The term ‘closing’ represents the point in time when the title of a property is transferred from the seller to the buyer. Upon closing, the buyer is responsible for paying a number of costs that are over and above the price of the property. These costs, known as closing costs, are one-time fees that must be paid upfront. In other words, they don’t get rolled into your mortgage. 

Understanding that closing costs represent an incredibly important step in the homebuying process will help you budget and be prepared when the transaction closes. Generally speaking, you should be saving approximately 3%-5% of the purchase price of your home to cover closing costs as a buyer. See: Closing Costs: What are They and How Much Will You Pay?

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Key Takeaways

• There are many costs associated with buying a home, which stretch well beyond your down payment, monthly mortgage payments and moving costs
• Closing costs are a one-time expense so, once they’re paid, you won’t have to think about them again (at least not until you decide to make your next move)
• You should be saving approximately 3%-5% of the purchase price of your home to cover closing costs as a buyer

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Important: Include closing costs in your budget because, in most cases, they have to be paid upfront and can’t be rolled into your mortgage payments.

New Home Warranty enrolment fee

If you’ve purchased a new home, you’ll want to obtain a new home warranty to protect you from unexpected expenses associated with any problems, defects or structural issues that arise down the road. But before the building permit is obtained and any construction can begin, your new home must be enrolled in home warranty insurance, which is subject to an enrolment fee. Obtained by the builder, enrolment of a new home with home warranty insurance is essential throughout the construction and sale of the home. 

As a buyer, you’re responsible to pay the enrolment fee, which is typically paid upfront as part of your closing costs. Some builders will include the warranty enrolment fee in the purchase price of the home, but if that’s not the case, you need to be prepared. The fee amount, which ranges from $385 to $1,500, reflects the price of the home.

Appraisal fee

An appraisal of your property is usually required by your lender as a means to determine whether the sale price of the home is in line with its true market value. The appraised value assures the lender that the value of your property, which is used to secure the mortgage, is sufficient to cover any losses should you default on your payments. 

Appraisal fees vary based on a number of factors including the appraiser, property location and complexity of the appraisal. The range is typically $300-500.

Land survey fee

While not as common as some of the other costs due at closing, you may be required by your lender to obtain a survey of the property, which clearly outlines its borders and boundaries. In addition to satisfying your lender’s requirements, this is a responsible exercise to undertake in order to avoid any potential issues or possible encroachment claims with neighbours down the road. The process involves hiring a surveyor who will measure the land and ensure that all boundary lines are being obeyed. In some cases, an existing land survey may be used, but you should be prepared for your lender to request a current one instead. The cost of the survey will vary based on the surveyor and the amount of work involved. A survey will cost approximately $750-$1,000.

Notice: You may be able to avoid paying this fee if your lender will accept an existing land survey.

Utility hook-up fees

Before your move-in date, you’ll want to contact your local utility companies to arrange for your services to be hooked up so everything is in place when you take possession. Many companies will charge a hook-up or connection fee for a new account or even if you’re simply changing your address. In addition to your hydro, electricity and gas, don’t forget the cable, TV and internet, and make sure to enquire about whether you’ll be charged a fee, if they don’t mention it, so you can budget accordingly.

Prepaid property taxes

The purchase price of a resale home is subject to adjustments at the time of closing. This means that any costs that the seller has prepaid will be adjusted so that you end up paying the excess amount back to the seller. These prepaid costs are itemized in what is known as a Statement of Adjustments. See: Statement of Adjustments & Trust Ledger Statement

Property taxes represent a common type of adjustment as many people pay them quarterly, semi-annually or even annually. In this case, you’ll be responsible for reimbursing the seller the portion that has essentially been overpaid, based on your closing date up until the date they’ve been paid to cover. 

Prepaid condo fees

Similar to prepaid property taxes, if you’re buying a condo, the seller may have prepaid their monthly condo or maintenance fees. If this is the case, you’ll be required to reimburse the prorated amount from the date you take possession up to the date they’ve been paid to cover. The amount will also be listed on your Statement of Adjustments, and will form part of your closing costs. (See: Everything You Need to Know About Buying a Condo)

Prepaid utilities

You’ll also be responsible for paying the seller for any prepaid utilities, such as gas, hydro or water. These items and corresponding amounts will be listed on your Statement of Adjustments, and are required to be paid on closing day.

As you’ve likely concluded, there are many costs associated with buying a home, well beyond your down payment, monthly mortgage payments and moving costs. When creating your budget, you’ll need to factor in all of the smaller, yet equally important, costs that will add up quickly. The good news is that closing costs are a one-time expense so, once they’re paid, you won’t have to think about them again (at least not until you decide to make your next move).

Other articles in this guide: “Closing Costs: What are They And How Much Will You Pay?”

• What Does a Real Estate Attorney Do?
• What is a Mortgage Interest Adjustment?
• Statement of Adjustments & Trust Ledger Statement
• What is the GST/QST/HST New Housing Rebate?
• Provincial Sales Tax (PST) on Mortgage Default Insurance
• Property Taxes

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