Working with a mortgage broker is a different experience than working with a bank specialist. It’s also a different part of the home buying process compared to working with your Realtor. Some people may have never worked with a mortgage broker before and don’t know what to expect. Because of that, there are some questions…Read Article
First Time Homebuyers: Plan Ahead for Closing Costs
If you’re buying your first home, all of the various expenses rolled into the term ‘closing costs’ can seem overwhelming. Closing costs include all legal and administrative expenses you’ll be responsible for paying on or near your home’s closing date. It’s important to include these costs in your budget because, in most cases, they can’t be rolled into your mortgage payments.
Closing costs typically range between 1-4% of the home’s purchase price and vary depending upon the specific property you plan to purchase. It’s always wise to set aside more than you need – say 5% – so you have a buffer available to cover these expenses. Any extra savings can then be put towards furnishing and decorating your new home.
Here’s a list of the most common closing costs to help you better prepare for your homeownership:
Budgeting for Closing Costs
Property Transfer Tax
Provincial tax is charged whenever a property is purchased (unless you’re a first-time buyer, in which case you’re likely exempt from the cost). In BC, you pay 1% on the first $200,000, 2% on the portion of the fair market value greater than $200,000 and up to and including $2,000,000, 3% on the portion of the fair market value greater than $2,000,000, and if the property is residential, a further 2% on the portion of the fair market value greater than $3,000,000.
*First Time buyers are exempt up to a purchase price of $500,000
Tax is only charged on new homes. Fortunately, if your new home is priced below $450,000 before GST, you may be eligible for a partial rebate of the 5% GST portion. Certain conditions may apply. Contact your lawyer or notary for full details.
An appraisal is an unbiased estimate on the value of your home. It certifies the property’s resale value to the lender in case you default on your mortgage. The average range is typically $300-$500, but varies based on specific properties.
This will only be applicable if you are putting 20% or more down payment and isn’t always necessary.
Legal Fees & Disbursements
Your lawyer/notary will charge you a fee for drawing up the mortgage and conveyance of title. The amount of the fee will depend on the individual that you use. The typical cost is $800-$1,000.
You’ll need to pay interest on any gap between the closing date of the purchase and the first payment date of the mortgage. You can avoid dealing with an interest adjustment by scheduling your first mortgage payment to commence exactly one payment period after your closing date.
Statement of Adjustments
Your lawyer/notary will calculate and prepare a statement of adjustments for your portion owing on utilities, property taxes and other bills based on where your closing date falls within the month/payment cycle. As some owners prepay these services, the adjustment could be quite costly.
Most lenders require title insurance to protect against losses in the event of a property ownership dispute. This is purchased through your lawyer/notary and costs approximately $200-300.
A professional inspector offers an objective visual examination of the physical structure and systems within a house. It’s not mandatory, but it’s great protection for your investment. The cost range is $350-600.
I can help you determine the closing costs you’ll have to pay based on your specific property. Do you have questions about closing costs and calculations? Answers are a call or email away!