18 Oct More tips on closing costs
Here’s the thing: closing costs are the one element people tend to forget or know less about in the entire home buying process. We’ve written a few blog posts where we mention closing costs and what they entitle. This particular post aims at answering the questions we still get about the costs at the closing stage.
Tip 1: put aside some money to cover these costs
When purchasing a home, calculate about 3 to 5 per cent of its total cost (or purchase price) as a “piggy bank” for closing costs, if possible. Why is this important? If there are surprises, you have money available to cover the costs. And if you are left with some money – costs were lower than anticipated – you can put it towards the mortgage or have it as an emergency fund.
Tip 2: know ALL the items on the closing costs list
Besides your mortgage payments, property taxes, maintenance and utilities, you should be prepared to pay for “surprises” that may arrive during closing costs or when you take possession. In this case, you may encounter property surveys you were not expecting to have or property assessments; sometimes, there are home inspections fees or moving fees. If you are a first-time buyer, don’t forget you are eligible for a rebate of the municipal portion.
Tip 3: Closing costs are paid at the closing of a real estate transaction.
This means you get the title of the property and officially take possession of your new home.
Tip 4: Be ready for unexpected repairs
To buy a house and not have any expenses would be the ideal situation. Unfortunately, that never happens. Unlike condo fees, which are fixed, in a house the costs vary. There are some maintenance or repair fees you need to account for and it is quite impossible to predict how much they will be.
Tip 5: You can’t roll your closing costs into a mortgage loan
The only cost allowed into a mortgage is the CMHC insurance premium, which is payable only by those who have less than 20 per cent down payment for the purchase.
Tip 6: Where you are can determine closing costs
By this, we mean you need to remember that land transfer taxes can take a large portion of your closing costs, but not all are the same. They vary by province and municipality. (See our post on land transfer taxes).
Tip 7: Plan ahead and build a “fund” into your total budget.
Don’t forget to get a copy of Carmen Costa’s book on “The Reality of Mortgages: your step-by-step guide”.