You’ve done your homework – saved your down payment, met with your mortgage broker and are pre-approved for a mortgage, connected with a reputable realtor, and chosen a lawyer. You’re off to a great start in the purchase process. As you move forward, keep in mind that you’ll also be covering a few extra costs in addition to legal fees when your purchase is finalized. Being prepared for these “closing costs” in advance avoids last minute stress.

New homes are subject to GST, but used homes are not. There are rebates and exemptions available, so your lawyer will calculate your tax payable. This can be added to your mortgage.

If you are putting the minimum 5% required to buy your home, your mortgage professional will explain that you need to have 6.5% on hand to cover your closing costs. It is a good idea to gather estimates of these fees and expenses so that you are fully prepared.

You will normally sit down with your lawyer at least a week before your purchase completes to sign all of the required documentation. At that time you will need to provide a draft or certified cheque to cover the balance of your down payment and closing costs. The following list covers typical expenses you’ll encounter when your purchase is completed or “closed”:

MORTGAGE DEFAULT INSURANCE

Mortgage insurance Mortgage default insurance, commonly referred to as CMHC insurance, protects the lender in the case the borrower defaults on the mortgage. Mortgage default insurance is required on all mortgages with down payments of less than 20%, which are known as high ratio mortgages.

PROPERTY TRANSFER TAX  ( https://www2.gov.bc.ca/gov/content/taxes/property-taxes/property-transfer-tax/exemptions )

Some provinces levy this tax whenever real estate changes hands. This tax is calculated as a percentage of the purchase price of your property, so the more expensive the property, the larger the amount of tax paid. First time home buyers may be exempt from paying all or part of the property transfer tax. Exemptions are also available on newly-built home purchases.

In BC, the tax is charged at a rate of:

  • 1% on the first $200,000,
  • 2% on the portion of the fair market value greater than $200,000 and up to and including $2,000,000, and
  • 3% on the portion of the fair market value greater than $2,000,000.

For example, if the fair market value of a property is $450,000, the tax paid is $7,000.

HOME INSURANCE

This insurance, especially fire, must take effect from the moment you are the owner of your home. Certain types of properties can be more challenging to insure, so it is a good idea to do some research prior to purchasing a home. Home insurance typically costs around $1200 per year but costs will vary depending on the type and location of the property. This insurance must be renewed annually, and most insurance companies provide the option of monthly payments.

HOME INSPECTION

This is a fee payable to an inspector you hire to check out the physical structure and mechanicals of your house before you decide to buy it. Again, it is a good idea to do your research before hiring a home inspector. Your realtor may be able to recommend someone, or you can check with friends or family to see who they have used. A good home inspector will spend about 3 to 4 hours going over your home, then spend time with you explaining his / her findings. Inspectors provide a written report documenting any concerns that need to be addressed.  You can expect to pay between $400 and $500 for an inspection.

APPRAISAL

Your lender may require an appraisal to confirm that the property is accurately valued. The cost of the appraisal is sometimes passed on the you.  Depending on the location and complexity of the property, an appraisal can cost anywhere between $300 and $1,500. If your down payment is less than 20%, some lenders use an automated system to value the property – in this situation an independent appraisal is not required.

SURVEY

A legal survey of your land – its borders, perimeters, house placement, etc. – is sometimes required by the lender, and will be performed by a professional surveyor. A typical survey can cost approximately $1000. More commonly lenders require title insurance instead of a survey.

TITLE INSURANCE

This covers any number of oddball situations that could threaten the title to your property. Title insurance is mandatory with most lenders and is much less costly than a new survey. Title insurance typically costs about $250.

Homebuyers can purchase a personal policy in addition to the policy mandated by the lender. The additional policy covers many unusual circumstances and is relatively inexpensive if the two policies are purchased together.

LEGAL FEES AND DISBURSEMENTS

It is a good idea to comparison shop as legal fees can vary from one lawyer to another. Ask for a written quote to get a better idea of how much legal fees will be. On a straightforward purchase, legal fees typically run about $1200.

Your lawyer will also calculate any money you’ll need to refund to the seller that has already been paid out on your behalf. These adjustments include portions of municipal property taxes for the months you’ll own the home, utility bills paid in advance, etc.

How do I calculate my closing costs?

As you move forward, keep in mind that you’ll also be covering a few extra costs in addition to legal fees when your purchase is finalized. Being prepared for these “closing costs” in advance avoids last minute stress.

