You’re pre-approved for a mortgage to help you find the home of your dreams. Then, you hand over your down payment, collect your mortgage funds, pay the seller and get the keys, right? Not so fast. There are other costs to consider. These closing costs
BEFORE CLOSING DAY
Once you find a property, you need to know everything about the home — good and bad. Inspections and surveys can uncover issues that could impact the purchase price, or slow or stall the sale. These reports are optional, but can help save you money in the long run.
Home inspection (optional)
Before you make an offer on a property, get a home inspection. A home inspector checks that everything in the home is in good working order. If a roof needs repairs, you want to know about it right away. A home inspection helps you make a more informed decision about buying a home. At this point, you can walk away and not look back.
When you apply for a mortgage, your lender may order an appraisal to get an estimate of the property's value. You may need one for financing purposes, so factor this into your closing costs.
A survey outlines property boundaries and identifies setbacks, buildings or other restrictions that can impact the property’s value, such as overhanging structures or shared driveways. Your lender might ask for an up-to-date survey when you apply for a mortgage. Sellers sometimes have one they can give you. If not, you can hire a professional land surveyor to do the job.
Your lawyer may encourage you to buy an owner's title insurance policy. In some cases, your lender may require a lender's title insurance policy, which is generally at your expense. These title insurance policies protect you and the lender from title fraud, municipal work orders, zoning violations and other property defects. The lawyer usually adds title insurance costs to your legal bill.
Property insurance protects you in case of fire and certain other disasters. Your lender requires you arrange property insurance for your home's replacement value. The insurance must be in place before your lender advances the mortgage funds.
Mortgage Life, Critical Illness, Disability or Job Loss Insurance (optional)
Unexpected health or employment changes can affect your income and your ability to afford your home. So, consider applying for insurance when you set up your mortgage. There are several options that can help protect you and your family's financial future if you’re diagnosed with a critical illness, pass away, lose your job or become unable to work due to a disability.
You may pay fees, taxes and mortgage default insurance when the purchase of your new home closes. You're near the end of your journey. These are some of the final costs between you and your new home.
Applicable Fees, Taxes and Remaining Costs
Like any other purchase, the government may charge tax. When you buy a home, you pay the following costs:
1) Land transfer tax. The government may charge land transfer tax when you buy a property. The tax is based on the home’s purchase price, and sometimes other factors. Most provinces charge provincial land transfer tax, but some cities charge their own municipal land transfer tax, too. Taxes vary by province and first-time home buyers may sometimes receive a rebate for part of the cost.
2) GST or HST. Newly constructed and substantially renovated homes may be subject to GST or HST. If you pay GST and HST, you may qualify for a new housing rebate.
3) Property taxes, utilities and condo fees. The seller may have prepaid property taxes, utility bills or condo fees before you take ownership of the property. You reimburse the seller for the portion of the costs from the closing date forward.
Mortgage Default Insurance
You need mortgage default insurance if you have less than 20% down payment. If your down payment is less, lenders usually add the premium to your mortgage. The more risk involved, the higher the premium. Depending on where you live, you may also pay provincial sales tax on the premium.
AFTER CLOSING DAY
The home is yours. When the sale has closed, your lawyer sends you a transaction report. It includes copies of all relevant legal papers.
Legal Fees and Disbursements
Your lawyer's legal fees and disbursements are considered closing costs. Disbursements include any expenses your lawyer had to pay for work on your behalf. Fees vary by province and municipality and may be subject to GST or HST.