You’re preparing to go house shopping and naturally one of your first thoughts is, “what can I afford?” You meet your mortgage professional to determine potential mortgage payments and get a feeling for the household budget, but have you remembered to set aside about 1.5% of the purchase price for closing costs?
Your mortgage professional should help you understand these costs early in the game so that you are shopping within your means. Even though the estimate is 1.5% (lenders require buyers to prove they have the money available) you may not spend the full amount – but you want a firm understanding of how much money you will need for the down payment and closing costs. Closing costs always fall outside the mortgage.
I advise my clients to calculate their closing costs first, then see what is available for the down payment. For example, if you have $50,000 and your closing costs are about $10,000, you will likely end up with $40,000 for your down payment. This reduced down payment will impact your mortgage size and may impact the house price range you can shop for.
Closing costs include things like lawyer or notary fees, municipal property tax adjustments, strata payment adjustments and in B.C., the Property Purchase Tax (PPT). PPT is 1% on the first $200,000 of the house purchase price and 2% on the balance. First time buyers may be eligible for an exemption – check out my previous blog about“tax savings”.
These costs are settled at the time of closing the purchase with the lawyer or notary.
Outside of the standard property purchase closing costs, I suggest my clients also include things like moving expenses, disconnect and new hook up charges for utilities like Hydro or phone and those little improvements like changing the locks, a couple of new window screens or a new cabinet for the laundry room. No move is complete without a few trips to the hardware store!
Make sure you like and trust your legal counsel. Many of the fees you will incur are non-negotiable, but lawyer or notary fees are. If you don’t have a lawyer you regularly work with, ask your mortgage professional or your realtor for recommendations. Get a quote on the fees. You have a choice in who you use and the ability to shop around.
Closing costs are part of every real estate transaction. Make sure you include them in your budgeting process to avoid those unpleasant surprises at the time you close the sale.
Post by Marci Deane, Mortgage Broker Mortgage Alliance West www.askmarci.ca