In addition to lawyer fees, LTT and HST, there are a few other payments that you are expected to make on closing day. Your real estate lawyer would be the one to break down for you such costs but here’s a brief description of some of the costs you might incur:
- Statement of adjustments
This is a a document which highlights what you as a buyer have already paid (e.g deposit), and what payments you still need to make (e.g prepaid adjustments and sale price). Subtract the payments you have already made from the total amount, and you get the number that you owe the seller on closing day.
In short, the statement of adjustments lays out the credits that you owe the seller on closing day.
- Interest adjustment
Interest adjustment is the interest accrued between your closing date and the date that your first mortgage payment comes out.
For example, let's say you just bought a home, and your mortgage payments are scheduled on the first of each month. If you move in on the 15th of August for example, you are going to have to pay interest for the 15 days that you lived in the house before making your first mortgage payment. As such, this is a one-time payment.
- Default (or High Ratio) Mortgage Insurance Premium and PST (where applicable)
Your lender requires this coverage if your down payment is less than 20% of the purchase price. This premium, minus the Provincial Sales Tax (PST), can be added to your mortgage balance. The PST must be paid at closing.
- Appraisal Fee (if applicable)
Your bank will have hired an independent appraiser to determine the value of the property and whether it meets its lending criteria. This may or may not be required depending on the type of property being purchased.
- Bridge Financing (if applicable)
If your home purchase closes before the sale of your current home, you'll need to finance the cost of the home purchase for a short period of time. Bridge financing is expensive and not recommended as a matter of course-talk to your lender if this situation applies to you.
- Title Insurance
Title insurance is an insurance policy that protects you, the home owner, against challenges to the ownership of your home or from problems related to the title to your home. Talk to your lawyer or notary to see if a title insurance policy is right for you.
- Township/Municipality Levies (applicable to new homes within subdivisions)
For such items as tree planting, school taxes and other items until they are assumed by the town/municipality.
- Property Tax/Utility Bill Adjustments
The purchase price of a resale home is always payable "subject to the usual adjustments" at closing. This means that any amount that the seller has already prepaid will be adjusted so that you pay the excess amount back to the seller, and vice versa. The most common adjustments occur on property taxes and utility bills that have been paid ahead of time.
- Certificate of Location (Property Survey)
Required by the financial institution for mortgage approval, and by your lawyer or notary for transfer of ownership. Ensure that this certificate reflects improvements such as decks, patios or pools. If outdated, the offer to purchase should indicate whether the seller or you will incur the necessary expense to obtain the appropriate certificate.
- Upgrades (applicable in new home construction)
Such items as hardwood flooring, granite kitchen countertops, custom kitchen cabinets, additional ceiling height and so forth usually will increase the purchase price of your home, and can be paid for in cash or (in most cases) or added to the mortgage proceeds.
Other costs to Keep in mind
Will your new home need flooring? Furniture? Carpets? Lighting? Window coverings? Appliances? Do you have the tools you need to maintain the lawn and gardens? Are you hiring movers or renting a truck? Will you need boxes, bubble wrap and tape for the move?
While these and other out-of-pocket costs aren't part of the real estate transaction, you still need to budget for them. Plan your expenses as much as possible. If necessary, decide what you can put off buying until later, after you move in and get settled. Again, this is just a brief description of the costs you might possibly owe at closing day, it is extremely important that you go through all your closing costs with your real estate lawyer.