What Are Closing Costs?
You've found your dream home, the seller has accepted your offer, your loan has been approved and you're eager to move into your new home. But before you get the key, there's one more step--the closing.
Also called the settlement, the closing is the process of passing ownership of property from seller to buyer. And it can be bewildering. As a buyer, you will sign what seems like endless piles of documents and will have to present a sizeable check for the down payment and various closing costs. It's the fees associated with the closing that many times remains a mystery to many buyers who may simply hand over thousands of dollars without really knowing what they are paying for.
As a responsible buyer, you should be familiar with these costs that are both mortgage-related and government imposed. Although many of the fees may vary by locality, here are some common fees:
Lenders may charge a mortgage application fee, which will vary depending on the lending institution.
The federal government requires high-ratio mortgages with less than 20% down payment to be insured against default. The cost ranges between 0.60 to 4.50 per cent of the mortgage amount which is added to the mortgage principal.
The federal government requires a 10 per cent down payment on homes valued at $500,000 - $1 million that need mortgage insurance. Homes valued at $1 million+ require a minimum down payment of 20 per cent. Mortgage insurance is not available for homes in this price range.
Before your lender approves your mortgage, you may be required to have the property appraised. Sometimes your lender will cover this cost. If not, you're responsible. The fee ranges from $300 to $450 plus GST.
Land survey fees
Lenders may require a survey of the property. The fee ranges and is typically $500 plus GST.
Home inspection fees
A home inspection is a report on the condition of the home and includes structural and moisture problems, as well as electrical, plumbing, roofing and insulation. The fees range and is typically $500-$900 depending on the size of the home and the complexity of the inspection. Some inspectors also charge an additional fee for an older home or a home with a secondary suite, a crawlspace, or a laneway home.
Goods and Services Tax (GST)
The GST on a new home is 5% of the price. A GST rebate equivalent to 36% of the GST paid is available for new homes priced up to $350,000 and a partial rebate on new homes priced up to $450,000.
Buyers also pay the GST on fees for services from appraisers, home inspectors, lawyers, Notary Publics and REALTORS®.
Provincial Sales Tax
The PST is generally not payable on services except for legal and notary fees. Both the GST and PST are paid on legal and notary fees.
Property Transfer Tax
Home buyers in BC pay a provincial Property Transfer Tax (PTT) when they buy a home. The tax is charged at a rate of 1% on the first $200,000 of the purchase price and 2% on the remainder up to and including $2 million. The PTT is 3% on amounts greater than $2 million. If the property is residential, a further 2% PTT is payable on the portion greater than $3 million.
Qualifying first-time home buyers may be exempt from paying the PTT if the purchase price of their home is priced up to $500,000. There is a proportional exemption for homes priced between $500,000 and $525,000. At $525,000 and above the rebate is nil.
Qualifying buyers of new homes may be exempt if the purchase price of their home is priced up to $750,000. There is a proportional exemption for homes priced between $750,000 and $800,000. At $800,000 and above there's no rebate.
Depending on the Contract of Purchase and Sale, a property buyer will likely be required to reimburse the seller for any prepaid property taxes. The lender may require the buyer to add property tax installments to monthly mortgage payments. See also Why do I have to pay property taxes on the house I'm buying?
A buyer is typically required to reimburse the seller for any prepayments for municipal sewer and water fees.
Rent and security deposits
If there is a secondary suite or a laneway home rental and the tenancy continues, the buyer receives the security deposit from the seller with accrued interest because the buyer is responsible for reimbursement when the tenant leaves.
Mortgage life insurance
If the owner dies, this type of insurance will pay off the balance owing on their mortgage.
Fire and liability insurance
Most lenders require property buyers to carry fire and extended coverage insurance and liability insurance.
Legal or Notary Public fees
Buyers typically hire a lawyer or Notary Public to assist with drafting documents and ensuring the title of the home is properly transferred. Likely fees include a:
- title search for a property, this costs up to $11
- land title registration fee, which is about $75
For more information about land titles, visit the Land Title and Survey Authority of BC at www.ltsa.ca.
Utility hook ups
There are fees for hydro, gas, water and sewer, cable, and phone connections.
New owners should always have door locks rekeyed. Costs depend on whether the locks are standard or electronic.
Strata maintenance fees
Typically paid on the first day of each month. If you have questions about closing costs, please contact your Realtor.
What does it cost to hire a Realtor? There is no set commission rate in the real estate profession. Most Realtors are paid after ownership is transferred. Fees are typically paid to the real estate company by the lawyer or notary in the transaction, from the sale proceeds.
Compensation is always agreed to beforehand between you and your Realtor. There is no such thing as an average commission. The Commission paid depends on the services provided by your Realtor, which can vary significantly depending on your needs as a client or the business model employed by the Realtor.
When does a commission become payable?
The standard Multiple Listing Contract provides that commission is payable on the earlier of the following: completion date under the Contract of Purchase and Sale, or the actual date that the sale completes.