Closing Costs

While it might be tempting to put all your spare money into a down payment for your new home, there are some costs that you should consider. The first thing is closing costs. These are the services and taxes that you will need to cover for the purchase to go through. These numbers are based on a purchase in BC and are for a simple purchase. While many of the costs can only be roughly estimated, closing costs are generally expected to be 2% – 5% of the purchase price.

1. Property Transfer Tax (PTT)

The general cost is 1% on the first $200,000 of the fair market value, 2% on the value between $200,000 and $2,000,000, 3% on the portion of the value greater than $2,000,000, and an additional 2% on the portion of the fair market value greater than $3,000,000 (for residential properties). If you are buying a property that is listed on the open market (i.e., with a realtor) where others have a chance to put in offers, the purchase price will generally be considered. Suppose you are buying a property non-open market, and no one else has the opportunity to bid (i.e., a family member offers you an exclusive deal). In that case, the property value will likely be valued at the BC Assessment property value or the value of a recent appraisal.

First-Time Home Buyer Exemption: Eligible first-time home buyers may be exempt from PTT on homes valued up to $500,000, with a partial exemption on homes valued between $500,000 and $525,000.

2. Goods and Services Tax (GST)

This only applies to newly built homes (i.e., you are the first owner/resident). A 5% GST is applicable on newly built homes. There are partial rebates available for homes priced below $450,000.

3. Legal Fees and Disbursements

Legal fees are determined by your lawyer or notary. Mortgage brokers can never quote you a price on this. There will be additional costs for items such as title search, title insurance, and registration of the mortgage, which can add several hundred dollars. These extra costs are called “disbursements,” as your legal counsel simply paid them on your behalf and is being reimbursed.

4. Home Inspection Fee

Usually $400 – $600. The price will vary based on if it is rushed and if the inspector is local to the property being inspected.

5. Appraisal Fee

Mortgage lenders will always require an appraisal. Most lenders will do an auto appraisal first to determine the lending value of a property. This is done strictly via a computer program, with a minimal cost. Often, the lender will absorb this cost. If the value comes in too low, an appraiser will be tasked with going to the property to assess the value. The cost of the appraiser is then charged back to the client either through the lender or the mortgage broker.

6. Title Insurance

Approximately $150 to $350. This is to protect the lender and you from legal issues related to ownership of the property and buildings.

7. Mortgage Insurance (if applicable)

This is required if the down payment is less than 20% of the purchase price and is optional if more than 20% is put down. The premium is added to the mortgage amount. This is a topic that has its own blog post.

8. Adjustment Costs

Property taxes may be paid for in the middle of the year (July 2), but their cost is based on the full calendar year. As such, unless you move in on January 1, you will be responsible for a portion of the property taxes for the year. If your closing date is prior to July 2, you will receive a credit (pay the seller less), as you will be paying the property taxes on July 2. If your closing date is after July 2, you will be required to reimburse the seller for some of the property tax for the year. The amount of this adjustment is determined by the legal counsel based on the amount of the property taxes for the year, as well as how many days of the year you will be in possession of the property.

9. Miscellaneous Costs

Other costs that you may expect are moving costs, repairs, updates, and your first mortgage payment.

This is by no means an exhaustive list. While it may be tempting to put down a little bit more for your down payment, it may not be worth the added stress that comes when you haven’t adequately prepared for closing costs. Buying a home can be stressful, especially for a first-time homebuyer. That is why it is important to work with someone who understands the ins and outs of the transaction. Don’t take the stress on all by yourself. Reach out to me today if you are considering buying a home, and we can walk you through the process of what you can expect.