Buying a Home? Everything You Need to Know About Closing Costs

When a buyer budgets for a home purchase, closing costs must be taken into consideration. Since closing costs are due in cash at the time of the purchase, it's imperative that the buyer have money for these fees on hand. Knowing what closing costs are, how much to expect to pay and when they're due helps home buyers to plan for a smooth home buying process.

For informational purposes only. Always consult with a licensed mortgage professional before proceeding with any real estate transaction.

Closing Costs, Defined

Closing costs are the extra fees and costs associated with purchasing a home. These costs are usually incurred throughout the home buying process. When a home buyer hires a lawyer, seeks various insurances and interacts with government offices, the result is usually a variety of fees.

Most of these fees are not paid until the end of the home buying process, when escrow "closes" and ownership of the home transfers from one party to the other. Closing costs can be numerous and costly. In a typical home purchase, the closing costs will amount to about 1.5% to 4% of the purchase price of the home.

Why the variation in price? Closing costs can vary regionally, and from one home purchase to the next. There are countless little decisions made by home buyers and sellers that can influence how much closing costs will be. The variation also occurs because different government offices may charge different amounts.

Typical Closing Costs

There are many different closing costs that might go into one home purchase.

• Land Transfer Tax: Land transfer tax is a tax associated with any home purchase. Different provinces charge different amounts for this tax, and some large cities have their own municipal tax to add to the costs.
• Legal Fees: A lawyer is hired in the process to prepare documents for the purchase of the home. Lawyers charge their own rates for this type of transaction, and some home purchases may cost much more than others.
• GST or HST: Home buyers are required to pay a goods and services tax or a harmonized sales tax if they're buying or building a new home or condo. Whether they pay GST or HST depends on where they live. Buyers are eligible for a partial rebate if their home falls below a certain amount.
• PST on CMHC: Mortgage default insurance, more commonly known as CMHC, is the insurance that homeowners pay to protect their lender in the event that they default in their mortgage. In some provinces, buyers must pay provincial sales tax (PST) on their CMHC, due at the time of closing.
• Septic Tank Testing Fees: Any septic tanks on the property must be inspected to ensure they're in good condition. The costs for this inspection is negotiated with the home seller.
• Prepaid Taxes and Bills: If the seller has pre-paid taxes for the year, the buyer must reimburse the seller for these taxes. The same goes for utility bills.

Work With Your Lender and Real Estate Professional

If you're buying a Langford home, it's important to know how much your closing costs will be. Work with your lender and your real estate professional to estimate your closing costs during the home buying process. Your real estate professional can help you negotiate any negotiable costs to ensure your home purchase is affordable.

For informational purposes only. Always consult with a licensed mortgage professional before proceeding with any real estate transaction.