Closing Costs: What To Expect When Buying
Buying a house is an exciting and significant investment, but it comes with a variety of expenses beyond the purchase price. Closing costs are the fees and expenses associated with the purchase of a home that must be paid at the time of closing. These costs can vary depending on the location and purchase price of the property, but here are some of the closing costs to consider when buying a house in Canada.
Land Transfer Tax
The land transfer tax is a tax paid to the province or municipality where the property is located. The amount of the tax varies depending on the location of the property and the purchase price. In British Columbia, the Land Transfer Tax is calculated as follows:
"The general property transfer tax rate is: 1% of the fair market value up to and including $200,000. 2% of the fair market value greater than $200,000 and up to and including $2,000,000. 3% of the fair market value greater than $2,000,000".
Legal fees are paid to a lawyer or notary to handle the legal aspects of the transaction, including drafting the purchase agreement and registering the title of the property. Legal fees vary depending on the complexity of the transaction, but they usually range from $500 to $1,500.
A home inspection is an essential part of the home-buying process. It is conducted by a professional inspector to assess the condition of the property and identify any potential issues or defects. The cost of a home inspection varies depending on the location and size of the property, but it usually ranges from $300 to $600.
An appraisal fee is paid to an appraiser to assess the value of the property. Lenders require an appraisal to ensure that the property is worth the purchase price and to determine the maximum amount of the mortgage they are willing to offer. The cost of an appraisal varies depending on the location and size of the property but can range from $250 to $500.
Title insurance is an insurance policy that protects the buyer and lender against any defects in the title of the property, such as liens, encumbrances, or other issues that may affect ownership. The cost of title insurance varies depending on the purchase price of the property, but it usually ranges from $200 to $500.
Home insurance is required by lenders to protect the property against any potential damage or loss. The cost of home insurance varies depending on the location and value of the property, but it usually ranges from $500 to $1,000 per year.
If the down payment is less than 20% of the purchase price, mortgage insurance is required by law to protect the lender against the risk of default. The cost of mortgage insurance varies depending on the size of the down payment and the purchase price of the property, but it can add up to several thousand dollars.
Adjustments are expenses that are prorated between the buyer and the seller at the time of closing. They include property taxes, utilities, and condo fees, among others. The exact amount of adjustments varies depending on the closing date and the terms of the purchase agreement.
Buying a home involves more than just the purchase price. Closing costs can add up quickly, so it is important to be aware of all the expenses associated with the transaction. Buyers should work closely with their real estate agent and mortgage professional to understand and budget for these costs to avoid any surprises at closing.