Mortgage Closing Costs

Defining Mortgage Closing Costs

Mortgage closing costs, often a small percentage of the purchase price, are the legal and administrative costs you will need to pay when your home purchase is complete and title is preparing to be, or has been, transferred (otherwise known as when your “house closes”). While some of these costs are covered by the lender or able to be included in the total amount financed, most fees are paid by the client in advance of any funds being transferred from the lender. As a result, these mortgage closing costs should be considered in addition to the down payment when purchasing a home. In addition to closing costs, there are other expenses and/or events that may require a cash outlay before, on, or after your house closes.

Shane helps you stay well informed and prepared

Shane and his experienced team believe that a well informed and prepared client are satisfied clients who are well positioned to make the best decisions for them, their families, or their businesses. As such, they work to make clients aware of the costs involved in mortgage financing to ensure that they do not run into any surprise costs for which they are unprepared and unable to cover.

When purchasing, most clients often only consider their down payment, not realizing that there can be a small percentage of additional costs, known as “closing costs” before, on, or after their house closes (the purchase completes). As mortgage experts, Shane and his team can guide you through these costs and help you prepare to ensure a fast and efficient purchasing and mortgage financing experience.

Mortgage Closing Costs

Closing costs, such as legal fees, and other one-time expenses associated with the purchase of a home can really add up, and you’ll need to factor these costs into your cash-on-hand budget. Shane and his team can help guide you through these costs and be best prepared for what you will encounter when purchasing your new home.

While the exact costs are best outlined by a real estate salesperson (REALTOR®) after obtaining a mortgage pre-approval from Shane, many first time buyers underestimate the amount they will need. Generally speaking, you’ll want to budget between 3% and 4% of the purchase price of a resale home to cover closing costs. So, on a home that costs $200,000, your closing costs could run anywhere from $6,000 to $8,000.

These are estimates and the actual amount you will need could be higher or lower, depending on factors like where you plan to live, the type and size of home you’re buying, or if it’s new construction. The exact costs will be unique to each buyer.

Shane and his team have outlined some of the common closing costs and what clients may expect before, on, or after the purchase of their home is complete (or their “home closes.”) As Shane’s clients are from all across the Greater Toronto Area (GTA), Niagara region, Southwestern Ontario and throughout Ontario, it is difficult to provide exact costs of these items as property values vary along with the cost of the various outlined professionals, from appraisers to lawyers.

There are also some differences in the costs that some lenders will both require and cover themselves or allow be included in the funds being borrowed. As well, the exact process of a home purchase is as unique as the home itself and the advice of a licensed real estate salesperson (REALTOR®) is recommended after obtaining a fast and comprehensive pre-approval from Shane. Shane has many trusted salespersons across the province. Therefore, the outline provided here is meant to serve as a guide.

Costs often included in the total mortgage amount

Mortgage Default Insurance

While not typically considered a traditional closing cost, mortgage default insurance is required if you purchase a home with less than a 20% down payment. It may also be mandated as a requirement by some lenders prior to obtaining financing. It is most often added to the total mortgage amount and amortized over the life of your mortgage. While it does not represent any required upfront cost, it can be paid in full at the time of home purchase by the buyer if they choose to do so.

Approximate cost: Varies, based on your total mortgage amount

Cash outlays required before your home closes

Down Payment Deposit

A deposit that counts toward your down payment is required when your Offer to Purchase your new home is accepted. It not only signals that you have the financial ability to make the purchase but also that you're serious and committed to buying their property and willing to take on some level of risk until the deal closes.

Approximate cost: Varies, no minimum required amount

Home Inspection Fee

A highly recommended home inspection may be included as a condition of your Offer to Purchase. A qualified and licensed home inspector, working for you, will assemble a detailed report on the condition on the home. Depending on the complexities of the inspection, the cost may increase.

Approximate cost: $500, if applicable

Appraisal Fee

A recognized home appraiser provides a professional opinion confirming the market value of the property. This may be required by the lender to determine whether the selling price is reasonable for the market depending on factors such as the property location and condition, as well as any renovations or upgrades performed.

Approximate cost: $300 or more, depending on location of property

Land Survey Fee or Certificate of Location Cost

If the seller is unable to provide a up-to-date survey or certificate of location, the lender may request that you provide one prior to the mortgage loan being finalized. Title insurance may be accepted by some lenders in lieu of a survey. This varies from lender to lender and you should ask Shane and his team for clarification.

Approximate cost: $1,000 - $2,000, depending on location and size and type of property

Cash outlays required as your home closes

Taxes on Mortgage Default Insurance

If mortgage default insurance is required or electively obtained, taxes must be paid on the insurance at closing regardless of whether the cost of the insurance is being amortized throughout the lifetime of the mortgage or paid on closing as the buyer may elect to do. This tax may be required in the form of PST.

Approximate cost: Varies, dependant on cost of mortgage default insurance and government jurisdiction

Title Insurance

Title insurance protects against loss caused by defects of title to the property, including real estate fraud and often paid as a one-time fee. Most lenders will require that you purchase it, especially in lieu of having a land survey or certificate of location. When this insurance may be elective, it is recommended by Shane and his team.

