Many inexperienced home buyers fail to accurately take into consideration the necessity to set aside considerable funds for closing costs. These expenditures are always over and above the down payment and moving expenses, and are usually due at the very end of the transaction. Costs such as legal and professional fees, taxes, appraisal costs, approvals, utility deposits, home inspection and insurance add up to thousands of dollars and some cannot just be "rolled up" into the loan. They are due upon closing and generally in cash.
Goods & Services Tax - Upon the purchase of a home which has not previously been lived in, the purchase price may be subject to the GST of 5%. With the upcoming implementation of a harmonized tax or HST in British Columbia and Ontario, the total tax would then be as high as 13%. There are a variety of exemption and rebate schemes to minimize the impact of this tax, but the expenditures will still be a significant percentage of the total purchase price. GST and HST do not apply to homes which have already been occupied by previous owners.
Land Transfer Tax - This tax is sometimes referred to as a property purchase tax and it is equivalent to anywhere between 0.5% and 2% of the total cost of the home. It is generally applicable to all Canadian real estate transactions outside of Alberta, Saskatchewan and rural Nova Scotia. However even in those areas there are similar but smaller levies applied under different names such as land registration charges.
Property Tax - Most property owners pay the full year of property tax to the relevant municipality in advance, thus the purchaser will need to reimburse them for the prorated unused amount.
Appraisal Fee - The majority of mortgage lenders will request a full professional appraisal of the residential property prior to approval, and this fee is often the responsibility of the buyer.
Survey Fee - The mortgage lender may also request a survey certificate to formally state the property's boundaries and ensure that no structures violate those parameters or easements. If a current, acceptable survey does not exist, it is usually the responsibility of the buyer to pay the surveyor's charges.
Mortgage Application Fee - Although this fee varies widely between mortgage lenders, most institutions levy a fee just to have them consider the buyer's mortgage application, which is generally non refundable should the application be denied.
Mortgage Default Insurance - If the mortgage loan is High Ratio, or covers more than 75% of the total purchase price of the home, this form of insurance will generally be a prerequisite to funding. The purpose of this insurance is to cover any shortfall should the lender have to foreclose and the property not sell for a sufficient price to clear the amount owing. This premium is usually paid over the term of the mortgage.
Fire & Liability Insurance - Lenders generally require that an insurance policy making them the beneficiary be placed on the property to cover the possibility of fire and third party liability. There are a few lenders which will also request that a Life & Disability Mortgage Insurance policy be in place.
Legal Fees - The transfer of the residential unit's ownership must be registered in the Land Title and Survey Authority Office, which is usually conducted by a lawyer or notary public. These professionals will charge fees for these services in addition to the Land Title Registration fees and other disbursements. Any new mortgage loan will also be subject to a variety of fees and disbursements in order to properly register the documents for the mortgage.
