Attention home buyers. Do you know what to expect on closing day or the time leading up to it? No?
Don’t worry I’m going to prepare you for what happens at your closing day meeting and closing costs for buyers you need to understand so you don’t get sticker shock with your lawyer.
If you’re a seller, check out this blog so I can help you understand your closing day arrangements. You can find the link here.
You’re coming up to closing day so it’s important to understand what closing costs to expect and what you’ll be responsible for paying. Closing costs are the fees associated with the transfer of ownership that occur during the final stage of the home selling process. These fees can vary and can include things like attorney fees, title search fees, and transfer taxes.
So what costs should you be prepared for?
COST #7 - DOWN PAYMENT
The down payment is a portion of your home’s purchase price that doesn’t come out of your loan.
Most cases you provided a deposit with your accepted offer and depending on your finances and mortgage plans with your lender, you may be responsible to pay the remaining down payment portion to your lawyer. Every situation is different so have these conversations with your lender and lawyer so you can show up with the remaining money at your closing meeting.
If you are pulling money from your RRSP’s or receiving the down payment as a gift, talk to your lender about time frames and stipulations around that.
If you’re just starting out your buying process your mortgage broker is a great resource to help you build out your closing costs so you know how much you will have left over for your down payment. Something to note on this topic since it relates to closing costs. When you decide with a bank you wish to take your mortgage through. Inquire on their mortgage fees for breaking a term. As this will affect you in seller closing costs down the road and the last thing you want it to find out in a year’s time you want to move and you need to pay thousands of dollars to get out of your mortgage.
If you need a recommendation to a great mortgage broker please reach out.
COST #6 - LAND TRANSFER TAX
In Ontario you pay a percentage of tax based on the purchase price of your home to the provincial government.
This percentage does not exceed 2.5% of the home price except for the City of Toronto. Where there is an additional municipal land transfer tax payable.
If you’re a first time home buyer you may be eligible for a refund on all or part of the tax.
COST #5 - PROPERTY INSURANCE
This protects you in the event of property damage of the house or contents and some policies cover a degree of personal injury liability.
If you want to know more about what you need to collect to get a home insurance quote check out this blog post.
COST #4 - TITLE INSURANCE OR APPRAISAL FEES
I would discuss with your lawyer if you need extra protection in the event that there’s a dispute over property ownership.
Talk to your mortgage broker about appraisal fees with different companies.
COST #3 - PROPERTY TAX
Your property tax is a percentage of the value of your home. The amount will vary between municipalities.
You can pay this monthly, quarterly, annually or at other regular intervals.
This is a common closing adjustment especially if the seller pays annually. If the seller has paid for the year the lawyer will determine the amount the seller has paid up until closing and the difference will be added to their money they will get back at their closing meeting. The seller pays for their full days owning the property and the buyer is now responsible to reimburse the seller moving forward as the owner after closing.
Speaking of Adjustments...
Other adjustments on closing can include condominium monthly maintenance fees or common expenses, tenants last month’s rent, hydro, water or other metered utilities that weren’t read on the day of closing. If you’re buying a new build you can have many other fees on closing such as Tarion enrollment fee, tree planting, utility hook ups, levies and so on.
COST #2 - LEGAL FEES
This cost usually starts around $900 plus and an additional amount if you have a mortgage.
COST #1 - ADDITIONAL FEES
Cost number one is all the little fees you should be ready for on your statements such as building and tax department fees, search costs, postage, utility fees, software transaction fees, registration of transfer and charge fees, wire fees and many others that you can discuss with your lawyer.
Other possible closing costs that may apply to you are Non-Resident Speculation Tax (NRST),CMHC Mortgage Insurance, GST or HST on New Construction Housing, Interest Adjustments, status certificate ($100), surveys, permits ($50-150+) and so on.
What is being done behind the scenes for you?
In most cases, lawyers like to meet a few days before closing to ensure closing day runs smoothly. Remember that most lawyers work nine to five so you may need to plan this around your work. Also remember that all parties on the purchase agreement need to be present with up to date photo ID.
You’re going to be signing papers regarding your purchase and mortgage documents.
Your lawyer is then going to review everything with you and give you the final amounts you need to pay in order to close such as your down payment and closing costs we discussed. You can show up with a bank draft or cheque. Behind the scenes your lawyer will receive everything they need from the seller’s lawyer to transfer the title and will review them with you. On the closing date your lawyer will send the money to the seller’s lawyer to close the transaction. Your lawyer can then send the documents to Land Titles for registration. Once the transaction is done the lawyers will inform you and the seller the transaction is closed and you can then receive the keys to your new house.
