When most people decide to go house hunting, the only thing on their mind is their budget. Honestly, when you’re making a purchase of a few hundred thousand dollars, that’s the only thing that would be on most people’s minds. But for people without huge reserves of cash, unexpected closing costs can significantly impact a homebuyer’s budget.
Despite the name, closing costs aren’t limited to closing time. In fact, unexpected costs can start accumulating before you’ve even bought the house!
Inspection: When drafting an offer to purchase, be sure to include a property inspection condition. Property inspections aren’t cheap – they start around $400 – but they can save you from purchasing a lemon of a house. The last thing you want to do is save $400 and find a basement full of water the first time it rains.
Appraisals: Even though banks seem to love writing loans for hundreds of thousands of dollars, they love protecting their investment even more. If your city or neighbourhood is in transition or your purchase price sets off alarm bells in the bank’s software, your lender will ask for an appraisal of the property. Property appraisals start around $300 and are done by licensed appraisers who will determine the actual value of your property – a figure that may or may not be what you paid for it.
Lawyer: Lawyers aren’t cheap, but it may still surprise you to see all the costs (disbursements) on a lawyer’s bill. From a charge to transfer title to a charge for photocopying, budget around $1,000 to pay the lawyer.
Land transfer tax: Land transfer tax is calculated as a percentage of your purchase price. It exists in all provinces except Alberta and Saskatchewan. Lucky Toronto homeowners get the double-whammy of an Ontario tax as well as a municipal tax.
GST: Certain types of property are subject to 5% GST. Ask your Realtor or lawyer for more information.
Title insurance: Title insurance is a few hundred dollars and protects the purchaser in the event that a property survey is missing or inaccurate.
Property tax adjustments: The biggest thing buyers forget about when making a home purchase is the cost of property taxes. While you might think that as a new homeowner you won’t have to pay taxes until the next bill, you’d be wrong. At closing time you’ll be presented with a bill for your share of the property taxes. If your closing date is September 1st for example, you’ll be responsible for the 121 days remaining in the year, or approximately 33% of the tax bill
Closing costs in Alberta and Saskatchewan aren’t too onerous. In Toronto though, the bill can be massive and hard to pay unless you’ve planned ahead. By doing a bit of research and collecting quotes before you decide to buy, you can get a feel for the amount of money you’ll need at closing time and avoid having an unexpected surprise!