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BUDGETING ENOUGH FOR THE CLOSING COSTS

How much money do I need to close my house?  Can you believe your dream home is about to become a reality? After years of saving your down payment, you finally are about to make the big move?

As an educated consumer you have spent hours doing your research so there are no surprises.  It is likely you spent weekends checking out new home sites.

Once you picked out your new home, you had a real estate lawyer check your agreement of purchase and sale, which should have had a "condition of lawyer approval" clause for five or so days before you signed.

You would also have checked out your builder through the Ontario New Home Warranty Program at www.newhome.on.ca or (416) 229-9200 and found out if the company was a member of the Greater Toronto Home Builders' Association (www.newhomes.org or (416) 391-HOME).

Regardless of where you happen to be in the home buying process, you must make sure you know approximately how much money you are going to need to close on the house in addition to the down payment.

On closing day, your lawyer will collect funds from your mortgage company and cash from you for the purchase price of your new home and various other charges.

In general, the total cost of a new home purchase can be broken into five categories; house price and upgrade charges, lawyers' fees, mortgage costs and taxes and reimbursement costs.

House price and upgrade charges:  This represents the largest amount as it includes the original purchase price of your new home and any upgrades you've chosen.

The balance due on closing represents the sum of the price for the house and upgrades less any deposits paid. For condo purchasers, it will also include common area expenses and maintenance fees and interim occupancy fees.

Lawyers' fees: There are several fees you will need to pay your lawyer, including the basis fee (make sure you agree on this before your lawyer begins any work) as well as disbursements, which are costs your lawyer incurs to search title and close your sale.  These additional costs include everything from registering the deed and mortgage to a law society levy your lawyer has to pay plus GST where applicable.

Make sure you look through the list of disbursements and question any fees that don't make sense. Don't let your lawyer tell you all costs are standard.  A good lawyer will take the time to explain anything you don't understand.  You should budget anywhere from $700 to $1,000 for legal fees, including disbursements to close an average new home.

Mortgage Costs: Depending on the type of mortgage you've negotiated and your bank's policies, there may be certain application fees.

Such fees usually range from $150 to $200, while certain financial institutions may waive the fees altogether.  In addition, if your mortgage exceeds 75 per cent of the purchase price, there will also be a mortgage insurance underwriting fee of about 3 per cent of the purchase price.

Two major insurers of high-ratio mortgages include CMHC and GE Capital, both of which will give you the option of paying the fee on closing or adding it to the mortgage principal.

Taxes: Land transfer tax is charged in the province of Ontario on the acquisition of any real estate property.  On a house priced at $200,000, the land transfer tax is $1,725, calculating according to a sliding scale.

A first-time new home buyer in Ontario is eligible for a refund of the land transfer tax up to $2,000. Most lawyers are aware of the refund program and can advise on how to apply.

The cost of a new home is subject to GST of 4.5 per cent on a price up to $350,000 and then it escalates up on a sliding scale to a full 7 per cent on houses over $450,000.  It should be noted that GST is always charged at the full 7 per cent and a rebate is given to owner-occupiers only (i.e. not investors) at an amount up to 2.5 per cent.

In the GTA, however, most builders of production housing include GST in the price of the house, and then of course any rebate would be assignable to the builder as they would be absorbing the GST cost.

Reimbursement costs: There are miscellaneous costs incurred every time you move into a new home, including the connection charges for hydro, water, gas, phone and cable.

The cost of a gas, phone, and cable hook-up are usually charged directly to you from the utility on your first billing date, while the builder would normally front end the cost of hydro hook-ups and water meter installations and the planting of the tree on the boulevard.

A typical reimbursement charge for hydro hook-up can be $500, while a municipal water meter can be $300 and a tree around $500 depending on the size, all subject to 7 per cent GST.

The builder also front ends the Ontario New Home Warranty fee of around $650 to $900, but because it is your insurance you will be responsible for reimbursing the builder on closing.

Many builders will agree to estimate the additional charges for you and some will cap the reimbursement fees in the agreement so you can properly budget.  At some subdivisions, builders include certain costs, such as the warranty program, in the purchase price.  (Your lawyer should be sure to check what extra charges are included).

This summary of costs is by no means exhaustive.  There are other costs you will probably incur.  In general, you should budget on 2 to 3 per cent of the cost of a newly built home to cover the various closing costs.

It is important that you get proper estimates of additional closing costs from your builder, mortgage company and lawyer.