Thinking about buying a new home, selling your current one, or refinancing your mortgage? There's a lot to consider, and one important factor is the closing costs. These fees can add up quickly, so being prepared can save you from unexpected financial surprises.
What are closing costs?
Closing costs are the fees and charges you'll pay to finalize a real estate transaction. They vary depending on whether you're buying, selling, or refinancing, and can impact both buyers and sellers (or just the homeowner in a refinance). Typically, closing costs range from 1.5% to 4% of the purchase price for buyers, and can be a few thousand dollars for refinancing.
Buying a Home
- Land Transfer Tax: This tax varies by province and municipality, based on the purchase price of the property. Expect to pay a few hundred to thousands of dollars.
- Legal Fees: A real estate lawyer or notary will handle the legal aspects of the purchase, including title searches and document preparation. They typically charge $1,500 to $3,000 or more.
- Title Insurance: Protects against potential ownership issues with the property. It's usually required by lenders and costs $150 to $500 or more.
- Property Appraisal: For conventional mortgages, an appraisal may be needed to determine the property's value. This can cost $300 to $600 or more.
- Home Inspection (Optional but Recommended): Identify any potential problems with the property before you buy. Expect to pay $500 to $800.
- Property Tax Adjustments: Depending on the closing date, you may need to reimburse the seller for property taxes they already paid, or receive a credit if they haven't paid yet.
- Mortgage Default Insurance (if down payment is less than 20%): This protects the lender if you default on your mortgage. It can cost 2.8% to 4% of the mortgage amount, and may be added to your loan balance. Some provinces also charge additional sales tax on this insurance.
Selling a Home
- Real Estate Commissions: You'll typically pay the commission for both your Realtor and the buyer's Realtor, usually 3% to 5% of the sale price, plus applicable taxes.
- Legal Fees: A lawyer or notary will verify ownership and clear any liens on the title. Expect to pay $1,000 to $3,000 or more.
- Mortgage Discharge Fees: These are charged by your lender to close out your existing mortgage, typically costing $200 to $500.
- Mortgage Pre-payment Charges: Depending on your mortgage term, you may incur penalties for breaking it early. These can be 3 months' interest or the Interest Rate Differential (IRD).
- Repairs and Maintenance: If you agreed to complete any repairs or maintenance before selling, these costs will be factored in.
Refinancing a Home
- Appraisal Fees: The lender will require an appraisal to determine the property's current value. This can cost $300 to $600 or more.
- Legal fees: A lawyer or notary will be needed to verify ownership and register the new mortgage. Expect to pay $1,000 to $3,000 or more.
- Mortgage Discharge Fees: These are charged by your current lender to close out your existing mortgage, typically costing $200 to $500.
- Title Insurance: Your new lender may require title insurance to protect against ownership issues. This can cost $150 to $500 or more.
- Mortgage Pre-payment Charges: If you're breaking your existing mortgage term early, you may incur penalties of 3 months' interest or the Interest Rate Differential (IRD).
Get Expert Help
Planning a real estate transaction? Understanding closing costs is crucial. By budgeting for these expenses upfront, you can avoid financial surprises.
Contact me today! I can connect you with a trusted Realtor, lawyer, notary, or inspector in your area to help you determine the specific costs for your situation, and provide personalized advice and support throughout your real estate journey.