closing costs to be paid
Closing costs are fees associated with obtaining a mortgage and transferring property ownership. They are significant - 3-4% of the purchase price of the home.
You need to budget for closing costs. This can be done in one of two ways:
1. Pay for them dIrectly out of your savings.
2. Add them to your mortgage loan and pay over time as you pay back your mortgage.
- The PST/HST on the mortgage insurance premium is an exception - it has to be paid upfront.
Alternative 2 may be better if your down payment is less than 20% of the purchase price and you have to get mortgage insurance.
The cost of mortgage insurance is related to the size of your down payment. If the additional savings can increase your down payment such that you move to a different insurance premium bucket, you'll save on the cost of insurance.
Typical buyer closing costs include:
- Land transfer tax - most provinces and some large cities charge it as a percentage of the home's purchase price. First-time buyers are eligible for rebates in some provinces.
- Title search and registration fee.
- Township / municipal levy (for new homes in subdivisions) - proceeds are used for tree planting or schools.
- Legal fees for the services of your lawyer, such as title search, registering the title deed and mortgage, and drafting documents. A title search verifies that the seller legally owns the property. There are also utility and tax department searches, and septic tank and potable water searches - to ensure there are no other liens on the property. In addition to charge fees, lawyers may bill you for their expenses, such as phone and mail costs.
- Estoppel certificate fee (in a condo purchase) - it's a document form the condo corporation that confirms its financial well being and legal state.
- Property survey fee - a current survey is required by the lender for mortgage approval and for the ownership transfer. If the seller does not have a recent survey, it can be negotiated whether the seller or buyer will arrange and pay for an update. Some lenders may accept title insurance instead.
- Title insurance protects the home owner against mortgage fraud, identify theft, and title problems that were not by your lawyer in their search. It's not routinely used but in some cases lawyers may recommend it.
- Interest-adjustment. Most lenders expect the first mortgage payment 1 month after closing. But if you close mid-month, some lenders require an interest payment for the time from closing to the beginning of the first mortgage period. This payment is called 'interest adjustment'.
- Property tax / utility bill adjustment - if the seller has prepaid for periods after closing, you'll have to reimburse them. It could also happen that you end up settling a bill that covers a period when the seller still owned the property - in that case, the seller will reimburse you. The bill adjustment is usually prepared by the lawyers. For metered utility services, like hydro, water, gas, the meters will be read on closing day.
- Appraisal fee – the lender may require an independent appraiser to determine if the property meets its lending criteria and to assess its value.
- GST/HST on the mortgage insurance premium (if you have to buy insurance).
Seller's closing costs include their legal fees (for arranging property title and mortgage deregistration, verifying tax and property bill adjustment. Most lawyers for the seller charge lower fees than for the buyer. The seller may also pay a mortgage discharge fee (see the DISCHARGE YOUR MORTGAGE page). The biggest cost for the seller are real estate agent commissions (charged by both the seller's and the buyer's agents). GST is payable on commissions.
'Closing' is the last step of buying a home.
It's when the buyer, the seller, and the lender sign the necessary documents, funds are transferred from the buyer to the seller, and the home changes ownership.
Close A MORTGAGE
property check before signing
If possible, it is wise to inspect the property just before closing to make sure it's in the same condition as specified in the contract.
This is not the same as home inspection. Home inspection verifies the condition of a home (structure and mechanical systems, with a focus on safety). It's conducted by a certified inspector who prepares a written report of findings. It's usually done earlier - but after you sign the Purchase Agreement.
Who will be involved?
1. Your (the buyer's) and the seller's real estate agents (unless no agents were used because it was a private sale).
2. Your (the buyer's) and the seller's lawyers (notaries / closing agents).
3. The lender's representative (or the buyer's title insurance company representative).
When you're choosing your lawyer, it's a good moment to ask them to go with you through their closing check list to make sure you understand the process. It's also good to check directly with your lender.
- If you feel their check list is not thorough, or they are not answering your questions in a satisfactory way, reconsider your choice.
what, where and when takes place?
Document review and signing at your lawyer's office.
- It can takes place on closing day or, better, a few days before closing.
- Give yourself enough time to read through all documents carefully, including the terms of your mortgage to make sure they reflect your understanding of the deal you negotiated with the lender. This is important as you can still walk away from the deal if you're not comfortable with it (though there may be a penalty if you walk away from the purchase).
Key documents are:
- The agreement between you and the seller transferring ownership of the property.
- The agreement between you and your lender regarding the terms and conditions of the mortgage.
Since COVID-19, in provinces that permit electronic signatures, it is increasingly possible to arrange closing through an electronic exchange of documents, along with phone / video calls.
To finalize your mortgage, you'll need to provide your lender with:
- Copy of Purchase Agreement. They may also ask for a copy of the MLS listing and, if your home is being built, contract and building plans
- Evidence of your down payment
- Contact information for your lawyer
- Letter from insurance company indicating sufficient coverage and showing the lender as a security holder.
The lender will also require the usual IDs, and may require updates of documents they had already requested during the application / pre-approval process (confirmation of income, list of your assets and debts, bank information, and your authorization for a credit check).
On closing day, your lawyer will:
- Deliver your payment to the seller's lawyer.
- Register property transfer and mortgage.
- Release property keys to you.
To complete the transaction, you will need to provide a proof of payment for the amount of your closing balance.
- The closing balance is the amount you still owe the seller. It is the purchase price minus any amounts you already paid, such as deposit. Deposit is an advance payment (usually a portion of your down payment), paid at the time of signing the Purchase Agreement (a legal document in which the buyer and seller agree on the price and terms of the transaction).
- The proof of payment is a cashier's check or copy of wire transfer, depending on which method you used to transfer the money.
Proof of property insurance and usual IDs will also be required.
- Home insurance is a mortgage lender's requirement.