8 Closing Costs to Be Aware of When Buying a Home
By Kiki Berg
Special Report Exposes the Closing Costs To Be Aware Of When Buying A Home
When you are ready to purchase your home it is important to be aware that it will cost you some money to complete the deal. There is nothing worse than going through the entire process and finding out that the costs of completing the transaction are higher than you thought.
Closing Cost #1: Lender/Insurer Requirement
The lender/insurer requires proof that you have 1.5% of the purchase price available to pay for your closing costs. (legal fees/disbursements/property purchase tax). Some lenders waive this requirement for First Time buyers within allowed purchase limit as Property Transfer Tax is waived for them.
Closing Cost #2: Appraisal Fee
If have 20% down or more, or happen to use an alternative lender, then you will have to have an appraisal done on the property to determine the market value. The average appraisal fee can be $250-$300 depending on the property and some lender will pick up this cost.
Closing Cost #3: Site Survey or Title Insurance
You will also have to have either a site survey and/or title insurance on the property. In many instances the realtor or seller will have a survey that is valid to use. However, if there is not one available, then you will be responsible to have one done. Your lawyer or notary will make sure this is done for you and the cost of a survey is approximately $300. Title insurance is a little bit cheaper at approx $240, but is a one-time thing (if you should refinance your mortgage, you will need to repurchase this, whereas a survey would be reusable for 20 years).
Closing Cost #4: Home Inspection
Most people choose to get a home inspection to ensure the home has no major problems. This is not a requirement for financing, but it is a smart investment. Can you imagine buying a home and not having a home inspection done later to find out that there is major foundation issues that are going to cost you thousands of dollars to fix!! The cost of a house inspection is around $400 and will be worth every penny for the peace of mind. I strongly recommend having this done and I have a handful of experienced and thorough inspectors in my rolodex and discounted prices.
Closing Cost #5: Lender Fees (If Applicable)
Although most of the time borrowers will not be charged lender and/or broker fees, there are some where instances fees will be charged. One example is private mortgages. In these cases usually broker and lender fees will be charged, but will be disclosed up front to clients. Brokers may also choose to charge fees for some deals and some alternative lenders have some form of application fees. But in most instances, especially for conforming deals, there are no fees charged to the borrower and the broker gets paid by the lender.
Closing Cost #6: Legal Fees
Another cost to be aware of is the legal fees you will have to pay to either a lawyer or notary for registering your mortgage. The cost for this for a purchase will be approximately $1000 and less for a refinance of your existing mortgage (not all of this goes to the lawyer/ notary). A statement of adjustments will be prepared by lawyer/ notary outlining all the fees involved prior to closing.
Closing Cost #7: Home Insurance
You will have to have house insurance in place before you get your mortgage. The reason for this is to protect the lenders security in case of fire or any other damage to the property. Expect this to cost approx. $50/month depending on the property. Your notary or lawyer will request insurance agent information from you to make sure you have this in place before your mortgage closes. I can advise on the current cheapest options available to you.
In most cases, if you have a high ratio mortgage (less than 20% down) you will have to pay a mortgage insurance premium. This is a one-time premium that insures the lender against default of the mortgage. The mortgage premiums range from .50% to 2.75% for standard conforming mortgages, but can be higher for non-conforming deals. For each 5 years of additional amortization to 35 years, you would add .20 to the premium. These premiums do not have to be paid up front, but you will have the option to do that. Most people choose to have this amount added to the mortgage amount. Some alternative lenders have their own application fees that usually can be added to the mortgage as well.
Closing Cost #8: Property Taxes
When you buy a home, you will now have to pay the property taxes. Most of the time you can have 1/12 of your property tax payment added to your mortgage payment. With high ratio mortgages, lenders will most likely not give you an option, as they will want the taxes added to your mortgage payment. But if you have 20% down or more, you usually have the option to pay your own taxes or have the lender pay them. If your mortgage closes after the taxes have been paid for the year you will have to have enough to reimburse the sellers for the length of time you own the home for that year. But if you close the deal before the taxes have been paid then the sellers must reimburse you for the months they have owned the home for that year. However, you will have to pay the entire years taxes by the beginning of July. Check for Tax due dates in the municipality you are purchasing in.
If you have ever owned a home anywhere in the world and buy another home in BC, then you will have to pay a property purchase tax. This accounts for 1% of the first $200,000 and 2% of the remaining amount. If you are a First Time Buyer in British Columbia there is a $475,000 maximum purchase price. PPT will be payable on an increasing pro-rated basis to $500,000. Ensure you have enough funds available to cover this cost if you are purchasing over the allowed limit.