Normally when you are planning to buy a house, you are just focused on saving a certain amount of money for the down payment. However, you have to incur some additional costs that come with closing the transaction. You may get surprised with “closing costs” as you approach your closing day if you are not aware of these charges.
You may ask what do you mean by closing and closing costs? Closing means when the title of a property is transferred from the seller to the buyer. Upon closing, the buyer is responsible for paying a number of costs that are over and above the price of the property. It is advised that you should set apart 1.5 – 4% of your home’s purchase price.
As a buyer, you are required to pay two sets of closing costs. First, you have the costs that occur before your down payment.
Deposit: Did you find the house that you absolutely love? A deposit shows your interest and commitment in purchasing the property.
Appraisal Fee: An independent appraiser is appointed to determine the value of the property and whether it meets its lending criteria and estimate the resale value in case you default on the monthly mortgage payment.
Home Inspection: Home inspection is an optional expense to make your offer conditional upon a positive home inspection and depends on the size, age and complexity of the home.
The next set of closing costs are paid for the completion of your mortgage deal, including all legal and administrative expenses to be paid leading up to, or on, your home’s closing date.
Legal Fees: You will have to pay legal fees for all the paperwork, finalizing the sale, a title search to make sure the property is clear of any issues or liens. Lawyer fees vary from deal to deal.
Land Transfer Tax: The province of Ontario will collect a land transfer tax when a property is transferred from one owner to another. The amount you pay is based on the purchase price and you have to pay both the municipal and provincial taxes. A first time home buyer is also eligible for a land transfer tax rebate in some provinces.
Title Insurance: In Canada, a lender may require you to take title insurance on the property to prevent challenges related to the ownership of your home or from problems related to the title to your home. Some insurance companies will request a home inspection prior to insuring the property, so it’s better to know about that earlier on in the transaction.
Adjustments: Your lawyer/notary will calculate and prepare a statement depending upon the closing date for any amount you owe to the seller. As some owners prepay these services, the adjustment could be quite costly. Some other costs to consider would be the property tax adjustment, so in the event that the previous homeowner had pre-paid their property taxes for the year, you would be responsible to pay them back that amount.
Mortgage Default Insurance:If you have less than 20% down, you will need to get mortgage insurance through CMHC, this fee can be paid off upfront or you can choose to add it to your mortgage. Should you choose to add it to your mortgage the total amount you end up paying back is larger, as you also have to pay interest on that amount as well.
You can also keep a budget aside for other expected expenses such as upgrade or moving cost. You must plan and consider all the closing costs or get in touch with a mortgage professional to get a clear picture instead of panicking on your closing day.
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If you’re ready to get started with your mortgage process, feel free to reach out to us for any questions related to closing costs. We can help you to get all your mortgage related queries answered. You can reach us at 905.997.7001 or email us at email@example.com to begin your home buying journey.