An Overview of Real Estate Closing Costs

Real Estate Closing Costs Overview

Understanding all of the real estate closing costs associated with your transactions can help prepare you more effectively for this final meeting.

It is important to identify an attorney with real estate experience well in advance of moving forward with a real estate transaction.

Your attorney can help review all of the relevant documents associated with this transaction and guide you through what can sometimes be a complicated process.

Closing costs typically range from between 1.4% to 4.1% of the selling price. These are the administrative and legal costs that you will have to pay during the closing.

In addition to these particular real estate closing costs, there may be other events or legal expenses that require an outlay of cash before, during or after your house closes.

Read on to learn more so you can help prepare for these costs.

Funds Required Before the Mortgage Closes

There are two primary things that you will be responsible for paying before the mortgage closes. These are your deposit and your home inspection fee.

The deposit is something that counts for the down payment and is made when you initiate an offer to purchase. Your deposit may be up to 5% of the purchase price. This is the down payment minimum for a home in Canada.

Make sure you have properly budgeted in advance so that you know what you can afford, not just with regard to the mortgage, but also the closing costs.

Some people entering the process for the first time might not understand all the various real estate closing costs and could find themselves at risk for the whole transaction if they don’t have the closing costs ready.

A home inspection fee is strongly recommended and can be obtained by contacting a home inspection officer and you may have this a part of your offer to purchase.

A home inspector is responsible for putting together a report about the home’s condition. This will typically cost around $500, but prices do vary.

Mortgage Finance Costs

CMHC or mortgage default insurance is typically considered as a closing cost in a purchase of a new home.

This is usually added to your total mortgage and will be amortized over the life of the mortgage.

Mortgage default insurance is required if you get a house with less than 20% down. This helps give the lender some peace of mind that even if you default on the loan, they will be protected.

Home Buyer Mandatory Closing Costs

The home buyer is responsible for incurring a variety of different real estate closing costs, including:

• Title insurance that typically ranges from $100 to $300.
• Legal disbursements and fees, typically at a minimum of $500.
• The land transfer tax, which is calculated as a percentage of the home’s purchase price.
• CMHC or PST insurance, which has to be paid in cash at the time of closing on the property and is financed directly through the mortgage.

Some home buyers may also be responsible for handling other real estate closing costs, such as:

• Water tests
• The Estoppel Certificate fee
• Septic tank fees, as you may need to test and ensure it works properly.

Lender Covered Closing Cost

The lender typically covers the appraisal fee, which is the estimate on the home’s value. An appraisal is used to give the lender certification about the resale potential of the home in the event that you are to default on the mortgage and typically costs up to $350.

Other Costs to Factor In

There are several other costs that you may wish to factor in when engaging in a real estate transaction. These include:

• Property taxes
• Prepaid utility bills
• Property insurance

Closing Day

The day on which you obtain legal possession of the home is referred to as the closing day. The book of your administrative work should be done by this stage, including the transfer of the down payment to the attorney.

Transferring down payment pawns particularly from your RRSP can take some time and this why you need to engage in this process several days in advance. On your closing day, the following events will occur:

• Your lender will give the mortgage funds to your notary or your attorney.
• You must provide any down payment, minus the deposit to the notary and the lawyer along with any closing cost incurred.
• Your notary or lawyer will pay the previous owner, officially register the home to you and give you the keys and deed.

Identifying a real estate lawyer who has extensive experience in this field is necessary for ensuring that you have all of the proper aspects considered, and to assist you with moving through this process as smoothly as possible.

Purchasing a home is an exciting experience, but it is one that is also filled with numerous different types of details.

Having a lawyer to guide you through this and give you peace of mind that you have crossed all of your T’s and dotted all of your I’s is helpful for making this process as enjoyable and snag-free as possible. Contact our first today to learn more.