It took you what seems like a lifetime to save up for your down payment and now you are ready to become a homeowner. But do you have enough to cover the “closing costs?”
Purchase transfer tax
Depending on where you are in Canada, your province may have a tax added on to your purchase. In BC, for example, this is called Property Transfer Tax (PTT) and it’s added to your cost when you purchase or gain interest in a property. It is calculated as 1% of the first $200,000 and 2% on the remaining balance i.e if you are purchasing a place for $400,000, you would pay {1% on the first $200,000 ($2,000) + 2% on the remaining ($4,000)= $6,000}. If you If you are a first time homebuyer in BC and qualify, you would be exempt from the property transfer tax should your purchase price be less than $475,000. Between $476,000 and $500 000 you would receive a partial exemption. There are restrictions to qualify for the PTT exception, but if you do qualify to get a full exemption, you can save up to $7,500 as a first time homebuyer.
Home Inspection
Even after doing all of your homework and reading all the documents, there are still items you wouldn’t know unless you hire a professional home inspector. A good home inspector will tell you the current state of your home even if it’s prettied up behind beautiful décor. The right inspector can save you thousands of dollars to avoid a bad investment. They can also help you negotiate the price if there are repairs that are needed. The cost of home inspections usually starts around $400 for small condos and goes up for larger homes.
Legal Fees
Whether you use a lawyer or a notary there will be fees associated to register the title and become the new homeowner. You might also want to put together a Will at the same time to protect your asset. The difference between a lawyer and a notary is that a lawyer can also give legal advice. You would also be paying the property tax back to the current owner if they have already paid this amount in advance. Your legal fees will range between $750 to $1,500 to complete the transaction.
Moving
You have to set aside time and money for packing/unpacking, boxes, truck rental and help. Moving expenses can add up quickly specially if you need to consider storage for a few weeks. Storage costs range from $50-150 per month and moving companies can charge $80-150 per hour on the lower scale.
Home Insurance
Be sure to have home insurance in place on your “completion date.” Even if you don’t take possession until a few days later, the day that the sale completes you become the new owner of the home and are responsible for any damage that is caused. If you live in a multi-residential home a simple dishwasher over flow can cost you tens of thousands of dollars. Your building will have their own condo or strata insurance but you would still need to pay the deductible which is usually between $10-$50,000. Home insurance costs should range between $250 for a small condo to $1,600+ for a large home.
How much should you have on hand?
A good rule of thumb is having 1.5% to 2% of your purchase price set aside for closing costs. You will notice that your mortgage broker or bank will also ask to you to show that you have these funds available to you. If you are a first time homebuyer and you are exempt from the property purchase tax or your province does not have this tax, you would need considerably less to cover your legal fees, moving, insurance and home inspection.
Having more on hand never hurts because any home owner will tell you that there are always unforeseen costs. Keep in mind these costs and decide the right amount that you should be putting down, as your down payment as closing costs cannot be added on to the mortgage.
