Home closing costs can add up. Here’s what you need to set aside
Homebuyers are often advised to set aside one to three per cent of the purchase price of their house for closing costs. These fees are explained during the home-buying process, but it is helpful to ask questions so you fully understand how these costs can affect your budget.
Legal fees: On average you should budget $600 to $900 for legal fees and an additional $200 to $400 for disbursements, which includes registering the mortgage, completing a tax certificate, and doing a title search on the property. You may also pay fees for postage, faxing and photocopying.
Shop around: Some law offices specialize in handling mortgage disbursements and offer cheaper rates. Ask your bank or mortgage broker which law firm they recommend and then call at least three other lawyers for quotes. A few phone calls can save you hundreds of dollars.
Property tax adjustment: If you buy a home, the previous owners have paid property taxes to the city. On closing, you will be required to reimburse them for prepaid taxes.
Interest adjustment date: Depending on the date chosen by your lender as the interest adjustment (the date the mortgage starts) you may be required to pay interest from the closing date until your interest adjustment date. The maximum amount would be a month’s interest at your mortgage rate
Typical Closing Costs:
Your mortgage isn’t your only expense when buying a home. In fact, there are several closing costs that you must pay before you can take possession of your house (to “take possession” means the home is now legally yours). Many of these costs are listed below.
- Appraisal fee: This is the cost for a professional to come to your property and assess its value. Your mortgage lender or mortgage default insurer may require an appraisal to determine whether the selling price is reasonable for that market.
- GST: You must pay the Goods and Service Tax (or Harmonized Sales Tax) on a newly constructed or substantially renovated home. Resale homes do not require a GST payment. Some of this can be recovered with the GST/HST rebate for new or substantially renovated homes.
- Home inspection fee: This covers the cost of a professional inspection of your home. Hiring an inspector is voluntary but recommended for resale homes, and usually costs $400-$600.
- Property Insurance: Since your lender has a large stake in your home, they will often require you to purchase insurance against fire and weather-related damage. It is also a good idea for you to purchase ‘contents’ insurance to protect your valuables.
- Land Transfer Tax: This is a tax charged to buyers in most provinces, usually based on the purchase price.
- Legal costs: This includes fees charged by your lawyer or notary for services such as conducting a title search, drafting a title deed and preparing the mortgage, and registration fees. This will cost over $500.
- Mortgage default insurance: High-ratio mortgages (those with less than 20% down payment) generally require mortgage default insurance. The cost is based on the amount of the mortgage and is normally paid over the length of the mortgage. Standard premium rates range from 1.00% to 3.60% and can vary depending on the type of product and amount of your down payment.
- Mortgage Life insurance: Special insurance coverage to cover the cost of your mortgage in the event of death or severe illness is available from most lenders.
- Moving expenses: Costs will vary, depending on whether you do it yourself, rent a truck, or hire professional movers.
- Prepaid taxes, utility bills and other charges: Any previous owner may have prepaid some bills before the closing date, which you will have to reimburse them for. All taxes, utility bills, and other charges incurred after the closing date become your responsibility.
- Utilities: Most utility companies charge for hooking up your services and replacing any previous owner’s name with your name on the bill.
Content courtesy of http://www.genworth.ca
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