If you’re considering buying a house in Guelph, you’re going to find that the journey is an exciting one! But both sides of a transacation: buyer and seller have closing costs associated to closing. Being prepared for these costs beyond just the down payment will help make it an easier, less stressful journey.
This blog takes you through the closing costs associated with buying or selling a house in Ontario. If you are outside of Ontario, these costs can be different.
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Do closing costs include your downpayment?
Other costs related to buying and selling a home
What are closing costs?
Closing costs include all legal, administrative and real estate related expenses you’ll be responsible for paying in order to finalize the purchase or sale of your home. Closing costs can range anywhere from 1-4% of the actual home’s price and will be required to be paid on the closing date of the property.
Do Closing Costs Include Your Down Payment?
No, your closings costs do not include a down payment. However, some lenders will combine all of the funds required at closing. Your lawyer will then ask you to bring funds that cover both the closing costs and downpayment. This is often referred to as “cash due at closing”. Make sure you account for both these expenses to avoid being short in funds!
Closing costs for buyers
Below are the most common expenses you’ll pay when you purchase a home. Since each situation is different, there may be more expenses than captured here.
1 Land Transfer Tax
Whenever you buy property, you must pay a Land Transfer Tax (LTT). The LTT is a provincial tax in Ontario. This is the biggest closing cost.
The amount you pay depends on the province you live in and the value of your new home. Rates typically range between 0.5% and 2% of the home’s value. This can add thousands of dollars to your purchase price. As a first-time buyer in Ontario, you’re eligible for rebates on your LTT and more information can be found here.
There are some exceptions here though. In the case of a life lease or buying a property on leased land (such as the Village by the Arboretum), you may not pay Land Transfer Tax.
2 Appraisal Fee
Your lender may ask you to have the home appraisal to confirm its market value. An appraisal is an unbiased estimate on the value of your home that certifies the property’s resale value to the lender in case you default on your mortgage.
3 Legal Fees and Disbursements
A lawyer or notary will protect your interests and review your purchase agreement. They will search the property title and ensure that all documents are complete. This will ensure you properly in order to help you close on your new home. The amount of the fee will depend on the individual that you use, as well as your location. Typically, you’ll need to bring a cheque to the lawyer before the closing day for these costs.
4 Home Insurance
Your lender will require proof that the property that you will insure the property in case of fire and other damage. Home insurance costs vary widely, depending on the coverage needed and the chosen deductible. Be sure to get multiple quotes to find a competitive rate.
You may also benefit from bundling policies together, including your automobile insurance.
Keep in mind that Guelph insurance companies will require information on the home such as age of major components (roof, plumbing, electrical, heating system, water system, air conditioning) and depending on the age, condition and materials this could impact rates and coverages. Be sure to work with a Guelph Realtor who can answer these questions for you.
If you’re purchasing an older home, you should be aware of potential insurance issues that will arise. Things like knob and tube wiring, asbestos and galvanized steel. In many cases, home inspectors can help with identifying these issues.
GST/ HST on residential homes
Tax will be charged on new residential homes. However, existing residential home re-sales, tax is included in the purchase price. If you’re considering a pre-construction build or purchasing land, you may be required to pay HST on the purchase price.
Mortgage Default Insurance
Making a down payment of less than 20%? It is a regulatory requirement to insure your mortgage against default with a mortgage insurer. Read more about deposit vs downpayments here
This insurance protects the lender from default with the cost passed on to the buyer. You can roll this insurance cost into your mortgage, but the tax is due at closing.
9 Title Insurance
Most lenders require title insurance to protect you against fraud and problems with your property title or survey.
Purchase this through your lawyer or notary.
Closing costs for sellers
Real estate commissions
This is the big one here. In place of Land Transfer tax as a buyer, sellers pay the commissions on the purchase price. Ideally, the buyers deposit covers these total costs, but not always.
Real estate commissions can vary, but it’s best to budget the market standard of 5%. Half of this goes to the buyers agent, and half to the listing agent.
HST on commission
One last consideration if you’re selling a home: the real estate commission that you pay on a home is subject to Ontario Sales Tax of 13%. This harmonized sales tax (HST) is mandatory and often overlooked by sellers.
Other costs related to buying and selling a home
Your mortgage
As a buyer, the biggest expense on closing is simply the mortgage! Although not a true closing cost, all the details of your mortgage will settle up. You finally get the benefit of the best mortgage rate to start paying for your new home.
Moving Expenses
Don’t forget the cost of hiring a Guelph moving company. Unless you plan on your friends and family helping (buy pizza from local Guelph restaurants and beer as a thank you!), make sure you vet any movers carefully, as they are not all equal in price or service!
Ask us for Guelph moving company recommendations
Expenses related to Utilities disconnect
When moving, you’ll need to connect/ disconnect all of your Guelph utilities. Sometimes there is a fee to get this set up or disconnect. However, you can usually add this to your first bill.
We have a blog for this specific reason with all the numbers you’ll need. Find it here: Guelph utilities
Outstanding Property taxes
If you have outstanding property taxes, you can expect these to settle on closing. This is to ensure the new owner does not inherit your unpaid bills.
Outstanding building permits
If you’re selling a home that may have outstanding building permits and the buyer wants these closed/settled, there may be a cost. The cost could depend on the work to be done, but it may be anywhere from $200- limitless depending on the permit details.
Home Inspection
Although not technically a closing cost, a home inspection is a wise investment as a home inspector has access to areas of a home you wouldn’t, along with tools that the average person doesn’t carry. What’s the cost of a home inspection? Budget roughly $600.
A third- party, professional inspector will offer an objective visual examination of the physical structure and systems within a house, ensuring you’re making a wise purchase by outlining recommended repairs based on urgency.
In a buyers market, many buyers of houses for sale in Guelph will want a home inspection. If you have a seller that rejects your request for a home inspection, you may want to walk away. They could be hiding something.
What is a Statement of Adjustments?
Your lawyer or notary will calculate and prepare a statement of adjustments for you for the closing day. This will outline all the associated costs with the above mentioned items. It’s like an overall summary so you can see what you pay (and what you’ll receive!).
In some cases, you’ll get a credit portion on utilities, property taxes and other bills. This depends on where your closing date falls within the month/ payment cycle.
Have questions?
Beth and Ryan are real estate agents in Guelph who have a team that can help first time buyers navigate the Guelph real estate market. Contact them here!
This closing costs list contains many terms found on our common real estate terms blog.