Here we go, the last post in my Home Buying Series! If you have missed any of the previous posts, you can find links to all of them at the bottom of this page. Today we’re talking about closing costs…the worst! Those pesky administration fees that will cost you a pretty penny.
So how much money are we actually talking? On average, closing costs will end up being between 2% and 4% of the purchase price of your new home. If you buy a $400,000 house, you could end up with closing costs as much as $16,000. Now don’t freak out, you can have your closing costs added into your mortgage so that you don’t actually have to cut your lawyer a cheque for $16,000 when you’re likely already feeling the pinch from your down payment.
What are you actually paying for?
Lawyer fees / disbursements
This is the most obvious charge, and it likely won’t be a surprise to anyone that lawyers are expensive but their expertise is necessary, and they’ll get all the background work done for you. Expect to pay a real estate lawyer between $500 and $1500 (plus tax) to get your house purchase completed.
Land Transfer Fees
In most provinces, there is a land transfer tax (the amount varies by province), but here in Alberta we like to be a little bit different, so we have a land title transfer fee. The calculation for this is based on both the property value and your mortgage amount, you start with a $50 base fee and then add $1 for every $5000…you have to do this for both so if you are buying a $400,000 house with a 20% down-payment ($80,000). You’ll have to pay $130 fee on the property value and $114 fee on the property value for a total land title transfer fee of $244. This is actually cheap when you compare rates across the country; if you live in Toronto, you have to pay both provincial and municipal fees.
Sometimes a seller will have pre-paid their property tax for the year, so you will be responsible for covering any amount they have paid for after the closing date.
Your mortgage provider may require you to get title insurance which protects from land disputes in the future. Usually, the Real Property Report covers this, but issues can arise that are as simple as your fence extending onto your neighbour’s property. It’s unlikely this will cause problems, but if you end up with nasty neighbours in the future who are up in arms, it will be title insurance that settles the dispute.
There’s also going to be other fees involved in the purchase of your new home that aren’t exactly closing costs, but you’ll have to pay them nonetheless.
When you make an official offer you will have to provide a deposit on the house that will count towards your downpayment. There’s no minimum amount, but you want it to be large enough to make you look like the real deal (your real estate agent will be able to help you figure out the right amount).
This is going to cost you whether or not you make it all the way to closing, but it’s an essential step of the process. You’ll likely spend about $500 on a good inspection, but it can save you thousands of dollars in headaches in the future.
Your lender may request an appraisal be done to make sure the house is worth what the seller is asking. Often your lender will cover the cost of this so be prepared to negotiate that with them.
Your lender, is also going to require you to have home insurance all lined up before they give the final go ahead for your mortgage.
If you’re coming from a rental situation you may not have had to pay utilities before so get in touch with your local power, gas, and water companies to get accounts set-up.
Moving costs and the little extras
You can save yourself some cash by moving yourself, but you’ll likely still need to rent a U-Haul unless you’re blessed with friends with big trucks. There’s also going to be new things to purchase for the new house…maybe you’re doing some reno’s, you’ll likely want to get the carpets and furnace cleaned, and don’t forget about buying a lawn mower, snow shovels, etc.
There you have it, a nice long list of all the things you’ll have to hand over your hard, saved dollars for when making your first home purchase. The good news is that once this is all done, you’ll be unlocking the door to your very first home and will be ALL YOURS (minus that mortgage part your bank owns but let’s ignore that for now)!
Here are the links to the all the posts in the series if you’re interested:
1. Home Buying Series – Renting vs. Buying
2. Home Buying Series – Saving Your Down Payment
3. Home Buying Series – Home Buyer’s Plan (HBP)
4. Home Buying Series – Mortgage Pre-Approval
5. Home Buying Series – House Hunting
6. Home Buying Series – Closing Costs