In order to help take the fear of the unknown out of the equation, I have compiled the below list of the 10 most common closing costs that you need to explain to your clients.
1 – Land transfer tax
Most provinces and many municipalities charge a property transfer tax or title transfer fee. The rates are usually on a scale of 0.5 per cent to two per cent of the home’s value and can add thousands to your clients’ purchase price, but first-time homebuyers qualify for rebates or exemptions in some provinces. Here
is a great site to calculate the land transfer tax in Ontario and Toronto (where it’s doubled!)
2 – Appraisal fee
Your client’s lender may ask you to have the home appraised to confirm its market value. Several strategies are used to appraise property. The two most common methods for property valuation are:
- Cost approach, which determines value based on the estimated cost of building a near identical structure; and
- Sales comparison approach, which determines value based on the recent sales of properties possessing similar structural characteristics.
Costs for a property appraisal can begin at around $200, and can go up to $400, depending on the location of the property.
3 – Legal fees
A lawyer or notary will help protect your client’s interests by ensuring that all of the paperwork and transactions are completed and filed accordingly. A real estate lawyer would be responsible for reviewing your purchase agreement, researching the property title, and registering the home in your client’s name. A real estate lawyer is very important when a purchasing agreement has been made. Basic legal fees start at around $1,500, plus disbursements, with added services as needed.
4 – Home inspection
An inspection will make you aware of issues related to the property’s structural systems, such as plumbing and electrical, which might factor into your client’s offer. A home inspector should be able to give expert analysis of the property’s structural integrity, and should be able to make knowledgeable recommendations for any necessary repairs after purchase. Fees range from about $350 to $450.
5 – Home insurance
Your client’s lender will require proof that the property is insured in case of fire and other damage. Insurance costs may vary widely, depending on environmental conditions surrounding the property, regional weather patterns, and the condition of the property itself. Despite this, you should advise homebuyers to budget for at least $500 a year.
6 – Costs for newly constructed homes
If your clients are buying a brand-new home, be prepared to settle any items not quoted in the original price, such as property upgrades or paving and landscaping fees. New homes are also subject to five per cent GST, or 13 per cent HST, which is often included in the purchase price. A federal rebate reduces the GST or the federal part of the HST to about 3.5 per cent for homes valued at $350,000 or less.
7 – Prepaid costs
If the seller has paid property taxes, water bills, or utilities in advance, your clients need to reimburse the seller at closing. This may add several hundred dollars to their upfront costs, but this will also mean that these charges will be prepaid for their first few months in their new home.
8 – Tax on mortgage insurance
If you have less than a 20 per cent down payment, your client’s lender will require that he or she obtain mortgage default insurance. Your client can roll the cost into their mortgage payments, but the PST is due at closing. For example, if the mortgage insurance is $5,000 and the PST is eight per cent, your client will pay $400.
9 – Title insurance
Title insurance can safeguard your clients against fraud and problems with their property title or land survey. Fees range from $150 to $350.
10 – Moving costs
Before the big day, encourage your clients to budget for any last-minute expenses: $100 or more to rent a van, or a few hundred for professional movers; $50 or more for a locksmith to rekey your locks; and cleaning supplies. Such incidentals can easily amount to $500 or more.
Hopefully the above list of costs will assist you in advising your clients, and help you alleviate some of the stress and fear they’ll likely be facing when moving forward with the purchase of their new home.
The prospect of shopping for a new home can be very exciting for your clients – that is, until their offer is accepted and their dreams start to become a reality. In my experience working with first-time buyers, it’s the fear of the unknown next steps that can make the process of buying a home stressful.