Closing Costs – Determine and Budget Accordingly
When you are buying for the first time it’s pretty common that you would be unaware of the costs that occur when a real estate transaction closes. It’s my job as your real estate agent to make sure you are aware of what to expect so you can prepare. Most of the costs at this stage of the process are incurred by the buyer, as opposed to the seller. A property transaction can be ruined by inability to pay these closing fees, so remember to budget accordingly for these expenses to avoid any hassles and disappointment.
Cost #1: Make Sure You Know Your Credit Rating
Every time you borrow money the information about the loan is sent to the national credit agencies to keep track of your ability to repay. The most credible agencies in Canada are Equifax and Transunion. When you get pre-approved for a mortgage the broker will pull your credit report and this will happen again right before the transaction is finalized to make sure you haven’t incurred any debt in the interm. Every now and again the mortgage broker won’t include this is the application and may add it to the closing costs.
Cost #2: Appraisal To Receive CMHC Insurance
If you don’t have 20% down and need to get CMHC insurance, you’ll need to have the home appraised so it can be proven the value of the property is in line with the amount you are borrowing in the mortgage. An appraisal can cost around $300 to $500, and is covered by the person buying the home. Due to the nature of real estate transactions, it’s possible this cost might come up more than once during the process. Never fear though, we’ll do our best to give a comprehensive understanding and explain your options.
Cost #3: Time For A Title Search and To Think About Insurance
Even though this should already be covered by the seller’s real estate agent, it’s never a bad idea to double check and have a title search done to ensure you are dealing with the real owner of the property and the home title is unencumbered. Once you’ve figured there is nothing in the way of the sale, it’s time to contemplate title insurance. This insurance protects you in case there are any claims that come up against the home between the acceptance of the offer and the possession date. Title insurance generally costs about 1% of the home’s price.
Cost #4: Property Transfer Taxes
Death and taxes are pretty much the only two certainties in life. In the Province of British Columbia there is a transfer tax involved in real estate purchases. On the first $200,000 of the home price, it’s 1%, after that threshold it’s 2%. As an example, if you purchase a $900,000 home the property transfer tax would be $16,000. There are a few exceptions to this tax, primarily targeted towards first time buyers. You qualify for this exemption if you the property price is below $425,000, it will be your primary home, the land associated with the property is less than 0.5 hectares, and of course you need to be buying a home for the first time.
Cost #5: The City Needs Their Taxes Too
Your share of the years property taxes will be determined on your possession date. If you take possession of the home on April 30th, as an example, the seller will owe you money as they wouldn’t have had the chance to pay the property taxes yet. On the flip side if you take possession on October 31st you’ll owe the seller for the taxes already paid. Condo fees can also be owing if you take possession during the middle of the month. Property insurance is another consideration as this is usually paid for at the start of the year. This will all come to light during the closing/conveyancing process and you will show up on your final statement through the lawyers office.
Cost #6: The Unknown
No matter how many times you go through the closing process, there is no hard and fast rule on what to expect. When you are going into the market to buy a home, it’s important that you go in knowing that there will be some unknown costs to incur. If you remove property transfer tax from the equation, a good rule of thumb is to have 1.5% of the property price saved up and ready to dish out.