Preparation is key to being competitive in a sellers market– including preparing for closing costs.
If you’re considering buying a house in Guelph, you’re going to find that the journey is an exciting one! But being prepared for the costs that can arise, beyond just the down payment will help make it an easier, less stressful journey.
You’ve likely heard of closing costs, but what exactly does that mean?
Closing costs include all legal and administrative expenses you’ll be responsible for paying in order to finalize the sale of your home in Guelph. It’s important to include these costs in your budget because they often can’t be rolled into your mortgage payments. Closing costs can range anywhere from 1-4% of the actual home’s price, depending on the specific property you plan to purchase.
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!
Here are 10 common closing costs to help you calculate your expenses and better prepare for your purchase:
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.
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 completed. 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.
4 Home Insurance
Your lender will require proof that the property will be insured in case of fire and other damage. Home insurance checklist 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 such as downtown Guelph homes, you should be aware of potential insurance issues with knob and tube wiring, asbestos, galvanized steel and termites. In many cases, home inspectors can help with identifying these issues.
5 Home Inspection (not a closing cost)
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 $500. 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 sellers market, many buyers of houses for sale in Guelph will forego a home inspection in order to make their offer more attractive versus buyers from area code 437, 416 and 905 . However, it doesn’t always have to be so black and white. If savvy, your Guelph Realtors can suggest strategies that may allow you to get that inspection (pre-offer home inspection, shortened inspection condition, offering a premium price to offset a condition).
6 GST/ HST on residential homes
Tax will be charged on new residential homes. On Guelph pre-built homes, tax is included in the purchase price. If the home you’re purchasing in Guelph is less than $450,000 and will be your primary residence, you may be eligible for a partial rebate.
If you’re considering a pre-construction build or purchasing land, you may be required to pay HST on the purchase price.
7 Statement of Adjustments
Your lawyer or notary will calculate and prepare a statement of adjustments for your portion owing
on utilities, property taxes and other bills based on where your closing date falls within the month/ payment cycle.
8 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.
10 Moving Expenses
Finally, 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 your Guelph Realtor for recommendations of Guelph moving companies.
11 HST on commission for sellers
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.
12 Your mortgage
Finally, the biggest expense on closing is simply the mortgage! Although not a true closing cost, all the details of your mortgage are settled. You finally get the benefit of the best mortgage rate to start paying for your new home.
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!