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The-Mortgage-Gal

Mortgage closing costs

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
  • chosen a lawyer

You’re off to a great start. You will also be covering a few extra costs when your purchase is finalized. Being prepared for these closing costs in advance avoids last-minute stress.

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 per cent 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.

You will normally sit down with your lawyer at least 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 your purchase is completed or “closed."

Mortgage default insurance

Mortgage default insurance, commonly referred to as CMHC or Genworth insurance, protects the lender in case the borrower defaults on the mortgage. Mortgage default insurance is required on all mortgages with down payments of less than 20 per cent, which are known as high-ratio mortgages.

Property transfer tax

Some provinces levy this tax whenever real estate changes hands. 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.

First-time home buyers may be exempt from paying all or part of the property transfer tax. Exemptions are also available on newly-built home purchases. 

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 million, 
  • three per cent on the portion of the fair market value greater than $2 million.

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

GST

New homes are subject to GST, but used homes are not. There are rebates and exemptions available, so your lawyer will calculate your tax payable. This can be added to your mortgage.

Home insurance

This insurance, especially fire, must take effect from the moment you are the owner of your home. Certain types of properties can be more challenging to insure, so it is a good idea to do some research prior to purchasing a home.

Home insurance typically costs around $1,200 per year, but costs will vary depending on the type and location of the property. This insurance must be renewed annually, and most insurance companies provide the option of monthly payments. 

Home inspection fee

This is a fee payable to an inspector you hire to check out the physical structure and mechanicals of your house before you decide to buy it. Again, it is a good idea to do your research before hiring a home inspector. Your realtor may be able to recommend someone, or you can check with friends or family to see who they have used.

A good home inspector will spend three to four hours going over your home, then spend time with you explaining his/her findings. Inspectors provide a written report documenting any concerns that need to be addressed. You can expect to pay $400-$500 for an inspection.

Appraisal fee

Your lender may require an appraisal to confirm that the property is accurately valued. The cost of the appraisal is sometimes passed on the you. 

Depending on the location and complexity of the property, an appraisal can cost $300-$1,500. Some lenders use an automated system to value the property. In this situation, an independent appraisal is not required.

Survey

A legal survey of your land — its borders, perimeters, house placement, etc. — is sometimes (rarely) required by the lender, and will be performed by a professional surveyor. A typical survey can cost approximately $1,000. More commonly lenders require title insurance instead of a survey.

Title insurance

This covers any number of oddball situations that could threaten the title to your property. Title insurance is mandatory with most lenders and is much less costly than a new survey. Title insurance typically costs about $250, but varies based on your purchase price.

Homebuyers can purchase a personal policy in addition to the policy mandated by the lender. The additional policy covers many unusual circumstances and is relatively inexpensive if the two policies are purchased together. 

Legal fees and disbursement

Ask for a written quote to get a better idea of how much legal fees will be. On a straightforward purchase, legal fees typically run about $1,200-$1,400. Your lawyer will also calculate any money you’ll need to refund to the seller that has already been paid out on your behalf. These adjustments include portions of municipal property taxes for the months you’ll own the home, utility bills paid in advance, etc. 

Your mortgage specialist will give you an overview of what to expect for expenses. Taking some time upfront to gather estimates and knowing what your costs will be at closing goes a long way to reducing stress and anxiety. 

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About the Author

Laurie Baird and Tracy Head are mortgage brokers with Verico Complete Mortgage Services. Together they have over 45 years of experience in the mortgage industry.

As mortgage brokers, Laurie and Tracy spend time getting to know the people they work with and help them understand the mortgage process. They support their clients before, during, and after a home purchase.

Laurie and Tracy are able to offer their clients advice and options. With access to over 40 different lenders, Laurie and Tracy are able to match the needs of their clients with the right mortgage package. They work closely with their clients to find the right fit, and are around to provide support for years down the road!

Contact them at 250-862-1806 or visit:
http://www.okanaganmortgages.com

Visit Laurie's blog at: https://www.okanaganmortgages.com/blog



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The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet does not warrant the contents.

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