Buying a home is both an exciting and nerve-racking process. Your offer has been accepted and you can’t wait to move in, but don’t celebrate just yet. You have to close the deal. Your real estate agent and lawyer will do most of the work, but it’s important to understand what’s involved, including the costs so here’s your checklist.
Closing the Purchase
- Immediately begin satisfying any conditions of the agreement that require action on your part (e.g. financing, home inspection). Your real estate agent can fill out the documents stating that the conditions have been satisfied.
- Have your lawyer begin searching title to the property. This can take a while, so make sure you allow ample time.
- Well before closing, get your homeowner’s insurance to be effective on your closing date. Your insurance broker will give you a ‘binder’ letter certifying that you’re covered. You can’t get a mortgage without this letter.
- Contact your lender and have them finalize your mortgage documents. You may also want to have your lawyer review them before you sign.
- Your lawyer will transfer essential utilities like hydro and water, but you’ll have to make sure telephone and cable companies switch their services to your name.
- If you rent, give notice to your landlord.
- A day or two before closing, you’ll meet with your lawyer to sign the closing documents. Your lawyer will tell you in advance what certified cheques you’ll need to seal the deal.
Who Pays for What
Closing costs apply to both the Buyer and the Seller. For every purchase there’s a sale and so the seller has to pay a few closing costs, too. Here’s a breakdown of who pays what during the transaction.
- Home Inspection Fee: A home inspection will determine if your dream home is actually a wise investment. It’s a home inspector‘s job to check everything from the roof to the wiring, and to provide a detailed report on the condition of the home when they’re done. You should budget approximately $500 for a home inspection.
- Deposit/Down Payment: When you’re ready to make an offer on a home, you’ll need to make a deposit. A deposit shows the seller that you’re serious about buying their home. In a competitive market, the amount of the deposit may play a big role in negotiations so make sure it’s readily accessible. On closing day, you’ll also need to make your down payment. If you’re making a down payment of less than 20%, you’ll have to purchase CMHC insurance. While this isn’t technically a closing cost as it’s added to your mortgage loan, it’s important to keep in mind when considering the amount of the downpayment.
- Land Transfer Tax: One of the most expensive closing costs a buyer will face is the land transfer tax. Each province has its own land transfer tax formula, based on the purchase price of a home. Toronto has its own municipal land transfer tax, giving buyers there a double whammy to deal with.
- Legal Fees and Disbursements: It’s your real estate lawyer‘s job to facilitate the entire financial transaction of your purchase. They will also ensure your home’s title is free from defects, get title insurance in place and put the deed to the home in your name. You should budget at least $1,500 for legal fees and disbursements.
- Real Estate Commission: In a typical real estate transaction, the seller (not the buyer) pays for both real estate agents’ commissions. The amount of commission paid out is usually based on a percentage of the home’s sale price, but it can also be a flat fee (for example, $10,000 + HST) or a fee for service (for example, an hourly rate).
- Legal Fees and Disbursements: Similar to buying a house, you’ll require the services of a real estate lawyer. A lawyer will help your closing go smoothly by ensuring your home’s title is free from any defects, drafting the deed for the buyer and calculating final closing costs. Your lawyer will also prepare your statement of adjustments.
- Mortgage Penalty: If you’re buying another home, it’s important to find out if your lender will let you port your mortgage. Otherwise you’ll have to break your existing mortgage and possibly face a prepayment penalty. Mortgage penalties don’t come cheap, so you’ll want to calculate how much it is and be ready to pay it on closing day.