10 Closing Costs When Buying Real Estate
When you’re preparing to put an offer in on your next home, you know that numbers are everything! While you may already be pre-approved for a certain amount, your head is awash in figures trying to anticipate what potential expenses may arise before and after your purchase.
Even with the most careful planning, it’s easy for some of these numbers to fall through the cracks. If you plan on maxing out your potential budget, you may lose sight of the need to keep a small amount behind available for the closing costs that you had either forgotten about, or genuinely did not know were coming. Real estate listings talk all about the purchase and sale price of a home but are rarely transparent about the associated costs that go with that transaction.
So, in the spirit of full transparency, here are 10 closing costs that you want to keep in mind before you write that next big cheque:
Land Transfer Tax - this is the one that most people know about, but don’t realize the real numbers. Depending on where you’re purchasing, this can be an additional 0.5% to 2% of your home’s purchase price, although if you are a first-time home buyer you may be eligible for credits to offset this amount. Be careful - jurisdictions like the City of Toronto have an additional Land Transfer Tax Administration Fee, which is actually a tax on a tax (oh, and there’s HST charged on the administration fee as well)!
Appraisal Fee - Depending on your lender, you may be required to have the home professionally appraised to determine its current value. Think the bank is picking up the tab there? Guess again! Most appraisals will cost between $300 to $500.
Legal Fees - Buying a home may be the only time that you interact with a lawyer in your life, but a good real estate lawyer can make your transaction run much smoother! They will review all your necessary paperwork, including running a title search on the property to determine that your ownership is clear, and will walk you through all of the complicated documents. Legal fees for a purchase generally run between $800 to $1,500, although most of that fee is made up of the necessary costs of processing the mountain of paperwork, which lawyers usually pay at a flat rate.
Home Inspection - If you’re not buying a new build, you’ll likely want to make your offer to purchase conditional on a home inspection. A professional home inspector will go through every facet of your potential purchase top to bottom (depending on the level of service that you purchase) and inform you of potential trouble spots that may need some expensive maintenance. Make sure to set aside roughly $400 for a home inspection, or more if you suspect you may need to test for asbestos.
Home and Fire Insurance - This is one of the pieces buyers often forget about until the last minute! Your lenders will require proof that the property is properly insured against potential damage, which will run at least $500 per year.
Tax on Mortgage Insurance - If your down payment is less than 20% of your purchase price, you will require mortgage insurance in order to cover the lender in case you cannot make a payment. The insurance costs will be rolled into your mortgage payment, but the tax on that insurance will not be. This insurance is subject to PST, so prepare to pay out another few hundred dollars at your lawyer’s office, although they can supply the final numbers ahead of your visit.
Title Insurance - You may not think of the possibility that someone could try to fraud you out of the ownership in your home, but it can happen, and it creates an absolute legal mess when it does. Title insurance is the best safeguard to protect your title or survey on your property. Be prepared for an additional $150 to $350 for the insurance.
New Home Costs - If you’ve bought your home on builder’s plans, then be prepared to pay for any extra features that you’ve added on, such as paving and landscaping fees. New homes are also usually subject to tax, either 5% in federal GST or a 13% combined HST, although this is usually included in your purchase price but make sure to inquire. There are also potential rebates that can reduce this tax burden if a home is valued under $350,000, however houses in that price range are becoming harder to find.
Prepaid Costs - Depending on the timing of your purchase, the seller may have already prepaid utilities such as hydro and water, or the property tax. Unfortunately, they weren’t doing so out of generosity, and so you will need to reimburse them for those expenses. On the plus side, this will then cover some of your expenses for the first month in your new home.
Moving Costs - Unless you have strong friends who happen to have a truck and some extra time on their hands, you’ll need to either rent a truck or hire professional movers! Depending on geography and how much stuff is involved, those options can range from $100 to a few hundred dollars. Oh, and don’t forget a locksmith to change your locks (at least $50), cleaning supplies, and pizza money in case those friends are super generous. The bottom line is that your purchase price is never really your all-in purchase price. Depending on what you buy and where, there can be thousands of dollars in additional fees and expenses before you get to walk through that front door and call it ”home” With all these extra fees, it’s important to save money wherever you can, and that means having the right mortgage broker who can get you the best deal for your needs. Contact Mortgages With Hannah today to see how we can help you make your next move.
