Avoid Unwelcome Surprises – Know Your Closing Costs
Sounds simple enough, doesn’t it? You might be surprised to know just how many closing costs there actually are. When you try to go it alone without a legal advisor to inform you in advance, it’s easy for some to be overlooked or missed. But they certainly don’t go away. Instead, you’ll be hit in the face with a cold splash of reality on closing day.
Closing costs are somewhat different between new home purchases and resales. Here is a list ofnew home closing costs that you can expect to pay upon the finalization of your property purchase.
Land Transfer Tax
Land transfer tax is payable for both new home and resale purchases, however the calculations differ slightly between the two. When you buy from a builder, land transfer tax is calculated on a price that is net HST. This closing cost is calculated in increments and is based on the value of your property as well as location.
For a one-time fee or a premium, title insurance can provide homeowners protection from title defects that affect clear ownership, liens against title, encroachment issues, title fraud, errors in public records or surveys, and other title issues that may have an impact on your ability to sell, finance or lease the property in the future. Although you might start to wonder about the necessity of each closing cost as you see the numbers accumulate on your invoice, know that most lenders won’t even grant you a mortgage loan without title insurance. Depending on the situation, title insurance can be as little as $150 or as much as $1500.
You need a lawyer to close on your new property, so it comes as no surprise that he or she must be paid for services rendered. Legal fees are a set charge, however, be forewarned that there are some complications that may affect the fees. These include:
- Court orders, such as a separation order from Family Court in which case legal fees may be subject to amendments to account for double the number of appointments, money to be kept in trusts, etc.
- Encumbrances on title, such as the number of mortgages on your property (if you will have more than one mortgage or a private mortgage) which makes for a more complicated file that calls for additional legal services, and subsequently, a higher charge.
Disbursements are third-party costs paid on your behalf by the lawyer. Before you’re granted a mortgage loan, there are a number of detailed searches that must be performed in regards to those who are buying, those who are selling, city searches, title searches, property searches and many more. Disbursements are one aspect of the closing costs that many overlook and yet a charge as high as $500 is not uncommon.
These charges are subject to new home purchases only and account for all of the tasks that must be complete upon the finalization of the sale, which can include:
- Hydro meter connection
- Water meter connection
- Driveway paving
- Tree planting
- Law society levies
- Final development procedures
Builders often charge new homebuyers thousands for developmental charges upon closing! However, if you consult your real estate lawyer prior to signing the agreement, he or she can negotiate these developmental charges and put a cap on how much the builder can legally charge you. This gives you the ability to be more certain about your costs and to budget accordingly come closing day.
Mortgage Agent Fee
Did you use a mortgage agent to help you secure the mortgage on your new home? If so, remember to factor in their fee. Although sometimes the fee is paid by the lender, in most cases, mortgage agent fees are paid by the new homeowner upon closing.
When you buy a new property, it is critical that you budget accordingly, that you know exactly what to expect and that you don’t spread yourself too thin. The right real estate lawyer can help you through the process, from before you make your purchase right through to closing day when you’re handed your new keys.