Lindsay, my husband and I are considering buying our first home but are confused about what costs are involved. Other than our down payment (we have 5% as a down payment) what other costs will we incur when we buy a home. 

Stella

Hi Stella, this is a very basic question that every new buyer asks when they are gathering information about buying a home. Also, with the changes in real estate many move-up buyers do not ask or are not informed by their realtors of the changes since they last bought a home.

The costs involved in buying a home are very specific and most apply to every home purchase. However there are a few items that appear due to the differences of how a buyer chooses to set up the home purchase.

Let’s start from the beginning of the home buying experience and work our way through the process to the move in date. Once you find the home you are interested in buying and place an offer, one of the requirements will be placing a deposit on the home. This money is seen as “good faith” money and is typically held in the trust account of the Listing Broker. The average deposits range from $1,000 – $5,000 locally. This money is held in trust and becomes part of your down payment on closing. Once the home has been secured, and if there is a condition upon Inspection, a home inspector will do the inspection and the costs will be in the $300 – $500 range. This charge will be paid for at the time of inspection.

Assuming the home passes all of the conditions and becomes a firm contract, (meaning it is yours on a date in the future) the next step is really left up to the lawyer. There are several items a lawyer will bill you for: Their fee, land transfer tax and HST /PST

The lawyer will require these fees to be paid somewhere within a week prior to closing, along with the balance of your down payment. (less the deposit already paid) Here are some local averages of what you lawyer will bill for:

- Lawyers fee: $1200 – $1500. (including disbursements)

- Land Transfer Tax: this is calculated on the price of the property. Examples to follow.

- HST/PST: this gets a bit complex, I will explain below.

- If the home is on oil heat the Seller will fill the oil tank and you will be required to pay for the tank of oil.

- Any “paid in advance” property taxes.

Lawyers fees range from lawyer to lawyer, and will be in the range of $1200 – $1500. I called Jane McCarthy from Palter McCarthy Law Firm in Oshawa and she indicated that her fees seem to be in the $1300 – $1400 range (including disbursements) and went on to explain that the disbursements include Title Insurance, fees for searching the title of the property and doing searches on the buyers names. (called executions)

Land Transfer Tax: is really calculated on a sliding scale. Here is the formula: .05% up to $55,000 add .01% from $55,001 – $250,000 and add 1.5% from $250,001 to $400,000 and add 2%. Therefore, a home purchased for $275,000 would be $275 + $1950 + $375 = $2600

HST/PST: HST is applied to all services. (lawyer’s fees, disbursements, home inspection services etc) PST applies to CMHC mortgage insurance. For a simple example a home being purchased for $250,000 with a 5% down payment the mortgage insurance would be $4750 and the PST on it would be $380. This would be collected by the lawyer. One thing to take into consideration is HST is not applicable to resale homes themselves, just the services.

Paid in Advance Property Taxes: this is one of the only “wild cards” in buying a home. If the seller has paid the property taxes in advance the buyer is responsible for rebating the seller all of their pre-paid property taxes the town/city hold on their behalf. In our area, property taxes are collected in 4 instalments but some homeowners prefer to pay them in advance. Another potential issue can come up if a bank is collecting taxes on behalf of a homeowner and paying the city directly there may be monies that need to be adjusted on closing.

All in all, the closing costs do not change from home to home so there is little to be worried about. The unknowns are the property taxes and HST/PST that will be based on the conditions mentioned above.

Lindsay