If you are considering a move, it pays to be informed about the closing costs you may have to incur when completion date comes on the closing of your real estate purchase. Many homebuyers are startled to learn that after they arrange their mortgage they have to pay a range of additional fees to finalize the deal.
Your exact closing costs will depend on where you live, how much you are borrowing, how you finance your mortgage and your closing date. The rules and regulations surrounding the various mortgage fees can be complex, and can vary from lender to lender.
Home buyers are often advised to set aside one-to-three per cent of the purchase price of their house for closing costs. These fees are explained during the home buying process, but it is helpful to ask questions so you fully understand how these costs can affect your budget.
Legal Fees: On average you should budget $600 to $900 for legal fees and an additional $200 to $400 for disbursements, which includes registering the mortgage, completing a tax certificate, and doing a title search on the property. On top of that you may pay administrative fees for postage, faxing and photocopying.
Shop around. Some law offices specialize in handling mortgage disbursements and offer cheaper rates. Ask your bank or mortgage broker which law firm they recommend and then call at least 3 other lawyers for quotes. A few phone calls can save you hundreds of dollars.
Property Tax Adjustment: If you buy an existing home, the previous owners have paidproperty taxes to the City. On closing, you will be required to reimburse them for the taxes they have prepaid for the year.For example if the previous owners paid $2,000 in property taxes for the year and you took possession of their home on June 30, you will be required to pay the owner half the pre-paid taxes, or $1,000.
Interest Adjustment Date: Depending on the date chosen by your lender as the interest adjustment (the date the mortgage starts) you may be required to pay interest from the closing date until your interest adjustment date. The maximum amount would be one month’s interest at the rate of your mortgage.For example, our mortgage was advanced when we took possession of our home on August 15. We owed an interest-only payment from the advance date until September 1, which was our interest adjustment date. Our first full mortgage payment came out on October 1. While it may sound like you get some reprieve by skipping a monthly mortgage payment, most people want to start eliminating this debt as quickly as possible.
Mortgage Appraisal Fees – Lenders require an evaluation of the mortgage lending value of a property.
Land Survey – The Legal written and/or mapped description of the location and dimensions of your land, obtained from an accredited land surveyor.
Title Insurance – May be purchased in lieu of a land survey in some cases. Provides protection against several defects such as problems with the property that would have been revealed by an up-to-date land survey.
Land transfer tax – Buyers must pay this tax to their provincial government when the property's title passes from the seller, except the case of First Time home Buyers exemptions depending upon the area you buy.
High Ratio Mortgage Insurance – Needed if you are buying a home for less than 20% down.
Home Inspection Fee – An objective visual examination of the physical structure and systems of a house.
Moving Expenses – An objective visual examination of the physical structure and systems of a house.
Hidden costs can make it difficult to stick to a budget, especially for a first time home buyer. Be sure to ask your lender in advance for a detailed description of all your closing costs so they are factored into your overall budget.
Contact me any time for more information.