Closing costs on property purchase
The majority of home buyers, especially those purchasing for the first time, are surprised by all the items that require payment besides the down payment. It can be a bit of a shock! While a competent mortgage broker will review the closing costs with you in person, this list can also help you plan.
Canadian lenders and insurers need to see that you have the available funds to pay for your closing costs. If your mortgage is high-ratio (less than 20% down payment), it is a rule that you have to prove that 1.5% of the purchase price is available in liquid funds or in your debt ratios to pay for this. Regardless of your actual closing costs, it is an arbitrary amount that must be verified, often by way of providing a copy of your bank statement.
Here are some closing costs that you can expect:
Appraisal Fee
Typically $250 – $350, it is required to confirm the value of the property you are buying. Lenders and insurers will use the appraised value or the purchase price, whichever is LOWER, to assess value. Some lenders use an automated valuation system and do not require an appraisal. Many mortgage brokers also cover this cost.
Site Surveyor Title Insurance
Your notary or solicitor will recommend the better choice for your particular situation. In some cases, the seller may already have a valid site survey that you can obtain for free. If not, title insurance is incredibly less expensive ($200 – $300) and many lenders make it mandatory anyway. Most solicitors will recommend the underwriter they prefer for title insurance.
Home Inspection
This is an optional but brilliant investment. Ranging anywhere from $400 – $600, it reassures you that the home has no significant problems. Your realtor or mortgage broker can likely make some educated recommendations
Lender/Broker Fees (Rare)
These usually only occur in high-risk or private financing and are often a flat fee or a percentage of the amount being borrowed. Either way, they should be disclosed to you up front.
Legal Fees
All purchases require conveyance to register title, and all mortgages need to be registered on title. A lawyer or notary can complete this service for you. The margin on this service to be quite full, so it is worth your time to call around a get a few quotes, as rates can range from approximately $700 – $1500. Experience realtors and mortgage brokers often have some recommendations.
Home Insurance
Fire insurance as an absolute minimum is required by all lenders, except perhaps on strata properties. Your lawyer or notary will make sure you have this in place before your mortgage closes.
Mortgage Insurance
If your down payment is less than 20%, then mortgage default insurance from CMHC or Genworth is mandatory. This is a one-time premium that ensures the lender against the default of the mortgage. The premiums range from.50% to 2.75% depending on different variables in your application. These premiums are not typically paid up front; they are can be added to the mortgage.
Life Insurance and Mortgage Balance Insurance
Various policies are available for unforeseen events, such as death, disability, critical illness or loss of a job. I recommend using an insurance broker so that they can shop all the insurers and find the best policy for your particular situation. At the very least, DO NOT take the mortgage balance coverage offered by your lender, as it is not portable. If you move your mortgage at the end of the term (or at any time), you cannot take the insurance with you. That means you have to start over with a different underwriter, and switching to new policies when you are five years older is not a great idea. Get one that’s portable that you know you can keep for the life of your mortgage.
Property Purchase Tax
Also known as the land transfer tax, it varies from province to province. In British Columbia it is 1% of the first $200K and 2% of the balance; some exemptions exist, such as that for first-time homebuyers. This is usually the single most significant closing cost for most home purchases. It is particularly startling for those buying their second home if they were exempt from it the first time, they didn’t know how much they were saving!
GST/HST
It is payable on brand new construction only. Sometimes the builder or developer will include it in the purchase price. Also, there are partial rebates available in BC on HST. The HST in BC is being phased out in 2013.
Annual Property Taxes
These are pro-rated on the Statement of Adjustments calculated by your notary or lawyer. The purchaser owes for the portion of the year that they have possession of the property if the property taxes are already paid for the year. Alternately, sometimes you get a credit for months that the seller has had possession and you will be paying the taxes later that year, after the purchase.
Moving Expenses
Stating the obvious, but it is a closing cost! Some people are lucky to have friends, and the very lucky have friends with trucks. The rest should be sure to get some quotes.
Contact Rebecca Awram for more information
Community Lending Centre is here to help you with any questions you may have about closing costs. Feel free to call us at 604-614-2382 or send us an email.
Mortgage Broker Vancouver BC
DLC Canadian Mortgage Experts
17650 66A Ave, Surrey, BC V3S 4S4
communitylendingcentre.com