Approximate cost: $400

Property Insurance

While each lender may require a different level of insurance, it is often a requirement by the lender that the borrower obtain and maintain a minimum of fire or significant damage insurance for at least the replacement cost of the property. The policy must be in effect on closing day. It is also recommended that you obtain adequate coverage to protect the contents of your house as well as against other types of destruction to your home, such as sewage backup and water/flood damage.

Approximate cost: Varies, dependant on replacement value

Legal Fees

A lawyer will be required to be involved in the real estate purchasing process, as well as during your mortgage financing, and may conduct some services such as a title search, drafting the title deed, and preparing the final mortgage documents. A lender may have a legal firm they require to be used or may leave this to your discretion.

Approximate cost: Minimum of $1,000, dependant on lawyer and firm

Land Transfer Tax

Also called municipal and provincial tax, property transfer tax, land registration fees, deed registration fees, or a tariff. This is a provincial or municipal tax based upon the purchase price and is calculated differently in various jurisdictions by the province or municipality. It generally applies to resale homes, although some provinces will charge tax on new construction homes as well.

Approximate cost: Varies, dependant on purchase price

Estoppel Certificate Fee

You may pay this if you are purchasing a condominium or strata unit. This certificate is accompanied by the financial statements of the condo corporation and outline common fees for your unit and the status of the seller's payments, the reserve fund for the condo corporation, etc. Your lawyer/notary may require this document to proceed with the closing transaction of the purchase and should advise if they identify any shortcomings after they have reviewed the financial statements.

Approximate cost: Up to $100

Mortgage Life & Disability Insurance

Optional insurance recommended by Shane and his team to provide policyholder(s) with security and peace of mind as they receive coverage to help meet financial responsibilities of their new mortgage. In event of death, mortgage balance is paid in full. In event of disability, some type of mortgage payment is made to cover mortgage payments. Both of which can protect family, lifestyle, and assets in the event of death, critical illness, disability, or involuntary job loss. Insurance options often included balance protection (life and critical illness) and payment protection (disability and job loss). All subject to the terms of the insurance policy.

Approximate cost: Premiums vary on coverage, applied for during the mortgage financing process

Other costs to consider

Septic & Water Tests

Depending on the type and location of your home, you may want to have a septic tank and water test conducted, if applicable. You will want to ensure that the septic tank is in good working order and that there is an adequate water supply and if the water is potable. You may be able to negotiate these costs and have them included in your Offer to Purchase. You are recommended to consult with your real estate salesperson (REALTOR®) for more information and if this is applicable to you.

Approximate cost: Varies (if applicable), may also be included in Offer to Purchase

Prepaid Utility Bills

You may need to reimburse the previous owner of the property for prepaid costs such as property taxes, utilities, and so forth, if they are prepaid.

Approximate cost: Varies, dependant on amount prepaid

Prepaid Property Taxes

You may need to reimburse the previous property owner if he/she has already paid property taxes for the full year. You may be given the option to set-up an automatic payment plan with your lender to pay for the property taxes, lessening the cost for you upfront. Your lender will set up an account for you, collect additional funds per month and then pay property taxes on your behalf. Though by no means necessary, some homeowners find this service extremely valuable for budgeting purposes.

Approximate cost: Varies, dependant on property type and size, as well as the government jurisdiction

Moving Costs

Some buyers will overlook the additional costs incurred when having to physically move their belongings from their current residence to their new home.

Approximate cost: Professional movers may cost $1,000 to $2,000, dependant on location, distance, and size and weight of home contents

Miscellaneous Expenses

You may also consult your real estate salesperson (REALTOR®) or Shane and his team for any suggested expenses that you may have overlooked, including miscellaneous fees such as utility hookups, security or home monitoring system installation, mail redirection, appliances, lights, tools, paint, decorations, cleaning services and supplies, carpet cleaning or floor treatments, window treatments, etc.

Approximate cost: Varies significantly, but $1,000 to $2,000 is recommended to be set aside while some individuals may require less.

Wondering how much your next home could be?

Are you looking for a mortgage pre-approval to outline how much you could afford with your next home purchase? Apply now with Shane and learn how much you could afford when you go to purchase your first home or forever dream home and the interest rates available now.

It’s very important for me that my clients be well informed about the home purchasing experience and all of the costs incurred. With our vast experienced in real estate and mortgages, my team and I are able to help give you an overview of what you can expect in your mortgage financing experience, including the costs that are to be expected before, on, or after your purchase is complete (your “home closes.”) 

― Shane Osmond, Mortgage Professional

Learn more about closing costs

Contact Shane and his experienced team to help guide you through the home purchasing experience from a mortgage financing perspective and give you a detailed breakdown of some of the closing costs that you can expect to incur on your purchase.

Shane can complete your application entirely online or over the phone, as well as in person. Shane offers a variety of options to connect with you and works around your schedule, allowing you to indicate the best time and method for him to contact you.