Closing Costs Overview
Closing costs, ranging from 1.5 to 4%1 of selling price, are the legal and administrative costs you will need to pay when your house closes. In addition to closing costs, there are other expenses and/or events that may require a cash outlay before, on or after your house closes. We will outline these in detail to ensure these often unexpected costs do not sneak up on you.
Cash outlays required before your mortgage closes
- Home Inspection Fee. It is highly recommended that you contract a home inspection as a condition of your Offer to Purchase. A home inspector will assemble a report on the condition of the home for a fee of around $500, depending on the complexities of the inspection.
- Deposit. A deposit that counts towards your down payment is required when you make an Offer to Purchase. The deposit may amount to 5% of the purchase price, which is the minimum down payment percentage in Canada.
Costs financed in your mortgage
Mortgage default insurance, or CMHC insurance, is not normally considered a traditional closing cost as it is added to the total mortgage you require and amortized over the life of your mortgage. We have chosen to include it here to point out the major difference between it and traditional closing costs: it does not require a cash outlay upon closing.
- Mortgage default insurance. If you purchase a house with less than a 20% down payment, you will be required to buy mortgage default insurance, commonly referred to as CMHC insurance. This protects the lender in the case the borrower, defaults on the loan.
Mandatory closing costs covered by the home buyer
The following is a list of closing costs that are incurred by the home buyer
- Property Transfer Tax. Calculated as a percentage of the purchase price of your home, B.C has a Property Transfer Tax (PTT) payable on closing, with the amount 1% of 1st 200,000 and 2% of the balance purchase price.
- Legal Fees and Disbursements. You can expect to incur a minimum of $500 (plus GST/HST) on legal fees, which account for the preparation and recording of official documents.
- Title Insurance. Today, most lenders require title insurance to protect against losses in the event of a property ownership dispute. This is purchased through your lawyer/notary and costs $100 – $300.
- PST on CMHC insurance. Though CMHC insurance itself is financed through the mortgage, PST on the insurance must be paid in cash at the time of close.
The following is a list of closing costs that are incurred by some home buyers as they are only applicable to certain properties
- Septic tank. If the house has a septic tank, it should also be tested to ensure it is in good working order. Once again, you can negotiate the cost with the previous owner and list it in your Offer to Purchase.
- Water Tests. If the home has a well, you will want to test the quality of the water and ensure there is an adequate supply, as well if the water is potable. You can negotiate these costs with the previous owner and list them in your Offer to Purchase.
- Estoppel Certificate Fee (does not apply in Quebec). A certificate fee may be payable if you are buying a condominium or strata unit, and could cost up to $100
Mandatory closing costs often covered by the lender
- Appraisal Fee. An appraisal, which is an estimate on the value of your home, is often covered by your mortgage lender. An appraisal is performed to certify the lender of the resale value of the home in the case you default on the mortgage. The cost is usually between $250 and $350.
Other costs to consider
- Property Insurance. Property insurance, which covers the cost of replacing your home and its contents, must be in place on closing day. This insurance is often paid in monthly or annual premiums.
- Prepaid Utility Bills. You may need to reimburse the previous owner of your property for prepaid costs such as property taxes, utilities and so forth.
- Property taxes. Property tax is calculated as a percentage of your home value, varies by municipality and must be paid each year. The residential property tax rate in Vancouver for example is 0.5%, and on a $400,000 home, would be equal to $2,000 per year. You may need to reimburse the previous property owner if he/she has already paid property taxes for the full year. You are also given the option to set-up an automatic payment plan with you lender. Your lender will set up an account for you, collect an additional $166 per month ($2,000 / 12 months) and then pay property taxes on your behalf. Though by no means necessary, some homeowners find this service extremely valuable for budgeting purposes.
Closing Day is the day you finally take legal possession of your home. It’s important the the bulk of your administration is completed by this point including transferring your down payment to your lawyer. Transferring down payment funds, especially from your RRSP can take time, and should be done several days before close.
On closing date, the following events will take place:
- Your lender will provide the mortgage funds to your lawyer/notary.
- You must provide, your down payment less the deposit, to your lawyer/notary along with the closing costs.
- Your lawyer/notary pays the previous owner, registers the home in your name, and gives you the deed and keys to your new home.
Congratulations! You are now ready to move in.
Property Transfer Tax(PTT)
Calculated as a percentage of the purchase price of your home, B.C has a Property Transfer Tax (PTT) payable on closing, with the amount 1% of 1st 200,000 and 2% of the balance purchase price.
GST on Your New Home Purchase
If you buy or build a brand new home or condo in British Columbia, you need to pay the federal goods and services tax (GST) on the purchase price.
For example, if you bought a brand new condo in Vancouver for $500,000, your GST would be calculated as:
Now, there’s one of two ways you’ll have to pay this: with cash on closing day, or through your mortgage. If the builder has included the GST in the purchase price, then it’ll automatically be included in your mortgage. But if the sign says “$500,000 + GST”, you need to be prepared to pay for the tax upfront.
