It is always a shame when you hear about someone having a huge financial surprise on the day of closing. On the day you are making the biggest purchase of your life, many forget to calculate all of the other expenses that are to be paid on closing. These expenses will not be rolled into your mortgage, so be sure to calculate them all on top of the money you had planned to put down as your down payment. Typically, you should set aside 2 to 3 percent of the purchase price to cover costs such as:
Home Inspection – A written report is prepared by a qualified inspector who assesses the property for any defects or poor maintenance. It helps let you know what repairs and maintenance are required, and if the property is structurally sound.
Appraisal – It is required to make sure the property is acceptable as a security for the mortgage, to determine what the property is worth based on sales of comparable properties, and if what you paid for is close to the appraised value of the property. This is often the request of the lender you will be getting your mortgage from.
Legal Fees/Disbursements – The lawyer will prepare mortgage documents for you to sign and register your name on the title as the owner of the property once the deal closes. Ask your lawyer for a quote on his/her fees to close the deal and mortgage, including disbursements (courier costs, registration fee, photocopying, etc.). You may shop around to see what other lawyers charge and choose whoever you are comfortable dealing with. Ask your real estate agent for a recommendation but it is also a good idea to do a little research on your own.
Title Insurance or Survey Fees – Ensures the property is acceptable as security for the mortgage. Survey fees can usually be avoided if you can get an acceptable copy of survey from the previous owner.
Land Transfer Tax – For certain provinces; usually based on the percentage of the purchase value. In Toronto, be sure to calculate the municipal tax as well.
Prepaid expenses – Can include utilities, water, sewage, property tax, and oil in tank prepaid by the seller beyond your closing date.
Property Tax Holdback – Holdback required by the lender if the lender is the one collecting and paying for the property tax in order for them to have sufficient funds available to pay the next installment due.
Fire Insurance – Usually required by the lender to be in place (as confirmed by the lawyer) by the time you go and sign the mortgage papers with your lawyer; ensures the borrower has adequate coverage to pay off the mortgage for the property in the event of fire or other damages.
Mortgage Protection Insurance Premiums – Optional; paid monthly and covers the mortgage amount in case of death, disability, loss of employment or critical illness depending on the policy you choose.
Mortgage Insurance Premium (CMHC) – Typically incurred if your mortgage amount exceeds 80% of loan-to-value; paid to the insurer as a one-time fee that can usually be added to the mortgage amount.
Mortgage Processing Fee – In unique situations, this is a fee brokers/lenders charge to process applications and is disclosed before an applicant signs the mortgage commitment.
Other Fees – HST (Harmonized Sales Tax) for new homes, utility connection charges etc.
You should always be sure to clarify with your real estate agent, lawyer and lender about all of the costs you can expect on the day of closing. That day is supposed to be one of your happiest days and unexpected surprises can be avoided by asking these simple questions. For more information on buying or selling homes, feel free to call The 905 Real Estate Guys. We will be happy to answer all of your real estate questions.
Sean Kavanagh: 905-220-9198
Leo Manchisi: 905-334-9650