement by lenders and, if you don’t need financing, it is still a good idea to have a home insurance policy to protect your own investment.
Besides single occurrence costs, like moving fees, furnishings and decor, you will also need to keep in mind new ongoing costs of the property, such as property tax, maintenance and repairs costs and utility fees.
If you are buying a brand new home, you will need to purchase window coverings and you may need a fence for your property. You may also desire some landscaping done. If you are buying a resale home, you may need to budget to replace certain items (e.g., roof shingles, windows, furnace), conduct repairs or renovations.
Whether your home is new or a resale, you could need to buy kitchen and laundry appliances and desire to have the home painted to suit your taste. You may also want buy an air-conditioning unit, central vacuum system and have automatic garage door openers installed. It is important not to overspend in the beginning, however, and plan to incur your expenses when you can afford them. Many Canadians get heavily into high debt once they become homeowners.
If you change your mind about buying the home after you have signed an Agreement of Purchase and Sale (e.g., you are relocated elsewhere for your job), you could also face legal costs from the seller and realtor. Your real estate lawyer will best advise you on what to do in your unique situation. Commonly your lawyer will recommend that you close the property and relist it if you do not wish to own the home.