GST New Housing Rebate
There is GST rebate on new House or condo. If your new home is priced below $450,000 before GST, you may be eligible for a partial rebate of the 5% GST portion.
The GST New Housing Rebate amount changes on a sliding scale, depending on the purchase price of your home. For example, if it was priced at $350,000 or less, your GST might be reduced to just 3.5%. The only catch – the home must be your primary residence.
To claim the rebate, fill out Form GST190 and file it with your personal income tax.
Real Estate Lawyer
Whether you’re buying, selling or refinancing your home, one of the most important people you’ll work with is your real estate lawyer or notary. No matter which process you’re going through, your lawyer’s overall responsibility is to make sure your paperwork is filed, your rights are protected and your transaction goes through. Here’s a breakdown of their other duties, and answers to some of the most frequently asked questions about working with real estate lawyers.
What does a real estate lawyer do?
If you’re buying a home, you’ll want to start working with a real estate lawyer as soon as you’re ready to sign the Offer to Purchase. From thereafter, your lawyer’s job is to: conduct a title search, get title insurance in place, register the home in your name, draw up a Statement of Adjustments, and facilitate the financial transactions on closing day. Oh, and then they’ll give you the keys to your new home!
When you decide to sell your home, your real estate lawyer will do another title search on your home to make sure there are no defects. Your lawyer will also draft the deed of the home for the buyer, calculate any closing costs you have to pay and draft a Statement of Adjustments for you. On closing day, they’ll facilitate the financial transaction and hand you a cheque for what’s leftover, after paying off anything you owed on your mortgage, your real estate agent’s fees, legal fees, etc.
Finally, if you’re refinancing, your real estate lawyer will conduct yet another title search, to ensure it’s clear of defects; this protects both you and your lender. After that, your lawyer will register the new mortgage amount and facilitate the rest of the financial transaction. When you refinance, your lawyer drafts up a Trust Ledger Statement instead of a Statement of Adjustments; it’s essentially the same financial document, but your transaction is only with the bank – not another buyer or seller.
At what point in the process do I contact a real estate lawyer?
For buyers and sellers, you’ll want to call your real estate lawyer as soon as you’re ready to sign an Offer to Purchase. The offer is a legal document, so it’s important to have a lawyer review it, because the consequences of breaking the contract can be expensive. Your lawyer can explain all the legalese in plain terms. You’ll need to see your lawyer again on closing day, to finish the transaction.
If you’re refinancing, you only need to see your real estate lawyer once, to sign all the paperwork that is required for your new mortgage.
What should I look for in a real estate lawyer?
Here are a few things to look out for when choosing a real estate lawyer:
- Specialty in real estate law
- Competitive fees (low fees could mean they don’t have enough experience)
- Experience with the type of property you’re looking at
- Familiarity with the area
Don’t be afraid to ask lawyers about their experience, and even ask for references from other clients.
How much does it cost to hire a real estate lawyer?
Legal fees depend on how complicated the purchase transaction is, as well as the lawyer’s expertise. Most of the time, there will be a base fee that depends on the type of home (detached, condo, etc.) and then you’ll pay for disbursements (faxing, photocopying, etc.) and registration fees. The cost will also depend on whether you’re buying, selling or refinancing. Expect to pay around $1,500 in legal fees and disbursements when all is said and done.
What is the difference between legal fees and disbursements?
Disbursements are essentially the lawyer’s expenses incurred by working with you, and anything they have to pay ahead of time on your behalf; this can include faxing, photocopying, carrier fees and any searches the lawyer has to complete that come with a cost attached. Legal fees are what you pay for the lawyer’s time (either a flat fee or per-hour rate).
What is the difference between title registration and title insurance?
Title registration is simply the process of changing the title of the home from the seller’s name to yours. Title insurance, on the other hand, is intended to protect you from liability should an undetected title defect be found. For instance, if there is a violation of the municipal zoning bylaws, an existing work order, property taxes in arrears or encroachments on adjoining property, this could affect your title. Both title insurance fees and registration fees are paid for on closing day.
How do I find a real estate lawyer or notary public?
I may suggest a lawyer/notary public that work with often, or you can get some referrals from your family and friends.
One of the carrying costs that come with homeownership is your property tax. Property taxes are charged by the municipality you live in, and are used to pay for services such as garbage and recycling collection, sewer protection, road and draining maintenance, snow removal, street lighting, policing, fire protection and more. How much you have to pay depends on the municipality you live in, as well as the value of the other properties around you.
It’s easy to get overwhelmed during the home buying process. On top of it being the largest transaction you’ve ever made, things move quickly – with a home inspection, meetings with your real estate lawyer, and mortgage brokeror bank all typically within a few days. There’s one extra task you’ll want to add to your to-do list, which you won’t want to forget to do before you move in: buy home insurance.
