When you're buying, selling, or refinancing a home, closing costs are a part of the process you can’t escape—but you don’t have to be caught off guard by them either. Let’s break down what you need to know so you can budget wisely and avoid any surprises.
What Are Closing Costs in a Real Estate Transaction?
Closing costs are the fees and expenses that come into play when you finalize a transaction. Depending on whether you’re buying, selling, or refinancing, these costs can vary. For buyers, closing costs typically range from 1.5% to 4% of the purchase price, while refinancing might set you back just a few thousand dollars—costs that you may even be able to roll into your mortgage.
Common Closing Costs When Buying a Home
- Land Transfer Tax: This tax varies by province and municipality and is calculated based on the purchase price.
Potential cost: A few hundred to thousands of dollars. - Legal Fees: These cover the services of a real estate lawyer or notary who will handle the legal aspects of the transaction. These fees may include title searches, title registration, and the preparation of necessary documents.
Potential cost: $1,500 to $3,000 or more. - Title Insurance: A one-time fee to protect against potential title issues, such as disputes over ownership. Lenders require this, but homeowners can also opt for additional coverage.
Potential cost: $150 to $500 or more. - Property Appraisal: Conventional or lower loan-to-value mortgages may require an appraisal to determine the fair market value.
Potential cost: $300 to $600 or more. - Home Inspection: Optional but highly recommended to spot any issues with the property.
Potential cost: $500 to $800 or more. - Property Tax Adjustments: You may need to reimburse the seller for taxes they’ve already paid, or you might receive a credit if taxes are unpaid, depending on when your home purchase closes.
- Mortgage Default Insurance: Required if your down payment is less than 20%. Costs range from 2.8% to 4% of the mortgage amount and can be added to your mortgage balance. Ontario, Quebec and Saskatchewan also charge provincial sales tax on this insurance, which must be paid at closing.
Common Closing Costs When Selling a Home
- Real Estate Commissions: The seller typically pays the commission for both the buyer’s and seller’s Realtor, usually between 3% and 5% of the sale price plus any applicable taxes, such as GST/HST.
- Legal Fees: Cover the real estate lawyer’s services to verify ownership and clear any liens or charges against the title.
Potential cost: $1,000 to $3,000 or more. - Mortgage Discharge Fees: Charged by your lender to close out your mortgage.
- Potential cost: $200 to $500.
- Mortgage Pre-Payment Charges: Depending on your mortgage term, pre-payment penalties may apply.
Potential cost: 3-months’ interest or the Interest Rate Differential (IRD). - Repairs and Maintenance: Costs for any agreed-upon repairs before the sale.
Closing Costs When Refinancing a Home
- Appraisal Fees: Your lender will require an appraisal to confirm the property’s market value.
Potential cost: $300 to $600 or more. - Legal Fees: Cover the services of a real estate lawyer or notary to verify ownership and register the new mortgage.
Potential cost: $1,000 to $3,000 or more. - Mortgage Discharge Fees: Charged by your current lender to close out the existing mortgage.
Potential cost: $200 to $500. - Title Insurance: Your new lender may require this to protect against title-related issues during refinancing.
Potential cost: $150 to $500 or more. - Mortgage Pre-Payment Charges: If you’re breaking your existing mortgage term, you may face penalties of three months’ interest or the Interest Rate Differential (IRD) depending on your original mortgage terms.
Get Expert Help Today
Understanding closing costs is key to navigating your real estate transaction smoothly. With the right preparation, you can budget effectively and steer clear of unexpected financial stress.
Reach out to me today for personalized advice on your next move! I work with top-notch Realtors, lawyers, notaries, and inspectors who can help you estimate the costs specific to your situation. Let's make your real estate journey as smooth as possible!