It’s common for a first-time home buyer to overlook their closing costs when budgeting for a home purchase.
We’re aware that we’ll need to put down a deposit on a home, but there are also a number of mandatory closing costs involved to make it official.
From land transfer taxes to legal fees and disbursements, to title Insurance and PST (Provincial Sales Tax), there are several key closing costs that Niagara home buyers need to plan for.
Deposit/Mortgage Default Insurance
In Canada, the minimum down payment that a home buyer can put down on a house is 5% of the total purchase price.
However, if a home buyer puts down less than 20%, then they will also be required to purchase Mortgage Default Insurance which is 2.8%-4% of their net mortgage amount.
While Mortgage Default Insurance isn’t typically considered a closing cost, the home buyer is required to pay PST (Provincial Sales Tax) on the insurance – this means that they will be responsible for paying 8% of that default insurance premium as a closing cost.
So, the Mortgage Default Insurance itself is financed in your mortgage while the PST on the default insurance is a closing cost.
Mandatory Closing Costs
When you’re closing out a real estate transaction, there are several mandatory costs that you’ll need to plan for.
First off, the land transfer tax is levied on the purchaser of the property and is calculated as a percentage based on the value of the land.
There are legal fees and disbursements as well that will be owed to your residential real estate lawyer to cover their time, preparation and filing of all the necessary paperwork.
In most cases you’ll be required to purchase title insurance through your lawyer which protects lenders in cases where there are property ownership disputes.
As highlighted earlier, you’ll also need to budget for PST if you put down less than a 20% deposit on your home and are therefore required to purchase Mortgage Default Insurance.
Additional Costs to Keep in Mind
If you were to purchase a property halfway through the year and the current owner had already paid their property taxes for the full year, then you would be required to pay the previous owner back their prepaid taxes.
You would therefore incur the property taxes up front and would not have to pay them for the remainder of the year. This is called “Property Tax Adjustments”
This principle also applies to any utility bills that were prepaid by the previous owner.
Paid in monthly or annual instalments, your property insurance must be set and in order on closing day.
Hiring a mortgage broker for your mortgage related services is the best way to get service tailored to your specific financial needs.
This means that you get better care with a mortgage broker.
Your broker will speak to your lawyer, have all the necessary information available to you and will give you timely responses.
With the bank you can be on hold for a long time whereas a mortgage broker will respond quickly and frequently.
In Your Corner
As your mortgage broker, I supply you with a detailed spreadsheet which includes all the necessary information you’ll need to make sure you’re on top of your closing costs – this spreadsheet is an excellent tool that we’ll go over closely together.
I provide experience-based solutions for all my clients so that they can make the best possible decisions for their financial future.
If you have any questions regarding closing costs, or anything relating to mortgages, feel free to give me a call and I’ll gladly help wherever I can.