When preparing for your purchase, it is important to keep in mind that there are additional closing costs which may be associated with the transaction. Many of these closing costs will be dependent on the property you are purchasing as well as the mortgage you choose.
Keep in mind that you will be responsible for the following closing costs:
Mortgage Insurance Premium
If purchasing a home with less than a 20% down payment, or if you choose an amortization longer than 25 years, and in some cases the location and the type of the property, you will require mortgage loan insurance, which is offered from either of CMHC, Genworth, or Canada Guaranty. The premium is a percentage of the mortgage amount, depending on the loan to value, and it is the same percentage among all three insurers, so you don’t get a discount from CMHC over Genworth for example. Typically the premium is added to your total mortgage amount, although you may choose to pay this out in cash up front as well.
Property Transfer Tax
If you are Purchasing in BC (or Ontario) and you do not qualify for the first-time buyer property transfer tax exemption, the government requires you to pay a land transfer tax at closing. In BC, the amount owed is calculated as 1% of the first $200,000 of the purchase, plus 2% of the remaining balance of the purchase price, and is paid upon closing. Your lawyer/notary is responsible for collecting the tax and paying to the government on your behalf. You are not able to finance this cost as part of your mortgage, you must have the cash up front and demonstrate to the bank that it is available for closing.
Your Lawyer or Notary Public is responsible for the closing of the purchase, and reviews all documents related to the transaction, from both the seller’s side and the purchaser’s side and the bank etc. This is another closing cost. The lawyer or notary is responsible to draw up mortgage documents, conduct title searches & handle all of the details related to closing. For their services they charge a fee, which varies but you can expect to pay around $900-$1200.
Another closing cost that may be required is an appraisal. An appraisal is an estimated value of your home & may be required by the bank, typically at a cost of $300 – $350. Appraisals are not required with all purchases.
Survey (or Certificate of Location) Fee
If the seller does not have one, you may be required to pay for a survey, ranging from $1,000 – $2,000. It is unlikely that a survey does not exist, however if it is required, you have the cheaper alternative of purchasing Title Insurance, which protects you from deficiencies in the survey document or fraud. More and more lenders are demanding Title Insurance and therefore it becoming more of a mandatory closing cost.
Required when making an offer to purchase, the deposit is not really one of the true closings costs but is part of your down payment & is typically 5% of the purchase price.
The minimum down payment for the purchase of a primary residence is 5%, while rental properties require a minimum of 20%. Again, not part of the true closing costs, but definitely need to have these funds on hand.
Property Tax or Utility Bills
Annual property taxes are payable each year in early July. If the seller has already paid the tax for the year when you purchase your home, you owe the seller the difference from when you take over possession of the property; your lawyer/notary will calculate the prorated amount owed upon closing. The same also applies to other prepaid bills, such as strata fees or utilities.
The amount of annual property taxes associated with each property can be found in the original listing from your realtor. Be sure to confirm this information however, as it is not always accurate. Sometimes the realtor may list the previous year’s taxes. Always double check, when in doubt.
Home Inspection Fee
A home inspection is part of the closing costs. An inspection details the condition of the home & may be a condition of your offer to purchase. Depending on the complexities of the inspection, the cost varies from $275 to upwards of $500.
Because your home is security for the mortgage loan, the lender requires proof that insurance is in place upon closing to cover the cost of replacing your home & its contents in the event of a fire or flood etc.
Harmonized Sales Tax (HST)
Effective April 1, 2013 the provincial portion of HST will be be eliminated and we will go back to a 5% federal GST and 7% provincial tax (PST). For homes constructed prior to, that includes any type of construction having commenced prior to April 1, 2013, but not completed until after April 1, the transitional rules apply. For more information, please contact our office.