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What are mortgage closing costs in Canada?

Many people think that once they have their down payment sorted, there is nothing further to consider when paying for a property purchase. However, this could not be further from the truth, and often additional costs can range from 1.5% to 4% of the total purchase price of your home.

You will need to pay for administrative and legal fees during the final stages before your house closes. In addition to these closing fees, there can be further expenses which you would be recommended to assess and consider your requirement for them.

Mandatory Closing Costs for a Home Buyer

Home Inspection

It is always highly recommended that prospective buyers, once they have had their offer accepted, should contract a home inspection to assess the property’s status. This is often included as a condition as a part of your offer on a property. A home inspector will create a report on the condition of the property you plan to purchase, and this should uncover anything that you may not have known about the property. For example, it may be uncovered that you don’t actually own the land on which your garage sits on, and something like this would be a reason to pull out of the purchase of a property.

A home inspection should cost around $500.

Deposit

A deposit can act as some assurance to the seller that you’re committed to purchasing their property. The deposit which you provide will count towards the down payment of the property. If you plan to make a deposit, it is required to be made as part of your offer to purchase. This is often used as evidence to the seller that you have the financial means to purchase the property at the level at which you have made an offer and that you’re comfortable taking on an element of risk during the property closing process.

There is no minimum required deposit which you need to put down.

Mortgage Costs

The key cost associated with your mortgage is mortgage default insurance (CMHC insurance). It is only payable by those who are putting a down payment of less than 20% of the property’s total purchase value. Your down payment determines the significance of this cost, and you will pay a larger percentage with a smaller down payment. The purpose of this cost is to give the lender some added protection when taking on borrowers who do not have the ability to provide larger down payments.

The fee here will be added on top of your monthly mortgage payments.

Costs Covered by the Buyer

Land Transfer Tax

This tax is calculated as a percentage of the property’s total purchase price and is payable upon closing. The amount of this tax varies depending on which province of Canada you live in. Some cities, such as Toronto, also have a municipal land transfer tax to keep in mind.

Title Insurance

Most lenders will require title insurance. This will protect against losses in the event there is a dispute on the ownership of the property. Generally, this is purchase through your lawyer and should cost around $100 to $300.

Legal Fees

Legal fees can be significant, and you should expect them to be at least $500 at a minimum. Legal fees will be paid for a lawyer to prepare official statements during the home buying process. It is recommended to have a chosen residential real estate lawyer in mind before you even start making offers on properties.

Water Testing

If the property you are purchasing has a water well, you may wish to test the quality of the water and the level of water supply. It is possible that this can be brought into the deal with the owner as a part of your offer, and they may cover the cost.

Septic Tank

If the property has a septic tank, then it should be assessed by a professional to confirm that it is in working order and has no notable issues. It is likely possible that the cost of this can be negotiated with the seller and become a part of your offer to them.
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