Very few people are lucky enough to simply decide on a whim to buy a home or cottage, and then purchase one the very next day. It usually takes time to carefully save for a down-payment, rearrange finances, get pre-approved by a lender, and decide where to live. Although it’s not always easy when making such a big financial and personal commitment, it’s definitely worth it when you get to finally move into your new home!
An essential part of buying a home is the closing, which naturally includes closing costs. These are the additional expenses associated with buying real estate that many people don’t always budget for. Here are six important home purchase closing costs to be aware of so that you don’t have any unwelcome surprises when you purchase your home:
We all want to make sure the home we buy is a sound investment, as well as being safe for our families. Including a home inspection condition in your offer is always a good idea, especially on a home that’s more than a few year’s old. A thorough inspection by an experienced inspector can uncover potentially costly issues with the home that you may not have discovered on your own.
Appraisal fees cover the cost of having your home assessed to determine its current market value; and as we know, home values can fluctuate widely even within the span of one year. Banks and lenders can occasionally cover the cost of the appraisal before lending you the money, but not always. It’s often the responsibility of the purchaser to pay for this service.
Land Transfer Taxes
Land transfer taxes can be a substantial cost that you will likely need to pay when purchasing a property, whether it’s a home, condo, cottage, commercial building, or even vacant land. Anyone who buys (or is gifted) real estate in Ontario pays land transfer taxes to the Province on closing day.
How much these taxes will cost all depend on what you paid for the property, in addition to the amount left on any mortgage or debt assumed as part of the purchase agreement. If, for example, you buy a home valued at $550,000 (with no assumable mortgage) you will pay approximately $7,500 in land transfer taxes.
It’s important to note that first-time home buyers may be eligible for a refund for all or part of the land transfer taxes, so be sure to inquire if it’s your very first home purchase. Check out my recent blog for more information on land transfer taxes and how it all works.
There are different types of insurance options to consider when purchasing a home, above and beyond the content and liability insurance that homeowners pay. For example, if you don’t have the full 20% down payment saved up, you’ll need to pay for mortgage insurance which is mandatory in Canada if a down-payment is below 20%. Additionally, title insurance is another option you may want to consider. It protects purchasers from any losses that may occur related to the property’s title or ownership, including issues regarding liens, survey errors, encroachment issues, and so on.
For anyone buying a home (but not selling one too), there’s good news – you don’t have to pay real estate commissions or fees to your agent, at least not any extra fees. From the money you paid for your new house, the seller then will pay anywhere from 4% – 6% of that price towards the real estate fees, which are split between the agent who listed the home and the buying agent. So, if you’re selling your home as well as purchasing a new one, you’ll only pay the fees once upon the closing of your existing home. It’s important to note that all details about a realtor’s fee can be negotiated, and should be in the agreement you sign when you hire them. Be sure to ask lots of questions and do your research.
Last but not least, anyone purchasing a home should consider obtaining the services of a real estate lawyer, as they can provide significant help by thoroughly inspecting your agreements and other documents to make sure your interests are carefully protected. Your lawyer also helps makes closing day run smoothly by arranging for all closing costs to be paid.
The mortgage world can be complicated, and as you can see, there can be unexpected costs and fine print involved. As an experienced and qualified mortgage broker, I can help you navigate the process; it’s my job to walk you through the steps required and offer the right information and solid advice. If you have any questions about saving for a down-payment (and those closing costs) or securing a mortgage, give me a call at 705-315-0516. I am always here to help.