First Steps

Closing Costs

Hi All,

I have been away for a couple weeks from my blog, ever since we got the house on the 7th. We have had so much to do – we painted 4 of the rooms, took out the carpet and laid laminate in two of them, and then there was the physical moving and unpacking of the boxes. We moved with a truck 6 days ago and we still aren’t very far into unpacking and I am going a little crazy! However, I digress.

Closing costs! The dreaded and least thought about cost of buying a house! These costs are so important, and unavoidable. Ensure when you budget to buy a house that you budget for these costs!

While doing my research, I often used this article from CIBC as my resource. I found it to be the most useful and comprehensive article for me. Until now, where I can help break it down as well – I am going to follow along the same lines as the CIBC article and go in order from their list to keep it more organized. I need to check back and see if we paid a property valuation fee, unless it got rolled into our mortgage, we did not pay this closing cost when we got our mortgage.

Before you even sign an agreement to buy the house, the first closing cost you are going to be paying for is the home inspection. Do your research. Look for home inspectors in your area, look for reviews on these people, and call them and ask them what they would charge. You can still save some money by calling around, but make sure they have some years of experience, and if possible, find good reviews. This step is important. If you choose a home inspector that doesn’t know what they are doing, or are lazy, they potentially can overlook some serious issues with the house. Their report will help you determine if you want to continue with buying the house, or if you walk away. I think our home inspection cost around $375. So expect to pay $350-500 for this inspection.

Another inspection we needed to do was a WETT inspection because we have a wood burning fireplace. If your potential new home does not come with a wood fireplace, you can skip right over this paragraph. However, if your house DOES have a wood burning fireplace or stove, make sure to get this inspected. Your house insurance will ask you if you did this inspection. As well, it is good piece of mind to know if the fireplace is up to code. Unfortunately for us, our fireplace was not up to code, and if we hadn’t done the inspection and tried to light the fireplace, we would have had a horrible time as the smoke would be entering into the house rather than up the chimney. Smoke smell is so hard to get out of furniture! WETT inspectors are not governed under a single body, they can get the certification and work for themselves, so again, shop around for good reviews and a fair price. We paid around $175 for this inspection.

Beyond this, we did not have to pay any closing costs until the closing date. We didn’t receive the final bill until a couple days before possession date. This bill includes all land transfer fees, lawyer fees, title insurance, and the rest of your deposit. So keep in mind, this bill is going to be very large.

In regards to the CIBC article, disregard the survey. I think it is highly unlikely that you will require a survey. Also, you can always contact the city to see if they have a survey on hand – however, if they are asking for a survey at this point, I would assume the city doesn’t have it on file.

Land transfer tax is one of the larger costs you will have to pay. If you are a first time home buyer, like me, you can get a rebate back. I have heard from people that their lawyer makes them pay the full amount up front, and later issues the first time home buyer the money back. Our lawyer took the rebate off right away, so we didn’t have to pay it. This cost is calculated differently depending on the province you are in. And if you live in the City of Toronto, than there will be an additional cost on top of the provincial land transfer tax. You can check out an article here that will show you how to calculate the cost for your specific home. And here is an article specifically for first time home buyers.

We chose our real estate lawyer by doing some research online. We chose a lawyer close to our new home, however I’m not sure that matters. We thought since we would be living there that it would be nice to get a lawyer in the city we are moving to, but in hindsight, they are just your real estate lawyer and unless they were fantastic, it is unlikely you will work with them again, unless you choose them when you sell your home. We moved from one city to another, so every time we had to go in we would have to drive to that city to do paperwork. However, picking up the keys on possession date was great because we were right there. So, it is at your discretion on the location to chooes your lawyer. However, do research and look for reviews. And call around for prices too. They should be pretty competitive – approximately $1,500.

Don’t worry about HST/GST if you are buying a resale home. This tax only applies to new builds. So therefore, if you plan on buying a new build, make sure you factor in the taxes. We bought a resale home, so I cannot provide any advice on this cost.

Title Insurance. This was a contention point for me. I have someone who was able to professionaly inform me that I do not require title insurance Based on factors, such as the age of the home, that my house is a semi-detached, and that no decks, garages or additions were added to the home, that I would not require title insurance. Title insurance is there for a couple of reasons: 1. to protect you from anyone coming and saying the property is theirs, or telling you that your fence is built on their property, and 2. to protect you from mortgage fraud, where someone pretends to be you and takes out a line of credit, or second mortgage under your name. This second point is generally targeted toward senior citizens, as they are less savvy to this information. Or to people who have little to no mortgage left on their home. Because our mortgage is so brand new, I completely believe the bank would do their due diligence if someone tried to take out a second mortgage after we owned the home for such a period of time. I will say this first: if you decide you do not want title insurance, ask a professional first. I can almost guarantee that they will tell you to get the insurance, but I personally believe in my specific situation, that this is a money-grab from insurance companies.

If you choose to try and remove the title insurance from your home, there are a few things you need to do.

  1.  ask your bank if this is a requirement in order to secure the mortgage – our bank told us it is “up to the discretion of the lawyer” – make sure you have them clarify what “the discretion” of the lawyer means.
  2. contact your city and obtain a copy of the survery – some banks require it to be within the last 20 years, so keep that in mind. For our city, it would have only cost us $17 to get our survey. It can take 5 business days, or longer so make sure you do this in advance

I cannot guarantee they will remove the title insurance – as this is also to protect the lawyers butts if they mess up – so I believe more often than not, lawyers will force it on you to protect themselves incase they miss any liens on the property. However, if you can confidently know that you do not require title insurance – than it is worth a shot – and this can save you $400.

In your final bill from the lawyer, it will also include any adjustments for utilities or property tax. The previous owner may have paid a month, 2 or 6 months in advance for utilities or property tax, so when you take ownership, you will owe them the money back for these costs. The lawyer will include this in the total bill.

Finally, you have your deposit. You will have paid a certain amount of your deposit when you sign the agreement letter (this amount varies on the house listing). The remainder of your deposit will be due when you go in to the lawyer to sign the papers.

Any home insurance that you sign up for will be due when the company lets you know. It will not be included at closing date. I plan to write a separate blog on utilities and insurance just because it deserves a little attention as well.

The final item on the CIBC list is mortgage life insurance. When you sign the final papers for your mortgage, they will ask you if you want this protection. If you have life insurance, do not get this protection, as it is a waste of money. As the value of your mortgage goes down, so does the mortgage life insurance payout. Get a life insurance policy that covers the cost of the mortgage – and stays the same value – rather than decreasing as your mortgage decreases. I will expand on life insurance a little more in a later post. Just keep in mind that if you do have life insurance, this mortgage life protection is unnecessary.

The last small cost to remember is you will require a certified check at the lawyer, so that is a small, but additional cost to consider.

Thanks for stopping by! You can continue reading about additional bills here if your still looking to pay more expenses lol!

Briana

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