Buying a Home? Don’t Forget About Closing Costs
Spring has sprung! And with it, people are starting to shop for their new homes. It’s an exciting time – but when you are setting a budget for your purchase, it is important to make sure that you have taken closing costs into account.
So what exactly are closing costs?
Closing costs are all of those out of pocket expenses that you have to pay for (on or before closing) in addition to the price you agreed to pay for your new home.
Here is a list of 10 COMMON CLOSING COSTS that you may encounter when purchasing a home:
Land Transfer Tax – This is a provincial tax imposed by the Province of Ontario on the transfer of land, and which must be paid by the purchaser at the time of closing. If you are buying in Toronto you will also have to pay Toronto Land Transfer Tax. First time home buyers are entitled to a limited rebate on both the provincial and municipal Land Transfer Tax.
Home Inspection – It’s always a good idea to get a home inspection done before buying a home. Make sure that you’ve planned for this additional cost in your budget.
Appraisal – Lenders will often require that a satisfactory appraisal be done before agreeing to fund the purchase. The cost of the appraisal comes out of the home buyer’s pocket.
Legal Fees and Title Insurance – We all know that lawyers don’t work for free. Make sure that you’ve set aside sufficient funds to cover legal fees, disbursements and the cost of title insurance when purchasing a home.
Closing Cost Adjustments – If the seller has prepaid certain costs relating to the property, (such as property taxes, utility bills and any other charges), you as the purchaser will be responsible to pay the seller back for your portion of those bills.
PST On Mortgage Insurance Premium – If you are putting down less than 20% on the purchase of your home, you will be required to obtain Mortgage Insurance. While the cost of the Mortgage Insurance premium is typically rolled into the mortgage, the PST payable on that premium is not, and has to be paid at the time of closing.
Condominium Status Certificate Fee – If you are purchasing a condominium you will want to see this document and have it reviewed by your lawyer. Make sure that you’ve accounted for the cost of obtaining it in your budget if you are planning to buy a condominium.
HST on New Home Purchases – If you are buying from a builder, there is HST payable on the purchase. Make sure you know if that cost has been included in the purchase price. If it hasn’t been then you need to set the additional amount aside as part of your closing cost budget.
New Home Warranty – When buying a home from a builder, Tarion will step in to protect consumers when builders fail to fulfill certain obligations. The builder will pay the Tarion fee up front but will typically attribute the cost back to the purchaser either by including it in the purchase price or adding it in as an extra cost payable at closing. It’s important to understand your contract and know whether or not this fee is included in your purchase price or comes at an additional cost.
Property Insurance – When buying a new home you will have to obtain fire insurance to protect the property. The insurance premium can usually be paid either as an annual lump sum or in monthly increments. Speak with your insurance broker to get a proper estimate.
Unfortunately, if you can’t cover your closing costs, you will be unable to successfully complete your purchase – and will put yourself at risk of losing your deposit and potentially being sued by a seller for damages.
When you work with me, not only will I help you choose the right mortgage, but I will also help you figure out a proper estimate of closing costs so that you can feel confident when making your purchase. Contact me today!