If you are putting the minimum 5% required to buy your home, your mortgage professional will explain that you need to have 6.5% on hand to cover your closing costs. It is a good idea to gather estimates of these fees and expenses so that you are fully prepared. 

Rule of Thumb: allow 2 – 3% of the Purchase Price to cover your closing costs

You will normally sit down with your lawyer at least a week before your purchase completes to sign all of the required documentation. At that time you will need to provide a draft or certified cheque to cover the balance of your down payment and closing costs. The following list covers typical expenses you’ll encounter when your purchase is completed or “closed”: 

Deposit: Part of your down payment, a deposit is due upon acceptance of your offer.

Real Estate Commission: If you are working with a realtor to sell your home, you will be paying the realtor a percentage of the sale price. If you are the purchaser, there is no fee for working with a realtor.

High Ratio Insurance (CMHC, Genworth or Canadian Guarantee): If your mortgage is insured by CMHC, Genworth or Canadian Guarantee the insurance premium will usually be added to the mortgage so it is not a cash requirement on closing.

Prepaid Expenses: If the Vendor has prepaid any other expenses such as utilities, water and sewage taxes, oil in tank or property taxes, they must be compensated. This will be reflected in the Statement of Adjustments.

Property Tax Hold-back: If the lender is collecting and paying property taxes you may be required to pay to the lender an amount to ensure sufficient funds are available to pay the next instalment of property taxes when due.  Property taxes are paid July 1st each year.

An alternative to a property tax holdback is for the lender to increase the tax portion of the regular payment proportionately to ensure sufficient funds are on hand in time to pay the taxes when due.

Other Fees: Occasionally, a lender or the broker will charge a fee for providing the mortgage. If so, these costs should be disclosed to you upfront.  Fees only apply if you are working with an alternative or private lender.

Moving Expenses: You may want to allow for the expense of a professional mover or the rental of a moving van.

Appliances: You may need four major appliances, if they were not included in the purchase price of your new home.

Decorating: Carpets, drapes, furniture and painting may be necessary.

Repairs: You may have some immediate renovations to do especially if the financial institution withholds some of the mortgage money on the condition specific repairs be made.

Tools: You may need lawn tools, garbage cans and snow removal equipment if you are moving from a condo to a detached home.

Utility Hook-ups: You will have to pay to have the telephone, gas and electricity connected and in some cases, pay a deposit. Contact the local utility companies directly.

Your best bet is to create a list of all potential costs associated with buying your home. It is a good idea to get quotes on larger costs like your legal fees, and to double check with your mortgage broker and realtor to make sure you have not missed any significant expenses. Use a list such as the one that follows here to keep track of your closing costs. 

CLOSING COSTS WORKSHEET

Sale of Existing Property: SELLING PRICE: $___________
EXPENSES: Real estate commission (         %): $
  Legal fees on sale: $
  Disbursements on sale: $
  Payout 1st mortgage (obtain balance in writing): $
  Penalty to discharge 1st mortgage (if applicable): $
  Discharge administration fee: $
  Payout 2nd mortgage (obtain balance in writing): $
  Penalty to discharge 2nd mortgage (if applicable): $
  Discharge administration fee: $
  Property taxes (paid up to date): $
  Other debts to be paid out from sale: $
TOTAL EXPENSES: $
NET CASH AVAILABLE FROM SALE: $___________

 

Purchase of New Property: PURCHASE PRICE $___________
EXPENSES: Down payment: $
  Home inspection: $
  Land transfer tax: $
  Legal fees on purchase: $
  Registration costs / disbursements on purchase: $
  Survey / title insurance: $
  Adjustments / incidentals: $
  Appraisal fee: $
  Lenders application / commitment fee: $
  CMHC/Genworth insurance premium $_______________: (added to mortgage)
  Interest adjustment (lender): $
  Property tax holdback (lender): $
  Pre-pay property taxes: $
  Home (fire) insurance: $
  Moving expenses / utility hook ups / condo fees: $
  Repairs / renovations / paint / etc.: $
  Appliances / furniture / etc.: $
  Other: $
  TOTAL EXPENSES: $
  Less: DEPOSIT MADE WITH OFFER ($                           )
CASH REQUIRED TO COMPLETE THE TRANSACTION: $___________