Closing Costs is one of the things that is often over looked when buying a home. Most consumers focus only on the required down payment however closing costs come at the end when you are at the lawyers office. Lenders require you to verify 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, 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. Your lawyer will also draft the deed of the home for the buyer, calculate any closing costs you have to pay and draft a Statement of Adjustments for you. On closing day, they’ll facilitate the financial transaction and hand you a cheque for what’s leftover, after paying off anything you owed on your mortgage, your real estate agent’s fees, legal fees, etc.
If you are refinancing, your lawyer will conduct yet another title search, to ensure it’s clear of defects; this protects both you and your lender. After that, your lawyer 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 complete your paperwork and 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.
If you buy or build a brand new home or condo, you need to pay the federal goods and services tax (GST) on the purchase price – or the 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 to purchase mortgage default insurance. More commonly known as CMHC insurance. Mortgage default insurance protects your lender in the event that you ever had to default on your mortgage. While CMHC insurance can quickly add up to thousands of dollars, 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 proof of a home insurance policy in place at the lawyers office to protect the home against a potential fire and have 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, and are used to pay for services such as garbage and recycling collection, sewer protection, road and draining 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?
Most lenders will give you the option to tack your property taxes onto your monthly mortgage payment. To do this, they simply take your annual property taxes and divide the total amount by how many mortgage payments you make each year. 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, your 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 day they’ve paid up until.
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.