Most buyers are so concerned with coming up with the down payment for a new home that they overlook the cash they will need to cover closing costs. Purchasers need to be prepared to pay for last-minute costs such as taxes, legal fees, appraisal fees, moving expenses and home insurance before they are ever sitting comfortably in their new homes. These costs can add up and place considerable financial burden on the buyers if they are not budgeted for. Costs have been separated into two categories – ‘for sure’ costs and ‘maybe’ costs. Costs are approximations only.
‘FOR SURE’ COSTS
1. Property Transfer Tax
This is a provincial tax. In BC, the purchaser pays 1% of the 1st $200,000 of the fair market value and 2% on the balance. If the purchase price is $500,000 then the property transfer tax will be $8,000. This amount cannot be included as part of a mortgage.
2. Legal Fees ($800-$1500 approx.)
The transfer of home ownership from the seller to the buyer must be filed in the Land Title and Survey Authority Office. Legal counsel will conduct a title search, ensure all documentation is in order (surveys, liens against property etc.) and will check the statement of adjustments. These adjustments have been prepaid by the seller at the time of closing. These may include prepaid property taxes and strata fees.
3. Interest Adjustments ($100 – $1000)
The purchaser must pay any gap between the closing date of the purchase and the 1st payment date of the mortgage. The purchaser can avoid this cost by making the first mortgage payment exactly one payment period past the closing date.
4. Home Insurance (Cost varies)
There are different types of home insurance — homeowners’ policies for detached single-family homes and policies for people who live in a strata property. Homeowners’ policies are for people who own and live in their own single-family house. These policies insure both the building and the contents in a comprehensive package. ($900-2500 /yr) The most complex type of home insurance is a condominium owner’s policy, which covers personal property such as a renters’ policy. ($250-500 /yr) Typically, building insurance is paid through an owner’s condo fees.
You may or may not have to pay the following costs depending on whether or not you are holding a mortgage, the type of mortgage you are holding and the type of property you are buying.
1. Mortgage Default Insurance
If the down payment is less than 20% of the purchase price an additional 0.5% to 3% will be added to the total amount borrowed. This will be rolled into your monthly mortgage payment.
2. Home Inspection ($350 – $500)
A home inspection is often a condition a purchaser places on the offer to purchase as a protective measure. If mortgage default insurance has been purchased it will be a definite requirement. Home inspectors will advise you on the general condition of the property.
3. Appraisal ($150-$500)
This is the charge levied for determining the property lending value for mortgage purposes.
4. Property Surveys ($750 – $1000)
If a new survey has to be conducted it will indicate the boundaries and measurements of land and buildings. This is required to register the title so that ownership can be transferred.
This tax is applied to new housing. The cost will depend upon the purchase price.
6. Title Insurance ($250)
This insurance covers any problems that may arise from property encroachment issues.
7. Mortgage Life Insurance
Costs here are variable but they can be included within a regular mortgage payment. This insurance protects buyers from unanticipated life events such as divorce, death, job loss etc. The mortgage may be protected in full or to a maximum of $500.000. If your mortgage is over $500,000, you may be eligible for partial Mortgage Life Insurance coverage.
As you can see there are a variety of costs, some of which can be unexpected, to consider when you are going to purchase a home. This quick review gives potential purchasers guidance but is not intended to be definitive. Do your own due diligence and shop around to see where you can get the best value. If you need help or advice do not hesitate to contact Ole, Colin or David. Reach them at www.duttons.com , they would be happy to sit down with you.