Closing Costs – Know What to Expect
After the excitement of buying your home, the task of sitting down and calculating your closing costs can be really unappealing. Although making this calculation is an unattractive task, it’s best not to overlook the total sum that looms on the horizon.
Your down payment and mortgage will cover the purchase of your home, but there are a number of costs that you’ll have to pay out when the purchase of your home is finalized. To make it a little easier, we’ve provided a list below with definitions and estimated prices, so that you can get an idea of what to expect:
Property insurance – This cost will vary: Lenders will want to make certain that you’ve insured the property for loss from fire, flood, etc. This cost will vary, and the insurance must be in place for the full property value (not just the mortgage amount).
Home insurance – Estimated cost is around $650 – $850 a year: This is protection for your home and its contents. The more risk or the more valuable the home is to replace if anything were to happen, the higher your insurance typically is.
Interest Adjustments – Estimated cost is $100 – $1000: It’s common to have to pay interest on a gap between the closing date of the purchase of your home and the first payment date of the mortgage. Interest adjustments are avoidable if you arrange things so that your first mortgage payment is made exactly one payment period after the closing date.
Title insurance – Approximate cost is $250: This is optional, but it does cover problems that may arise due to encroachment issues (i.e. a building on your property is on your neighbour’s land and must be removed), title fraud, un-discharged mortgages, existing liens against the property’s title and a few other unfortunate surprises that could come up because of the property’s previous owners.
GST/HST – This cost will vary based on province, and sometimes is included in the sale price: Some properties are GST or sales tax (PST) exempt… Some are not. GST/HST (where applicable) is sometimes charged on new homes – but not on resale properties. It’s recommended that you ask before signing an offer, just to be sure.
Legal fees and related expenses – Estimated cost $1,300 – $2,500: These fees can also vary by province and are usually subject to GST/HST (if applicable). Double check to make sure that your lawyer’s estimate or quote includes all related expenses and disbursements. You can protect your interests by discussing your Offer to Purchase with your notary or lawyer before you sign anything.
Land transfer tax (if applicable) – This cost will vary based on province: Whenever properties change hands, a land transfer tax is usually there to cast a shadow over the proceedings. This cost is based on the purchase price. Provinces charge a land transfer tax, and some municipalities will charge an additional municipal land transfer tax. On occasion first-time homebuyers are exempt from this fee. Cruising through the provincial and municipal websites along with having a discussion with your realtor, can help you estimate this cost.
Property survey – Estimated cost is $750 – $1000: This will establish the measurements or boundaries of your new property. Property surveys also track any easements (i.e. a shared driveway), encroachments (a neighbour’s shed) and the positions of major structures on the property being purchased.
Home Inspection – Estimated cost is $500 – $700: A home inspector needs to evaluate the systems and structures that comprise your home. A written report will be provided, with photos as reference. A home inspection isn’t mandatory, but it’s usually a condition included in an Offer to Purchase.
Property valuation fee (Appraisal) – Estimated cost is $150 – $250: This fee is for determining property-lending value for mortgage purposes. Keep in mind that this value doesn’t have to be the same as the purchase price of the home as a home is only worth what someone is willing to pay for it, based on the current market.
Realtor commissions – fees vary: The seller, in this case, usually pays for their realtor and yours. If you’re the one selling, the fees vary but are generally 5-6% of the purchase price plus HST (13%).
Start-up & moving expenses – Utilities, moving expenses, outfitting your home – Prices vary: It’s easy to overlook start-up expenses while your mind boggles at the ever-growing list of closing costs. But if you’re opening a new account with a cable, internet, utility or telephone company, you need to pay the fees associated with opening your account as well as a security deposit. Your security deposit may be refundable or they may waive these fees for you, if you are a new customer. Rental trucks and movers, boxes, time off work, bedding, furniture, appliances and so on can add up really quickly and can deliver a bit of a shock if you don’t prepare yourself for the final costs.
You can avoid being overwhelmed by closing costs at the final hour by gathering estimates, visiting relevant websites and making inquiries ahead of time. The sum total can come with a surprise at any point, but the good news is that you can stay in control by facing the inevitability of disbursements early in the game. With a well-researched plan of attack, you should be paving the way to enjoying your dream home without any financial glitches along the way.