Are you concerned about closing costs and unanticipated home buying expenses? We’re breaking them down below.
What are closing costs, anyway?
- Closing costs are the legal and administrative fees paid at the closing of a real estate transaction to your lawyer. They’re separate and aside from your down payment, so they should be budgeted for separately. The term “closing” refers to the tasks that your lawyer/legal representative does on your behalf in order to legally transfer the title of a home from the seller to the buyer.
In addition to closing costs, there are other expenses you should budget for before closing, and post-closing. We outline these below.
How much should I budget for closing costs?
- We recommended to our clients that they budget closing costs at 3-4% of the home purchase price. Closing costs typically range between 2%-4%. On a $300,000 purchase, this means between $9000 and $12,000 in estimated costs.
What factors impact how much I’ll pay?
- Where the home is located, the age of the home (new construction or existing), and the type of home
What am I paying for, specifically?
- Land/Deed transfer tax – When land is sold, a one-time deed transfer tax is applicable. This is calculated as a percentage of the purchase price of your new home and is charged by the province and municipality in which you’re purchasing the home. In the Halifax Regional Municipality, it is 1.5% of the home purchase price. Note – it generally does not apply to new construction.
- Legal fees and disbursements – Services provided by your lawyer/legal representative will include: conducting a title search, drafting the title deed, preparing the mortgage documentation and reviewing the documentation with you. We advise our clients to budget between $900 (+HST) to cover legal fees.
- Title Insurance – Most mortgage lenders require title insurance to protect against losses in the event of a property ownership dispute or mortgage fraud. This is purchased through your lawyer/notary and costs around $250 (+HST).
- Estoppel Certificate Fee – You’ll need to pay this if you are buying a condominium or strata unit. The certificate will be accompanied by the financial statements of the condo corporation and will outline the common fees for your unit and the status of the seller’s payments, the reserve fund, etc. Your lawyer/notary requires this document to proceed with the closing transaction of the purchase. He/she will identify any shortcomings after they have reviewed the financial statements. Budget approx. $75 + HST.
What other costs should I anticipate?
It depends on the specific property you’re purchasing, but here are common examples of additional costs, and when you’ll need to pay them.
- Home Inspection – Not mandatory, but recommended. Budget $300-$500 + HST. Paid before closing.
- Utility Hook-Ups – Most utilities charge a basic hook-up fee. This isn’t usually an initial cash outlay, rather it’s added to your first bill. It doesn’t hurt to set aside the funds in advance to avoid surprises when you get your first bills. Budget $50 each for cable, power, phone and internet.
- Appraisal – Some mortgage lenders require an appraisal of the property as a funding condition. An appraisal provides the lender with an objective professional opinion of the home’s value. Budget $500 + HST. Paid before closing.
- Water & septic testing – If the home is not on municipal services, testing of the septic system and well may be required. A septic test costs approximately $500 + HST, a well water test costs approx. $400 + HST. Paid before closing.
- Adjustments – If the seller has paid property taxes and utilities in advance, they must be reimbursed by the buyer. Worst case scenario, the buyer will be responsible for reimbursing the seller for 6 months of property tax payments. Common utility adjustments include propane and oil. Budget $800-$1000 for a full tank of oil and $400-$500 for full tank of propane. Paid at closing.
- Home & Fire Insurance – At a minimum, you’ll need to insure your home against fire and significant damage up to its replacement cost. Insurance must be in effect on closing day. The cost will vary based on coverage type and replacement value. The Blake Wilson Group can outline your options.
- Moving Fees – Depending on the complexity of your move, you may choose to hire movers. The cost depends on how many items need to be moved, and the distance they’re being moved.
If you’re concerned about closing costs, we can help. Some lenders will allow you to roll closing costs into your mortgage payments, or they’ll reimburse you for all or some of the costs. Talk to us to learn more.
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