Closing Costs are one of the things that are overlooked when buying a home. People focus only on the required down payment however closing costs come when you are at the lawyer’s office. Lenders require anywhere between 0.5% – 1.5% of the purchase price for closing costs to pay for the following:
1. Real Estate Lawyer
Whether you are buying, selling, or refinancing a home, there are lawyers involved. Your lawyer’s overall responsibility is to make sure your paperwork is filed, your rights are protected and your transaction goes through.
If you are buying a home, your lawyer’s job is to:
*Conduct a title search,
*get title insurance in place,
*register the home in your name,
*draw up a Statement of Adjustments, and
*facilitate the financial transactions on closing day.
If you are selling a home, your lawyer will do another title search on your home to make sure there are no defects. They will draft the deed of the home for the buyer, calculate any closing costs, and provide a Statement of Adjustments. On closing day, they’ll facilitate the financial transaction. You will get a cheque for what’s leftover, after paying off your mortgage, real estate agent’s fees, and legal fees, etc.
If you are refinancing, your lawyer will conduct a title search, to ensure it’s clear of defects; this protects both you and your lender. After that, They will register the new mortgage amount and facilitate the rest of the financial transaction. When you refinance, your lawyer drafts up a Trust Ledger Statement instead of a Statement of Adjustments. It’s essentially the same financial document, but your transaction is only with the bank – not another buyer or seller.
2. Interest Adjustment
The interest adjustment date (IAD) is simply the date your interest adjustment payment is due. It’s set by your lender and is almost always the day before your first mortgage payment is scheduled to come out.
3. Statement of Adjustments
Whether you’re buying, selling, or refinancing your home, you’ll need a lawyer to help you facilitate the financial transaction. On closing day, you’ll sit down with your lawyer to make sure everything is done, and you’ll walk out with a statement that shows you exactly how your money was moved around in the process.
When purchasing a brand new home or condo, you need to pay the federal goods and services tax (GST) on the purchase price. There is also a harmonized sales tax (HST) if you live in a province that has it.
If you put less than 20% down payment on your home, you will need mortgage default insurance. More commonly known as CMHC insurance. Mortgage default insurance protects the lender in the event you default on your mortgage. While CMHC insurance can quickly add up, it’s not a cost you need to pay for upfront. Instead, CMHC insurance is added to your mortgage and paid off over the life of your loan.
6. Home Insurance
You will be required to provide a home insurance policy at the lawyer’s office to protect the home against fire and have the first loss payable to the lender.
7. property taxes
One of the carrying costs that come with owning a home is property tax. Property taxes are charged by the municipality you live in. It pays for services such as garbage, recycling, sewer, road maintenance, snow removal, street lighting, policing, fire protection, and more. How much you have to pay depends on the municipality you live in, as well as the value of the other properties around you.
How can I pay my property taxes?
Lenders will give you the option to pay the property taxes with your mortgage payment. They simply take your annual property taxes and spread them out with your mortgage payments. You can also pay directly to your municipality through the TIPPS program.
What if the seller has prepaid their property taxes?
When you purchase a home, a real estate lawyer will do the legwork to make sure all of the seller’s expenses are up-to-date, including the property taxes. If they are not, the seller will be required to pay them to the municipality. On the other hand, if the seller has prepaid their property taxes for the entire year, you’ll need to reimburse them a prorated amount, from your closing date to the end of the year.
Closing costs are always required whether buying, selling, or refinancing. Speak with our trusted Edmonton mortgage broker Eva Neufeld to make sure you are prepared. Mortgage Tailors will help make sure you are fully prepared for your closing costs.