WHAT ARE CLOSING COSTS?

Closing costs are an often overlooked expense in the home buying process, especially among first-time buyers.  The expenses are in addition to your down-payment funds.  Most lenders use a calculation of 1.5% of the purchase price in available funds to satisfy their conditions of financing.

For example, if you purchase a home for $475,000, be prepared to show $7,125 (1.5% x $475K of liquid funds to pay your closing costs)

Let’s take a look at the 6 Closing Costs you need to budget for:

1. HOME INSURANCE

At the time of funding, Mortgage Lenders require you have active home and fire insurance in place.  Your Notary or Solicitor will verify your insurance during your signing appointment.  The amount to be insured is typically the mortgage amount or the full replacement cost of the home.  These costs vary and you are free to shop for the best deal.  If you are buying a strata property, your strata should usually have insurance in place.

2. TITLE INSURANCE

Title Insurance is required to protect you against any previous fraud that may have taken place with the property. In addition to protecting against title fraud, Title Insurance may cover violations of municipal by-laws, encroachments onto an adjoining property, realty tax arrears, existing work orders, lack of legal access to the property and unpaid strata assessments.  Typical cost is $250 – $400.

3. LEGAL FEES

You are entering into a legally binding agreement with your mortgage lender.  It is required that you have your own legal representative act on your behalf in this transaction.  Your Notary or Lawyer will charge anywhere from $750 – $1,250 to help with a standard purchase transaction.  There will be some other fees, such as registering your title with the land title office.  A safe budget would be $1000 – $2000 depending on the size of your mortgage and if you need any debts paid out.

4. ADJUSTMENTS

Thie buyer will pay the seller.  You need to reimburse the current owner for any prepaid property taxes or strata fees.  For example, if you take possession in August and the current owner has paid the property taxes for the year, you must reimburse the seller.  The amount is pro-rated to a daily rate and calculated by your Notary or Lawyer.  You will get a Statement of Adjustments outlining any money owed to the current owner.

5. LAND TRANSFER TAX

In British Columbia, when a property changes owners it is taxed via the Property Transfer Tax (PPT).   This fee goes to the Province of BC and is paid for by the buyer.   If you are a first-time home buyer, you may qualify for an exemption of the PPT.  Click here to see if you qualify for an exemption.

  • 1% on the first $200,000
  • 2% on amounts between $200,001 – $2,000,000
  • 3% on portions between $2,000,001 – $3,000,000
  • a further 2% on the portion over $3,000,000

6. GST – GOVERNMENT SALES TAX

GST is paid only on new construction purchases (pre-builds, new homes etc.).  The GST is 5% of the purchase price and can be added to your mortgage balance.  You may qualify for an exemption. 

For example, if you purchase a newly built condo for $529,900 you need to pay $26,495 (5%) in GST.  This makes the total purchase price of the condo $556,395.

Please don’t hesitate to contact me with any mortgage or real estate questions. Call me at 778.558.5159.

Brent