Closing costs, then some

You’ve done your homework – saved your down payment, met with your mortgage broker and are pre-approved for a mortgage, connected with a reputable realtor, and chosen a lawyer.

You’re off to a great start in the purchase process.

As you move forward, keep in mind that you’ll also be covering a few extra costs in addition to legal fees when your purchase is finalized. Being prepared for these closing costs in advance avoids last minute stress.

How do I budget for my closing costs?

If you are putting the minimum five per cent required to buy your home, your mortgage professional will explain that you need to have 6.5% on hand to cover your closing costs.

It is a good idea to gather estimates of these fees and expenses, so you are fully prepared.

Rule of Thumb: allow 2-3% of the purchase price to cover your closing costs

You will normally sit down with your lawyer about a week before your purchase completes to sign all the required documentation.

At that time, you will need to provide a draft or certified cheque to cover the balance of your down payment and closing costs.

The following list covers typical expenses you’ll encounter when buying a home:

• Deposit — will have been made when you went firm with your offer. If you are selling and buying at the same time, make sure you have access to funds for this deposit
• Realtor commission (if you are also selling a home)
• Legal fees
• Appraisal
• Inspection
• Property Transfer Tax
• Property Tax Hold-back: If the lender is collecting and paying property taxes you may be required to pay to the lender an amount to ensure sufficient funds are available to pay the next instalment of property taxes when due. Property taxes are paid July 1 each year.

Some surprise expenses that people don’t account for can include:

• Moving expenses
• Appliances if not included in your purchase price
• Decorating/updates
• Repairs
• Utility hookup fees
• Tools, shovels, gardening equipment etc

One of the big-ticket closing costs that catches clients by surprise is the Property Transfer Tax.

Some provinces levy this tax whenever real estate changes hands. In B.C., this tax is calculated as a percentage of the purchase price of your property, so the more expensive the property, the larger the amount of tax paid.

It is key to know that there are several exemptions to this tax. First time home buyers may be exempt from paying all or part of the property transfer tax up to a fair market value of $500,000. There is a partial exemption for prices up to $525,000.

Exemptions are also available on newly-built home purchases up to a purchase price of $750,000.

In B.C., the tax is charged at a rate of:

• One per cent on the first $200,000,
• Two per cent on the portion of the fair market value greater than $200,000 and up to and including $2,000,000, and
• Three per cent on the portion of the fair market value greater than $2,000,000.

For example, if the fair market value of a property is $450,000, the tax paid is $7,000.

It is important that you confirm with your lawyer that you are eligible for an exemption. There are nuances that may mean you do have to pay the tax, so you don’t want to be caught by surprise at closing.

As you are house hunting, do your homework on these closing costs. Keep a list or spreadsheet, and my suggestion is you budget a little high so you are not scrambling at closing.

A quick reminder – the B.C. Speculation Tax Declaration forms have come out in the mail. Take a second to complete the form online. They are due by March 31.

Hope you are enjoying Family Day.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.