Closing Costs When Buying a Home
Closing Costs When Buying a Home
The term “closing costs” is used to describe the expenses that are commonly incurred in the process of purchasing a home. Not all costs are the same in all situations; however, there are few that will almost always be incurred. The future homeowner is responsible for covering all closing costs so it is important to be aware of them to know which are applicable. See below for a comprehensive list of most all of the potential closing costs.
- Land transfer tax – When a home changes hands, many provinces and a few municipalities charge a property transfer tax or title transfer fee. In British Columbia, the land transfer tax is calculated as 1% of the first $200,000 of the purchase price plus 2% of the balance (e.g. for a $500,000 property, the land transfer tax will be $8,000; 1% of $200,000 = $2,000 + 2% of $300,000 = $6,000). This tax is paid at closing (appointment with solicitor) and banks do not finance this (you should think of this cost similar to, but in addition, to the down payment in that it is an out of pocket expense). First time buyers in BC however, may qualify and be exempt from this tax when buying the first home they will live in. Please contact me directly for full details on this program.
- Appraisal fee – The lender/bank may require that you have the home appraised to confirm its market value. This is more common when the mortgage is NOT insured (i.e. when the down payment exceeds 20% of the purchase price or in a refinance when the mortgage amount is less than 80% of the home’s market value). Fees vary depending on the size of the property, property type, and amount of detail required in the report, but will typically cost $300 to $400.
- Home inspection – An inspection can help make you aware of issues related to a house’s structure and systems, such as plumbing and electrical, and recommended or necessary repairs. This is at the discretion of the purchaser and is not a requirement for financing. The cost of a home inspection can range from about $350 to $450.
- Home/fire insurance – Your lender will require proof that the property is insured in case of fire and other damage. Insurance costs vary depending on the property type and coverage obtained, however, budget for about $300 to $500 a year.
- Legal fees – A lawyer or notary will help protect your interests by reviewing your purchase agreement, searching the property title, and ensuring that all documents are completed properly. Legal fees for a straight forward purchase will be approximately $1,100 to $1,200.
- Title insurance – Title insurance can safeguard you against fraud and problems with your property title or survey. Fees range from $150 to $350.
- Costs for newly constructed homes – If you are buying a brand-new home, be prepared to settle any items not quoted in the original price, including upgrades or paving and landscaping fees. New homes are also subject to 5% GST or 13% HST, although this is often included in your purchase price. A federal rebate reduces the GST or the federal part of the HST to about 3.5% for homes valued at $350,000 or less.
- Prepaid costs – If the seller has already paid for property taxes, water bills, or other utilities in advance, you will need to reimburse these at closing. This can add to your upfront costs, but you will have then prepaid these bills for the first months in your new home.
- Moving-in costs – Before the big day, budget for all those last minute things: $100 or more to rent a van or a few hundred dollars for professional movers, $50 to $60 for a locksmith to re-key your locks, $50 to $200 for cleaning supplies or professional cleaners, etc. Such incidentals can come to $500 or more.
- Life and disability insurance – This type of insurance is not typically considered a “closing cost”, however, it should be looked into at the time of arranging a mortgage. Life and disability insurance is about ensuring that you, as well as others possibly, will be looked after should something unfortunate happen to you either for a brief or permanent amount of time and affect your ability to earn an income.
For more information on closing costs specific to your situation and assistance with buying process whether your first time or tenth, please let me know, I would be happy to help.
(604) 603-2520 | Maury@MauryLum.com | www.MauryLum.com |
