If you’re planning to buy a home this year, have you thought about the closing costs involved with the purchase? Closing costs are easy to forget, but they are certainly important to keep in mind during the buying process! There are several fees you will need to pay along the journey to owning your new home. Here are some of the biggest ones to remember!
Land transfer tax
A land transfer tax is a tax you will pay once the transaction closes on your new property. Paying this tax means your home is officially registered in your name. If you are also selling a house, your name is transferred off that property. This tax is based on the sale price of your new home, as well as your province of residence. In Ontario, for example, we have the following set of rates, which is outlined on the Government of Ontario’s website as:
- amounts up to and including $55,000: 0.5%
- amounts exceeding $55,000, up to and including $250,000: 1.0%
- amounts exceeding $250,000, up to and including $400,000: 1.5%
- amounts exceeding $400,000: 2.0%
- amounts exceeding $2,000,000, where the land contains one or two single family residences: 2.5%. (Source: Government of Ontario).
The land transfer tax is a one-time payment you make when you take possession of your new property. If you’re a first-time home buyer, you may also be eligible for a land transfer tax rebate! You can read more about that here.
Property tax
Unlike land transfer taxes, property taxes are due annually after you purchase a home. These are calculated based on an assessment value of the property. Here in Barrie, the property tax rate is 1.25 per cent. Property taxes exist as revenue for the city or region you live in. Your payments help local governments pay for public services like policing and schools, and projects such as construction and sewer maintenance.
Legal fees
Lawyers help you complete several of the more technical aspects of buying a home, which means legal fees are another cost to remember! Legal fees cover things like drafting title deeds, purchase agreements, and other mortgage-related documents. These documents protect you as the buyer, because your lawyer ensures everything about your property purchase is secure and fair. Legal fees can range in cost, but they are often at least $1500.
You will also have to purchase title insurance when you buy your home. This is your proof of ownership of the property, and it transfers the title into your name. Title insurance protects you from any potential challenges to your ownership. Insurance companies and lawyers often both provide this insurance, and it usually costs around $200 – $500 as a one-time purchase.
Moving costs
Moving costs are one of those closing costs that can be easy to forget in the chaos of purchasing a property. However, it’s important to plan out your move ahead of time to stay organized, and this includes the associated costs. Depending on how you choose to move your items to your new home, you might be renting a moving truck for yourself, calling on some friends to help, or handing control over to a moving company. A moving truck big enough for a house-to-house journey can cost as little as $40, plus extra fees depending on kilometres driven. Hiring a moving company can cost over $1000, but it takes a lot of work away from you. It’s up to you to decide how much work you want to do yourself, and how much you’re willing to pay.
Property insurance
Property insurance is essential for all homebuyers. It protects you in case of home damage, and provides you with peace of mind. Plus, most lenders require the purchase of home insurance in order for them to finance your mortgage. The cost of insurance depends on the size of your home, its value, and the estimated cost of items you own. In general, yearly insurance fees are around $1000, but they can certainly be higher or lower depending on your unique circumstances. Since this is an annual cost, it’s important to budget for it when you purchase a property!
Ongoing utility costs
Finally, being a homeowner means paying to make your home liveable. This includes things like water, heat, electricity, and internet access. These will likely be monthly fees you will pay to the providers of these services, and again, the costs can vary. Internet fees can often reach $100 per month, while other utilities tend to sit between $50 and $100 per month as well, depending on the season and location. These aren’t exactly closing costs since you will pay for them as long as you own the property, but they are important to start thinking about now!
Individual closing costs don’t seem like much compared to things like your down payment and mortgage costs. However, when you add them up they do equal a good amount of money! If you’re planning on buying a home, we recommend thinking about closing costs early on in the process. Incorporating them into your budget will help you determine what you can afford.
If you have any questions about your mortgage, get in touch with me!