Home buying is undoubtedly an exciting process, but there sure can be a lot to learn.
One of the common questions that our show home hosts and sales team receives is concerning closing costs. Home buyers that have come close to signing on the dotted line often have just a few questions left, with one of them being:
What are the closing costs going to be?
Today, we’ve connected with our preferred real estate agent here at Lincolnberg Master Builder, Brent Anderson, to explain exactly how much you can exact to pay in closing costs on your new home here in Canada.
How Much Are Closing Costs in Canada?
So, how much are closing costs, really?
Some builders, like Lincolnberg, have included the costs of new home warranty, closing legal costs, land titles fees and disbursements leaving very little for the buyer to pay for out of pocket beyond the downpayment. Some costs, like CMHC fees are built into your mortgage payment and so this costs is not an upfront cost and some costs, like a home inspection and appraisal, are optional.
There are closing costs for all house sales, whether it is a brand-new home that you’ve customized or you are buying a quick possession or previously-owned home.
One incredibly common closing cost, however, is not necessary to consider in Alberta.
Land Transfer Tax
Alberta is the only province in Canada that does not have a land transfer tax. Land transfer tax is paid as a provincial tax, so it is not always the same, province by province.
In B.C., people buying a home over $200 000 and under $2 million will pay 2% of the property value — that means that if you buy a $500 000 house, you pay an extra $10 000 as a property transfer tax.
Alberta’s lack of land transfer tax is a huge bonus to building homes in Alberta as not having that extra closing cost is incredibly beneficial.
There are a number of one-time closing costs associated with buying a house. You will need to pay them each time you are a new home purchaser.
At least 5% of the property and build cost.
The first closing cost associated with buying a home is a down payment. In Canada, to secure a mortgage loan you will need to put down a down payment of at least 5%. Down payments are a necessary closing cost for any mortgage, whether it’s for a new custom home or you’re buying a previously built house. A down payment can either be a borrowed line of credit, or saved over several months/years.
Up to 4% of the purchase price.
CMHC is the Canada Mortgage and Housing Corporation. CMHC provides mortgage insurance, and a one-time premium is paid in closing on the house. CHMC Premiums are calculated by the amount of a down payment you have. If you have a down payment of over 20%, you will likely not be required to pay CMHC premiums. If you have a 5% down payment, you will pay up to 4% of the total loan in premiums. If the house you want to purchase is $450,000 and you have $22,500 (5%), you will then pay $17,100 in CMHC insurance (4%). So, for your $375,000 house with 5% down, you will need a mortgage of $444,600. CHMC insurance premiums do decrease the larger percentage of a down payment you have. If you have a 10% down payment, you will pay 3.10% in CMHC premiums, and if you have a 20% downpayment, you will not pay any premiums.
$450 to $600
If you’re purchasing an older home, you’ll want to pay for a home inspection before making an offer. Not only is it incredibly beneficial for peace of mind, but you will get a true sense of the state of the home and may be able to negotiate a better price based on necessary home improvements. Some people choose to inspect news homes as well just to make sure everything is up to code, all the new windows and doors are sealed, and everything else you’d want to check before moving in.
Additional Inspection Fees: if you are living in the city, just a home inspection is necessary. However, if you’re living on an acreage property, you will want the wells and septic tanks to be inspected as well. This is an additional $500.
Appraisals are not always required, and sometimes they will be covered by the lender. You should still be prepared to cover this expense, though, in case it is deemed necessary by your insurance provider and your mortgage lender is not covering the service.
Closing Legal Fees
$1,500 – $1,800
In order to close on a house, you will need the help of a lawyer who is trained to close on large purchases. Your lawyer will look over all the paperwork associated with your mortgage, the bill of sale, and all the property information. They will explain everything to you and make sure you are well informed before you sign.
Moving costs are not cheap, but you can save or spend money depending on how you choose to move. If you plan to move everything yourself, you can rent a 26’ truck for 10 hours (large enough for a 3 or 4 bedroom home) for $40 plus $0.69 an hour, and then you’ll need to buy boxes, tape, etc. Professional movers can cost you from $80 to $100 an hour. You can save more money by renting a truck and doing it yourself, but if you do not have the time or are concerned about it, professional movers will cost from $600 to $1000.
Property Tax Adjustment
You may have to pay an adjustment fee for your property taxes when you move. This amount is dependent on where you live, when the seller pays their property taxes, and whether the seller pays their property taxes monthly or annually. If they pay monthly, you will need to take over the property taxes of your new home immediately.
New Home Warranty Fee
If you are building a brand new home, one additional closing cost is a new home warranty fee. You will want a warranty on your new home, so this closing cost is usually attached to your estimate with your builder; however, you will want to ensure that you have a warranty and that you are prepared for the charge.
Final Thoughts on Closing Costs
Building or buying a new home can come with many additional costs, so it’s important to know what the costs of closing on a home are before you buy and, if you’re building new, whether your builder covers any of these costs. Preparedness will help keep the home building and buying process fun rather than stressful!
Special thanks to Brent Anderson from Brent Anderson Real Estate Group for consulting on the types of closing costs.
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