I’m buying a preconstruction townhome. What’s included in my closing costs?

“What’s included in my closing costs?” is a question we hear a lot from our new home buyers, and while there’s an abundance of information online about closing costs and resale homes, buyers of preconstruction townhomes aren’t so lucky. We fix that with this post.

 

#1 HST on your purchase price

How much? If you’re buying a new construction home in Ontario, it’s 13% of the total purchase price.
When do I pay? At the lawyer’s office when the deal closes
Tips: You can apply for a GST/HST new housing rebate from Canada Revenue Agency, subject to certain conditions. There’s a federal portion and an Ontario portion—and they add up to a significant amount of money (at the time we wrote this, the maximum Ontario rebate was $24,000. The federal calculation is a little more complex). Some builders will file your HST rebate for you and will lower the purchase price accordingly. (We do. Our customers like it when we take math tasks off their to-do lists!)


#2 Land transfer tax

How much? The amount varies depending on the purchase price of your home. The Government of Ontario has a website that will walk you through the land transfer tax calculation
When do I pay? At the lawyer’s office when the deal closes
Tips: First-time homebuyers may be able to get a refund from the Ontario government for part of the land transfer tax, to a maximum of $2000.


#3 Legal fees

How much? Approximately $1200 to $2500
When do I pay? Whenever you use your lawyer’s services, including to review the offer to purchase and when the deal closes
Tips: Shop around and make sure any quotes you receive include all related expenses and disbursements so you’re comparing apples to apples. (DiCenzo Homes offers our in-house lawyers to our home buyers—a convenient and cost-effective service they love.)


#4 Title insurance

How much? Around $250
When do I pay? At the lawyer’s office when the deal closes
Tips: It’s optional, and many people think they can waive it when they’re buying a newly built home, but it’s a good investment. The land your home is built on could’ve had several owners. By purchasing title insurance, you’re covering yourself and your heirs for as long as you own the property in case liens or other claims against it come to light after closing.


#5 Tax on your high ratio mortgage insurance

How much? The insurance itself is a percentage of your purchase price and can be added to your mortgage payments, but you’ll pay PST (8%) on closing
When do I pay? At the lawyer’s office when the deal closes
Tips: Minimize the insurance you’ll pay (and therefore the tax) by trying to get your down payment as close to 20% of the purchase price as possible, because the higher your down payment, the lower the insurance cost.


#6 New home warranty fee

How much? Approximately $250 for a $500,000 home
When do I pay? At the lawyer’s office when the deal closes
Tips: Some builders include these premiums (payable to Tarion Corporation) in the purchase price of your new home, while others charge it back to the new homeowner. Look for mention of warranty fees or premiums when you review your agreement for purchase and sale.


#7 Utility connections

How much? Anywhere from $500 to more than $2000
When do I pay? At the lawyer’s office when the deal closes
Tips: Check your agreement of purchase and sale carefully, as many new home builders will include the cost to hook up electricity, gas and water in your purchase price instead of tacking them on at the end.


#8 A property survey

How much? Around $500
When do I pay? At the lawyer’s office when the deal closes
Tips: Ask your builder if they include a survey with your purchase. Many quality builders provide a survey to give their new homeowners peace of mind about the boundaries of their property.


#9 Home insurance

How much? Depends on the value of your home, but bank on at least $500
When do I pay? Arrangements will be made with your insurance company. You can pay annually or in instalments.
Tips: You’ll often have to prove you have fire insurance at closing, so bring the paperwork with you to the lawyer’s office.

 

#10 Mortgage interest adjustments

How much? Typically less than $1000
When do I pay? At the lawyer’s office when the deal closes
Tips: Ask your mortgage broker or agent for the exact cost, since the adjustment varies depending on your closing date and payment frequency.

 

#11 The dreaded hidden fees

How much? Depends on the builder (and the kind of builder that charges these fees isn’t the type to make it easy to predict these closing costs)
Tips: Work with a reputable builder that values a long-term relationship with home buyers, as they won’t nickel and dime you for things like a tree, mortgage discharge fees, development fees or deposit verification fees . Get a lawyer to review your agreement of purchase and sale and make sure you ask if there are some typical new construction costs that haven’t been identified in the agreement (or are buried in the fine print legalese) so that you know exactly what you’re paying extra for and when.

 

#12 Home inspection

How much? Budget for $500
When do I pay? Directly to the home inspector you hire at the time of inspection
Tips: A home inspection isn’t necessary, but some purchasers of newly built homes like to hire a professional to do a walk-through of their home about a month before the one-year anniversary of their Tarion warranty, which is when the most comprehensive part of the warranty expires. According to Moneysense’s Top 10 mistakes new home buyers make, not bothering with an inspection means you may miss some problems with your home that you could otherwise get fixed under the provincial warranty.

 

There’s a lot of “it depends” in this post, so we did some quick math to give you a clearer sense of what your closing costs might be.

Assuming your builder hasn’t added any hidden fees to your purchase price, you’re looking at around $45,000 on a $300,000 pre-construction townhome. An HST rebate and land transfer tax refund for first-time homeowners could reduce that cost to around $20,000.

Budgeting for your closing costs is an important part of being prepared for the day when you’ll get the keys to your new home. Equally important is having clear, open communication with a reputable builder so there aren’t any surprises when the deal is set to close.

 

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