Breaking Down Closing Costs: What Every Homebuyer Should Know
Posted by Niels Madsen on
Purchasing a house is the most significant purchase anyone will make, both in terms of outlay and what it means for your future, which makes getting the budget exactly right vitally important to ensure you get the right value, without overspending or failing to make the most of the budget.
When it comes to this spending, it’s important to remember that it isn’t just the price of the property itself you will be paying - you will also have to factor in a range of other closing costs. Here’s our essential rundown of what every prospective homebuyer needs to know when it comes to closing costs and other related expenses.
Mortgaging And Financing
As to be expected with such a large purchase, there are a number of criteria that need to be met so that you can secure the financing you require in order to purchase your new home, and it’s important to factor in the expenses associated with these in your final estimation of costs.
Not all of these elements will apply in every situation, and always make sure to check with your bank or lender well in advance so that you know exactly what you’re in store for, but here are a few to know about:
Property Appraisal
In order to ensure that you’re paying in line with market value, a property appraisal may need to be performed by an independent auditor, and depending on your lender this may only be able to be done by one of a pre approved selection of appraisers. The cost for this will vary, starting from a minimum of around $350
Land Survey Certificate
This is a legal document outline the exact placement of the property and surrounding dimensions and boundaries. If required, this will cost around $500, however the current homeowner may have a copy so you should always check with them first
Insurance
In order to obtain a mortgage you will first need to have proof of home insurance, and satisfy any policy language and clause requirements your lender may require. In addition to this, you may also need title insurance, this will usually cost around $225 for properties valued under $1,000,000.
If your down payment is less than 20% of the appraised value, mortgage default insurance will also be required, and this will cost anywhere from between 2.8% to 4% of the total mortgage amount. If this is the case, you may also be paying additional premiums, but these are often accounted for in the monthly cost of the mortgage.
Payout Fees
If you already have an existing mortgage, you will need to check to see if there are any penalty fees associated with an early payout.
Legal Fees
Purchasing a new home will involve a large amount of paperwork and legal requirements, and it’s important to understand how much of this you will be paying for, and what costs you’ll need to factor into your budgeting and decision making process.
Your lawyer or legal representation should handle all the necessary paperwork and property title transfer, but the costs for this will vary depending on the parties involved, and the complexity of the mortgage, starting from anywhere between $1200 to $1400 and upwards. You will also need to factor in disbursements - these are extra costs your lawyer may encounter, such as strata farms, filing fees, courier costs and more. Depending on the firm, these costs may already be included in your legal fees.
Taxes And Adjustments
As we’ve alluded to, there are a number of costs associated with the closing of the deal, as well as costs that occur on or after the date of completion, that you will need to be aware of. The most significant of these will likely be the various taxes associated with property sales in BC:
Property Transfer Tax
This is a tax paid on the transfer of the property title, and for most people will be handled by their lawyer, and levied as the general property transfer tax, which is applied based on the fair market value of all homes being sold at a valuation of below 3 million dollars.
However, there are exemptions available for first time home buyers purchasing a newly built home or a property from a family member, so be sure to check these if you think you might be eligible. If this doesn’t apply, you should be paying:
- 1% of the value up to $200,000
- 2% of the value between $200,000 and $2,000,000
- 3% of the value greater than $2,000,000
Goods And Services Tax
The GST is a tax that is solely applicable to either new build homes, or homes that have been more than 90% remodeled and are therefore treated as new build properties. This tax is calculated at roughly 5% of the property’s market value, and is due at the date of completion, however some sellers will include this within the cost of the home. There are also partial rebates you can claim if you are eligible.
Foreign Ownership PTT
If the property you are purchasing is being transferred from an owner/entity based abroad, there will be an additional levy at 20% of the fair market value in the following areas:
- Capital regional district
- Fraser Valley Regional District
- Metro Vancouver Regional District
- Regional District of Central Okanagan
- Regional District of Nanaimo
Adjustment Fees
If there are any costs or outgoings related to the property for the seller that happen after the completion date, you will be required to pay adjustment fees. This can include property tax, utilities, strata fees, and other outgoings.
Luckily you don’t have to navigate all of these eventualities on your own, if you have experienced and knowledgeable realtors with you every step of the way you’ll be able to ensure the house buying process goes as smoothly as possible, and that’s exactly what we do here Madsen Langlois offers. To find out how we can help you and ensure you’re getting the very best realtors for you, get in touch with us today.