You're thinking about the type of house you want to purchase and the location. At the same time you're also thinking about how much you can afford for your down payment. But there's another item which you should consider when starting to think about purchasing a home: closing costs.
These closing costs - which are charged to the buyer and seller for credit investigation, processing of applications, transfer of ownership, legal fees and insurance - must be paid in cash, in addition to the down payment, either at the time of the loan application or at closing (sellers have closing costs too, and these are deducted from their proceeds at closing).
But don't panic. The key to a smooth transaction is to know what to expect right from the start. As closing costs vary considerably, it is equally important that you shop around for services such as legal services, house insurance and mortgage rates as it can save you hundreds of dollars.
Closing Costs - What Are They?
After you sign the Contract of Purchase and Sale, it may be several weeks or months before the actual closing. Transferring the property is handled typically by an attorney or notary public. It is done to protect your interest, as well as the interest of the seller and the lender.
Local custom determines who pays what fees, although the buyer is usually responsible for the bulk of them. As closing costs usually amount to two or three per cent of the purchase price, you will want to plan for these additional payments ahead of time. By doing your homework and discovering that you could need, for example, $5,000 of your cash reserves for closing costs, you will not be proceeding blindly into the transaction. Your Realtor will be glad to tell you how closing costs are divided and what you should expect to pay.
Here is a list of some of the services for which you may be responsible.
- Title Search:
- A review of all recorded documents affecting the property to ensure that the seller is the true owner of the house. The search is usually conducted by a lawyer. Do your own comparison shopping by calling a few lawyers or have your Realtor ask for fee quotes.
- Survey Certificates/Plot Plans:
- A map detailing the dimensions and location of the house within the property boundaries. Your lender may require this. The buyer pays for the survey which must be made by a licensed surveyor.
- Attorney's Fees:
- You will have to pay for your lawyer who may also work for the lender. You will be responsible for the Attorney's Fees and Disbursements such as a courier costs, photocopies, mortgage registration and Transfer Fees: These are basically charges for recording and transferring the deed (Estate in Fee Simple) into your name and registering your new mortgage.
- Property Purchase Tax:
- A provincial tax of 1% on the first $200,000 the 2% thereafter with a reduced fee for first time buyers.
- Bank Fees:
- Paid to lenders to cover administrative costs. They may include processing fees or CMHC application fees, appraisal fees.
- Building Inspection Fees:
- As discussed in the last two weeks columns.
- Homeowner's Insurance:
- Lenders require that you purchase insurance against fire, flood, theft and other calamities. Shop around for the best coverage and price.
- Property Taxes and Water & Sewer Rates:
- Taxes are based on a calendar year but collected in July. If you bought on March 31 you would receive a credit from the seller for 3 months of taxes they owe but haven't been billed. If you bought on September 30 you would pay the seller for October to December for taxes they have paid.
- Goods and Services Tax:
- In the event you purchase a new building or a parcel of land newly created and defined with the broad pen of the tax department as a development parcel.
- Sellers fees may include some of the following:
- Attorney fees to clear title of financial charges such as existing mortgages, liens or judgments and outstanding taxes. real estate commission; and payments for agreed-upon repair work.