Closing costs in Canada

Your Mortgage Guide

Buy A Home in Canada: Closing Costs and Rebates

Planning to buy a home in Canada? The house hunting has led you to the home of your dreams and you have already a pre-approved mortgage offer. Now you are ready to pay the down payment, get the mortgage to give it to the seller, and get the keys. Wait, you need to consider a few more expenditures known as closing costs before you seal the deal.

Most first-time homebuyers are not aware of closing costs until they reach the final stage of the deal to buy a home in Canada. Knowing these expenses beforehand is vital to prepare yourself and collect funds you need to cover them. These include legal fees, title transfer fees, appraisal and inspection cost, property taxes, provincial sales tax, and many similar closing costs that vary from one province to another. Also, first-time homebuyers are entitled to incentives, including tax rebates, to help them buy a home in Canada.

Let’s find out the kind of closing costs you need to pay in general and additional to the purchase price and what type of incentives you can get while buying a house.

Closing Costs in Canada:

  • Mortgage Insurance Payment

If your down payment is less than 20%, you have to get mortgage insurance to buy a home in Canada. This adds an extra fee ranging from 2.8% to 4.5% to closing costs. You may either buy it from Canada Mortgage and Housing Corporation, a federal agency, or private insurers, such as Canada Guaranty and Genworth. Each has its own eligibility conditions. You may pay it as a lump sum or as part of your monthly mortgage repayment.

  • Home Appraisal Fee

It is pertinent to get the selected house appraised before you close the deal. Even lenders want homebuyers to submit an appraisal to approve their mortgage application. Whether you hire an appraiser or the lender appoints one, this forms part of your closing costs. 

  • Home Inspection

Is the property you are buying strong enough? Before you buy a home in Canada, carry on a complete assessment of its structural and other outstanding issues. Even make a satisfactory inspection report as a precondition to purchasing the house. It is best to hire an expert home inspector to prepare a report based on his examination of the house. It may add another $500 to closing costs.

  • Land Transfer Tax

To buy a home in Canada, you must pay the land transfer tax. A part of the closing costs, it goes to the provincial government. The tax rates vary from province to province and also based on an increasing slab. For example, in British Columbia, you pay 1% on the first $200,000 and 2% on the balance of your purchase as property transfer tax exemption.  However, if you are a first time home buyer, you are property transfer tax exempt.  Toronto imposes a municipal land transfer tax – 0.5% for deals less than $55,000, 1% up to $250,000, 1.5% up to $400,00, and 2% for deals less than $2,000,000.

  • Legal Fees

Add about $1000 plus GST to the closing cost to pay to the real estate lawyer. You need his services in preparing legal documents, mortgage registrations affecting title transfer. It may go up depending on what type of services you need to buy a home in Canada.

  • Title Registration Fees

The closing cost includes title registration fees, which entail a fixed stamp duty you have to pay at the time of title transfer. The amount is calculated based on the property transaction cost and deposited at the land registration office. Without title transfer your house buying is incomplete.

  • Title Insurance Fee

Lenders often insist on title insurance to protect themselves in the event of any dispute over the mortgaged property ownership. You can have it as part of your closing cost amounting to around $300.

  • Property Taxes

Usually, the property tax in Canada is prepaid for a year. In such a case, you may have to reimburse the amount already paid in advance to the seller. It is a percentage of the municipal valuation of the property.

  • Home Insurance Premium

Though it is not mandatory to buy a home in Canada, insurance, such as flood insurance, may help you get a mortgage loan quickly. An insured mortgage is considered better protected minimizing any chance of losses in the event of any natural calamity or accident. It covers the cost of replacing the structure and commands an annual premium.

  • Estoppel or Status Certificate Fee

This could be part of the closing cost if you are buying a condo or an independent unit. You need to get a certificate that gives a complete description of the property. It also includes approval of the housing plan, rules, regulations, and additional expenses required.

  • Moving Costs

Moving to your new home may require you to shell out to hire professional packers and movers. Once you occupy the new property, your house buying process is complete.

Buy A Home in Canada: Rebates and Incentives

There are a number of tax rebates and incentives for first-time homebuyers in Canada. While the federal government offers a slew of tax incentives, the provincial administrations also encourage homebuyers with tax rebates of various types. The main objective behind the incentives to increase the affordability of a citizen to buy a home in Canada.

  • First-Time Home Buyer Tax Credit

Since 2009, the federal government runs a First-Time Home Buyer Tax Credit program. It allows tax rebate if you own this property only. This allows a $750 deduction on your income tax. The tax credit helps save up to $5,000 on your tax liability. As a result, you come under the lowest tax bracket and save money to be paid as the income tax. If your spouse is a co-borrower, both can claim the tax rebate.

  • First-Time Home Buyer Shared Equity

Citizens and permanent residents with an income of less than $120,000 a year can apply for 5% to 10% shared mortgage equity. This boosts their ability to buy a home in Canada while making the federal government a shareholder in the property value.

  • Home Buyers’ Plan

You can withdraw up to $35,000 from registered retirement savings plans and repay it over 15 years without any tax. Your spouse can also withdraw the same amount to help you buy a home in Canada. This improves your value-to-loan ratio and thus, enables to save on mortgage insurance premium.

  • GST/HST/Property Tax Rebate

If you are buying a newly constructed or renovated house in Canada less than $750,000, you are exempted from property transfer tax. The federal government offers a GST rebate for such properties and this offsets about 1.8% of the transaction cost. However, a full rebate is there up to $350,000. It gradually decreases as the price goes up and not allowed for houses costing above $450,000.

Quebec offers a rebate of 50% of the 9.975% provincial sales tax. This allows us to get back about 5% of the purchase price. However, the rebated is phased out if the transaction exceeds $200,000 and stopped for purchases more than $300,000. In Ontario, the HST tax rebate amounts to 6% of the house cost and one can avail a maximum rebate of $24,000, which means no full rebate for a price exceeding $400,000.

Nova Scotia permits a 18.75% rebate on the provincial HST. This ensures a refund of 1.3% of the purchase cost. Saskatchewan provides a 3% down payment assistance to those with less than $90,000 yearly income to buy a home in Canada.

Reach out to me to know more about rebates and how to minimize the closing costs if you are planning to buy a home in Canada soon.