Mortgage Closing Costs
One of the greatest challenges you face when getting your first mortgage is understanding how much you will need to pay upfront.
The following is a comprehensive list of the closing costs homebuyers can expect when buying a new home and financing it with a mortgage.
Other than your down payment, be prepared for:
At the time of closing your mortgage, your lawyer will require that you bring with the remaining downpayment amount. In some cases you may have been required to pay a deposit to your realtors trust once you have an accepted offer; your down payment will be total minus the deposit you made. Check with your lawyer to understand how they want you to pay the final number. Bank draft, electronic funds transfer, money order, certified cheque, are all methods that your lawyer may accept.
2. Legal Fees
A lawyer or notary will be necessary in the home buying process. Your lawyer will prepare the mortgage documents, have you sign the documents, transfer the property to your name, and forward the funds to the sellers. The cost may vary depending on the lawyer and the work required. Estimated costs are approximately $800-1500 for the legal fees alone.
3. Appraisal Fees
An accredited appraiser will look at your home and determine if the price for the home meets what you have offered, and whether or not the home is worthy investment. The appraiser will compare recent sales of similar properties to determine the estimated value of your home. He or she will provide a report to your lender that confirms the value. This cost may only be required if you are putting more than 20% down. Fees are estimated at $300-400.
4. Property Tax Adjustment
You may have to pay some of your annual property taxes at the time of closing. This would be done when you sign at the lawyer’s office. Depending on the whether or not the seller or builder has paid the taxes for the year, you may have some fees owing. Every situation is different, it is best to confirm with your lawyer and mortgage broker what you may owe. Take into account when the property taxes are due, and whether there has been a tax adjustment on your property.
5. Interest Adjustment
If you have chosen monthly mortgage payments, and your payment comes out on the first day of the month, you may have an interest adjustment. If the purchase of the home closes on June 29, for example, you will have to pay for two days of interest on your mortgage (June 29-30). If the purchase closes earlier in the month, you may have a larger interest adjustment. Interest adjustments are calculated using the interest rate of your new mortgage. It is best to find out from your mortgage planner what your interest adjustment costs may be.
6. Title Insurance
Title insurance is not necessary but is sometimes used instead of a survey or real property report, and may be requested by your mortgage planner, lender, or lawyer. Title insurance insures the title of your property against any errors, or if someone try’s to claim your property as their own. This fee is once in your lifetime and definitely a good investment. Your mortgage planner, lender, or lawyer will discuss title insurance with you if it is applicable for your transaction. Costs are estimated at $200-300.
7. Fire Insurance
Fire insurance is mandatory for every mortgage. Fire insurance ensures you have adequate coverage to pay off your mortgage in the case of fire. The lawyer will want proof that there is fire insurance in place when you go in to sign the papers. Search the internet, or ask your mortgage planner for a referral to an insurance agent who will be able to assist you. Make sure to get a few quotes because costs will vary depending on the value of the home and the insurance provider.
8. High Ratio Insurance Premium
When borrowers have less than 20% of the value of the property as a down payment, they must pay a mortgage insurance premium to CMHC. The premium varies, so you should check the amount with your mortgage planner. Most people will add this premium onto their mortgage, however you also have the option of paying this amount up front. This premium is charged to you by the insurer, through the lender. This can add a few thousands dollars extra to your mortgage but makes sure that the lender is covered should you default on your mortgage.
9. Home Inspection
Many people choose to have a home inspection, although most of the time it is optional. We recommend, no matter if you are buying a brand new home, used, or one from a friend, get a home inspection completed by a licensed 3rd party! A home inspector will look through your home and provide you with his or her professional opinion on the construction of the home. They will advise of any maintenance required, and will let you know what kind of maintenance you can expect in the next few years. This allows you to negotiate effectively with the sellers and make sure everything is repaired before moving in. Costs will vary but are estimated at $300-600.
10. Mortgage Processing Fees
Depending on your application, you may have a mortgage processing fee. This is a fee charged by the lender and/or mortgage planner to process your application. These fees will be disclosed to you prior to you proceeding with a mortgage commitment. These fees are a rare with and are only applicable under certain circumstances.
Most financial institutions require surveys or real property reports. Surveys confirm where the home is sitting on the lot and make the lender aware of anything unusual about the property. They use this information to determine whether or not your property is worth the amount being asked for funds. You may be able to get an acceptable copy of the survey from the previous owners, and save the survey fee. Title Insurance is often used in place of a survey.
12. Utilities Connection Charges
Before you take possession of your new home, you must have your utilities switched to your name from the previous owner. Some utility providers charge a move or connection fee. You will need to contact each utility provider to find out their charge.
What you should do now
Learn everything involved when buying a home, visit our "Homebuyer Zone" page where you can read about Real Estate, Mortgages, and creating Financial Wealth.
If you have questions, contact us for more information.