Home insurance exists to protect you, the homeowner, from the potential costs that could result from any structural damages and/or thefts. Like most insurance policies, there’s a monthly premium you’ll have to pay for your home insurance, as well as deductibles if you ever need to make a claim. Since your home is potentially your largest investment, you’ll want to protect both it and yourself. Here’s what you need to know about home insurance:
What are the different types of home insurance?
The Insurance Bureau of Canada (IBC) outlines four different types of home insurance coverage that should be available across Canada: comprehensive, basic, broad and no frills. Insurance providers will tend to have their own definitions of these terms, so no matter who you decide to go with, make sure to read the fine print of your policy to find our what is and is not covered.
How are home insurance premiums calculated?
Similar to how a home inspector examines the structure of your home, a home insurance provider will assess the interior and exterior features, figure out the probability of something going wrong and then give you a quote. The more risks there are with your home, or the more expensive potential repairs would be, the more your premiums will cost you.
When determining your premiums, home insurance providers will look at the following:
- Construction of home (brick vs. cement vs. wood)
- Distance to closest fire hydrant
- Value of home and belongings
- Any special uses (home office, rental unit, etc.)
- Type of electricity
- Type of pipes
- Source of heating
- Anything else that might affect your premium, such as the age of the home, the home security system (if there is one), a pool, etc.
Do I have to buy home insurance?
It depends. If you have a mortgage, or have financed any portion of your home, your lender will likely require basic home insurance. If you own your home free and clear, it’s up to you to decide whether or not you should have any coverage on your home (but we always recommend it).
There are a few things to consider, as well, before purchasing a new home. A home in poor living conditions could result in an increase in premiums, because of work that may need to be done. Homes in areas with unpredictable weather or in remote areas may also be subject to higher rates. If you live in a neighbourhood with a lot of crime, you may need to install deadbolts or add a security system in order to lower your premiums.
Essentially anything that might leave your home vulnerable to damage is likely to increase your rates, so be aware of these possibilities when you’re house shopping.
Where can I purchase home insurance?
You can buy home insurance in-person, online or over the phone through any number of providers, including brokers, agents or a company. If you’re unsure, you can always ask friends and family for recommendations.
Whichever provider you go with should take the time to sit down with you and explain the policy options and premium rates. Don’t be shy during this meeting. Read all the fine print and ask any questions you might have.
And remember to shop around before committing, to make sure you’re getting the best deal. That being said – don’t lie to a provider to get a better rate. It will come back to bite you should you ever need to make a claim.
How do I cancel home insurance?
When cancelling home insurance, make sure to give as much notice as possible and provide a written letter requesting the cancellation. If you have prepaid your premium for the year, you may be able to get a prorated amount refunded, but check your policy.
Statement of Adjustments
Whether you’re buying, selling or refinancing your home, you’ll need a real estate lawyer or notary to help you complete your paperwork and facilitate the financial transaction. On closing day, you’ll sit down with your lawyer to make sure everything is done, and you’ll walk out with a statement that shows you exactly how your money was moved around in the process. Let’s take a look at what goes into both the statement of adjustments and trust ledger statements prepared for buyers, sellers and refinancers.
Prepaid Property Taxes
Every year, homeowners across the country have to pay property taxes. Depending on where you live, you can usually choose to pay them monthly, quarterly, twice a year or even for the whole year. If the seller of the home you want to buy has prepaid their property taxes for the entire year, you’ll need to reimburse them a prorated amount, from your closing date to the day they’ve paid up to.
For example, if your closing date is 100 days before the end of the year, you’ll need to pay the seller the amount they prepaid for those 100 days. The calculation is as follows:
Prepaid Strata Fees
The same situation outlined above may also be true for condo fees. If the seller has prepaid their condo maintenance fees (also known as strata fees), you will have to reimburse them a prorated amount from the date you take possession to the day they’ve paid up to. This amount will also be listed on your Statement of Adjustments, and will need to be paid for with cash on closing day.
Finally, if the seller is ahead on payments for gas, hydro, oil or water, you’ll also have to pay them back for that. Once again, you’ll find this amount on your Statement of Adjustments, and you must pay the seller with cash on closing day.
If you can afford to put down 20% or more, you don’t need to purchase mortgage default insurance – well done! Unfortunately, that doesn’t mean your lender won’t still ask you for an appraisal of the property you want to buy. If your lender asks you to commission an appraisal, it means they need someone to confirm the market value of the property is accurate. Some lenders can offer you a list of appraisers they work with, and sometimes you can find one yourself. Either way, an appraisal fee will run you $150 to $500.
Land Survey Fee
Another thing your lender may ask you for is an up-to-date land survey, and the process is fairly simply: a surveyor will visit the property you want to buy, measure the land and ensure all boundary lines are being followed. Typically, the seller will commission this survey, even before listing the home, and pay the fee (around $600 to $900). However, if the seller doesn’t do this and your lender requires the information, you may be stuck with the bill.