Closing Costs: The last steps before home possession

Purchasing a house is a very exciting experience, but the costs associated with closing can sometimes seem confusing, and yet these are the costs that need to be paid to remove financial conditions from your home purchase contract. We consulted Mortgage Specialist, Stacey Petruch, for an explanation on how these costs work. 

Mortgage Specialist, Stacey Petruch

Essentially, the final month before closing the deal, there are three specific groups of costs to keep in mind: property taxes, lawyer fees and for new builds, a landscape deposit. Lenders typically like to see about 1-1.5% of the total purchase cost of your home available but these fees are rarely this high in actuality. Closing costs can be paid from the same source as your down payment so if using RRSP, these can be included in the total withdrawal amount. 

The first cost to be aware of is the property tax. Expect to pay 3-4 months of property taxes at closing with the lawyer. The property tax can sometimes be added to your mortgage account, or paid directly to the municipality monthly or annually. You can qualify to add the property tax to your mortgage if you have not used your entire qualifying amount, when making the initial purchase. The tax instalment option is a way to lessen the initial cost by carrying it over a longer period. If paid in one lump sum, property tax is paid in July, just after the annual house assessment is made. If you purchase a home from another homeowner, you pay a prorated amount; in other words, you subtract the time between July and your possession date, so that you essentially share the property tax with the previous owner. A typical payment for property tax might be $4500, but could lessen to a couple of thousand if only several months remain in the year and you have purchased your home from another homeowner who has prepaid their taxes. 

A second cost to keep in mind are the Lawyer fees which consist of administration fees and the registration of title of the property. Total lawyer fees including title registration can range between $1700-$2500 depending on the property value and the lawyer. The owner registration on the title of the home is $750-$900. The lawyer is responsible for ensuring the correct transfer of your home in the final stages of the purchase. 

If your home is a new build, a third cost to keep in mind is the landscape deposit. This is also paid at the closing cost meeting with the lawyer, approximately 2-3 weeks before possession. 

2-3 weeks  before possession date, a meeting with the lawyer is set up to pay for these closing costs in addition to the rest of the down payment. The lawyer will draw up a statement of accounts (SOA) to confirm the total amount owing for final closing costs and the clients will bring in a draft for this amount.

Next, in order to ensure a smooth transition of the closing cost process, it is important for clients to be vigilant about their spending after being approved and before the closing date, as the lender may ask to see bank statements (through the broker/bank) in the months leading up to possession. This is stated in our Troiwest Homeowner’s guide: 

Between the date your loan is approved and the date of your closing, remember that any significant changes in your financial circumstances could impact your loan approval. If your closing occurs more than 30 days after the lender issues your loan approval, the lender may order an additional credit report just prior to the closing date.

Therefore, changes in your financial circumstances, for example, purchasing a new car or significant increases in your charge card balances will appear as a new liability on your updated credit report. Such changes may cause your lender to reconsider your approval. Holding off on such purchases until after closing is best.

Troiwest Homebuilder’s Guide

In the occurrence of added costs such as appliance upgrades or basement development, the builder encourages payment upfront, but these costs can be added to the purchase price as long as it’s in the contract or added as an addendum. The builder can also issue a statement of adjustment in the event that the mortgage rules comply; please check specifically with your builder regarding these upgrades. 

Finally, one elective cost to also consider although  your home has many inspections at each stage of construction, is paying for an additional home inspection. This is typically not needed for newly built homes, but is a cost that occurs when purchasing the home that has been lived in. 

We at Troiwest builders endeavour to make your home buying process as fluid and comprehensive as possible, so we strongly encourage you to plan for your closing cost budget well in advance of your possession date. In this way, those final months you can anticipate your quickly approaching move-in date!

Feature image by Towfiqu Barbhuiya

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