When taking out a mortgage for purchasing a home, homebuyers can be surprised by the closing costs that are involved. It’s something you need to plan for and factor into your home buying budget. As a Hamilton mortgage broker, I help clients prepare for these costs so they aren’t surprised at the end of the process. I’ll go over the potential closing costs that you may need to pay when buying a home and applying for your mortgage.
The first thing I tell my clients is that they should plan to put aside at least 1.5% of the purchase price. This is the amount that lenders require you to verify you have available in addition to your down payment. This will normally cover a good chunk of those expenses and you won’t find yourself not being able to afford the home you want because you didn’t factor this in. The good news at least for first time home buyers, your actual closing costs shouldn’t be this high due to rebates available for Land Transfer Taxes.
This is a fee that most are familiar with and it works by protecting the lender. Lenders require this to make sure that the amount you are paying for the home is in line with the current housing market value. This will also protect you the buyer from overpaying for a property and can also uncover possible issues with the home that you weren’t aware of. between $300 to $400. There are instances when an appraisal is often not required however you should budget for this just in case.
Inspection fees aren’t required but it is something you have done to protect yourself. It will save you from buying a home that has more issues than meets the eye. The fee tends to be around $500.
In most cases, the lender will require you to have Title Insurance. This ensures that you have a clean title to the property. It protects you and the lender in the event that there was any fraudulent activity that affected the title or there were any issues such as a neighbor encroaching on your land with a garage etc. The cost of Title Insurance is approximately $225.
Property insurance is compulsory and needs to be obtained prior to closing. You will need to make sure that you have adequate coverage in the event of a fire to protect you and the mortgage lender. Another option is contents insurance, which protects your valuables inside the home. The fees for property insurance vary.
Also known as CMHC, mortgage insurance is applied if you are putting down less than 20% of the homes’ value as a down-payment. CMHC insurance is what protects the lender should you default on your payments. While this isn’t technically a closing cost, it’s something you need to consider as part of your monthly mortgage repayments. It is typically added to your mortgage amount and therefore you do pay interest on it.
Land Transfer Tax
This fee applies when purchasing real estate. It’s a provincial or municipal based tax. The way it’s calculated is by the purchase amount of your home and will vary from one area to the next. It mainly applies to resale homes. Some newly build houses are exempt from this fee. This is a fee that is usually the largest of the closing cost fees you will face. Most lenders will require proof that you have at least 1.5% of your homes’ purchase price funds set aside specifically for the land tax (much like the proof that is needed for your down-payment). The government does offer rebates to first time home buyers that will help with these costs.
Property taxes are something all homeowners pay. The funds are put towards maintenance and improvements in the neighbourhood, towards schools, and more. The cost will vary from one area to the next and depend on the value of the home, the size of the lot it sits on, and the type of home it is. Most sales listings will show you what the yearly fee will be for the property, which is based on what it was the prior year.
When it comes time to sign the contract for the purchase of the home, you will require the services of a lawyer. A lawyer will not only make sure the paperwork is correct and legal, but it will also protect your rights as a buyer. Lawyers’ fees typically run between $1,500 and $2,000.
One more thing to plan for is moving costs, which can run you up to $2,000 for hiring a professional moving company.
You can see why it’s important to find out all of the fees and costs entailed with buying and closing on a home. If you need more information about closing fees, give a member of our Hamilton mortgage broker team a call today at (905) 309-8799!