Take the surprise out of closing costs

You've figured out your down payment, started working with a great real estate agent, and have been pre-approved for a mortgage.  You're off to the races, right?

Well, not quite.  You are indeed off to a great start.  However, you also need to understand and be prepared for the costs that you will need to pay when you "close", or finalize, your home purchase.  If you don't have the money to pay these closing costs, your deal will not go through.  Not a good thing!

So how much should you set aside for closing costs?

The exact amount is based on a number of factors related to your specific situation, but we usually recommend that you budget about 1.5% - 3% of your purchase price.   This will cover costs such as the following:

• Reimbursements - repaying the home seller for amounts that they've paid in advance, which are now owed by you.  These are things like property taxes, utilities, and so on.
• Ontario Land Transfer Tax, and Toronto Municipal Land Transfer Tax (if you're purchasing in the city of Toronto).  Click on each of these for the calculation.
• Home inspection fee - this is the amount for the inspector you hired to check out the physical structure of your home prior to buying it.
• Appraisal fee, if applicable - typically about $250 in the GTA; it depends on the uniqueness and complexity of your property.
• HST on your CMHC premium, if applicable.
• Legal fees - speak to your lawyer about their fee schedule.  Typically this is in the range of $1,000 - $1,500.
• Title insurance or property survey - many lenders will accept title insurance instead of needing a full property survey.  Title insurance covers a number of situations that could threaten your ownership of your home.
• Property insurance - this insurance, especially fire, must take effect the moment you are the owner of the home.
• Status certificate fee of $100 - this applies to condos only. 
• Interest adjustment amount - based on the timing of your closing date and your first mortgage payment, there may be interest owing. 

What can you do if you don't have the money?

There are a couple of options for you in this scenario:

1) Wait a little longer to purchase your home, until you have the money saved for closing costs.
2)  Consult with your mortgage broker.  Some lenders offer "cash back" programs where you can get up to 5% of the mortgage amount paid to you on your closing date.  You can then use the funds for closing costs or another purpose.

If you have any questions, please get in touch with me.  I would be happy to help.

Enjoy your house hunting!


Photo credit: Microsoft clip art