When you buy a property, there are a number of costs associated with the purchase that you need to consider to ensure that you have sufficient funds available on the closing day. We have outlined below a few of the most common closing costs and have provided a worksheet that you can download in MS Excel or Adobe PDF format to assit you in clculating your closing costs ahead of time. To download the worksheet, visit the Resources section.
The downpayment is the amount that you are putting down in the form of a deposit against your purchase. The downpayment is usually taken from your savings, a gift from friends or family or other borrowing. The downpayment is usually taken in the format of a bankers cheque and lodged with the Real Estate Brokerage until your purchase completes.
As the cost of your home is most likely higher than your savings, it is common to finance a proportion of the purchase price through a financial institution such as a bank or credit union. You are pledging a mortgage against the home with the institution in return for a sum of money that you can pay off in instalments. There are many mortgage products to choose from, and a good mortgage broker or lender will assist you in selecting the most affordable option.
Mortgage Arrangement Fees
Sometimes a lender will request a mortgage arrangement fee for your mortgage loan. This may be paid up-front at the time of signing for your mortgage, or added to the balance of the mortgage and paid over the mortgage term. The latter will increase the cost of borrowing for you and you will pay more over time than you would have if you had paid the martgage arrangement fee up-front.
Legal/Notary Fees and Disbursements
Your lawyer or notary will draw up the legal transfer and contracts for the purchase of your home and will charge a fee for doing so. Additionally there may be small fees or disbursements that you must reimburse the lawyer or notary for, these may include wire trabnsfer fees or property title searches in your name. Your lawyer or notary will provide you with a list of disbursements when you engage their services.
Your property may require an apprisal by the lender to ensure that it meets their lending limits or as part of the Canadian Home Builders Association insurance. The appraisal report is the property of the lender and you may not be privvy to their findings. You may also wish to engage your own appriasal of the property if you have concerns over the market value. The appriasal fees are often low and may be rolled into your mortgage and paid over time, however this will increase the cost of borrowing.
Property Transfer Tax (PTT)
The property transfer tax is a tax that is paid on the transfer of title for the land. In BC, the property transfer tax is calulated at 1% of the first $200,000 and 2% on the balance. If the market value of the property is less than $200,000 then then property transfer tax is simply 1% of the market value.
The market value of the property is $330,000
1% of the first $200,000 = $2,000
plus 2% of $130,000 = $2,600
for the total tax payable of $4,600
Interest Adjustment for the Mortgage
If you are closing before the first day of your mortgage is due to start, the lender may forward the funds for your mortgage ahead of time and charge you for the interest in the period - this is called an Interest Adjustment. The interest adjustment is calculated by the number of days in which the funds are advanced. If you are unsure, you can calculate the interest adjustment using the formula below:
Date of Mortgage Start: e.g. 1 May
Date of Closing: e.g. 24 April
Number of Days Funds Advanced: 7 Days (24th April to 1 May)
Interest Adjustment: (Monthly Payment divided by number of days) x Number of Days Advanced
e.g. $1,450 = $48.33 so $48.33 x 7 Days Advanced = $338.33
30 Days in April
Title Insurance Fee
Your lender (or you) may wish to purchase Title Insurance to protect yourself against future claims against the land title that you are purchasing. This is often necessary as part of the lenders criteria as it protects you and them from litigation should the title be defective or inaccurate. Title Insurance is becoming more popular and is used widely in other provinces and across the USA.
Home Inspection Fee
A home inspection is a service that most purchasers will take up. Home inspectors are licensed by the Canadian Association of Home and Property Inspectors (CAHPI) and they will provide a thorough examination report of your prospective purchase. See section Home Inspection for details. A home inspection report will typically be between $150 and $600 and is payable to the home inspector when the inspection is complete.
Your property insurance is a safeguard against damage and destruction. Many lenders will insist that property insurance is in place before they release the mortgage funds and you should consult an insurance broker and have your property insurance details in place so that at the date and time of closing you are adequatelty covered. Property Insurance rates may be as low as $500 or run to several thousand dollars depending on the coverage required.
Property Tax Adjustment
Property taxes in BC are calculated from July and payable for each calendar year. If you are purchasing a property where the current owner has already paid the next years' taxes, you may have to reimburse them for your portion of those taxes. If the taxes have not yet been paid then you will be liable for the taxes once the property is signed into your name. Taxes are calculated as a proportion of the taxes where you are the occupier and payable to the seller on closing.
Utility Bills Adjustment
This is often something that is overlooked when preparing for a house purchase. Your seller may have already paid utility bills for a length of time, or may have purchased items that will become yours once you take posession of the property. A good example would be heating oil that is purchased to 'fill the tank' and where there is a supply left when the property closes. Your seller may request that you pay for the oil left in the tank.
If you are buying a condo or where there are maintenance fees for landscaping or maintenance on a development, you may have to pay for those fees. In a similar way to property tax adjustments, you will be liable for any maintenance fees from the point of conveyance and may need to reimburse the seller for his/her portion of those fees if thay have already been paid by them.
This list is not an exhaustive list of adjustments but will help you to guage how much money you may need to complete the purchase of your home. You can download some helpful worksheets, by visiting the Resources section of this site.