Uncovering all the costs when buying or selling
Home ownership comes with a few more expenses than just the price of the home itself. Your financial advisor, realtor and legal counsel can help you take care of the details.
On average, you can expect to spend approximately 3% to 4% of your purchase price on a variety of "closing costs". They can add up, but if you're aware of them ahead of time, you may be able to get discounts or special deals.
Here are some of the most common costs you'll encounter.
Before you close the deal
- Deposit. Generally, a deposit is made at the time your "offer to purchase" has been submitted or accepted and makes up part (or all in some cases) of your down payment. The deposit amount varies, but it may be up to 10% of the purchase price of the property.
- Inspection. A home inspection will cost several hundred dollars depending on the size of home, age and number of floors. Arranging an inspection prior to closing the deal is an excellent investment as it can pinpoint trouble areas before you buy.
- Appraisal. Not all lenders require an appraisal, but one may be required by your lender to estimate the value of the property.
At the time of purchase
- Down payment. Establishing a down payment is often what keeps many renters from becoming homeowners. BlueShore Financial conventional mortgages require a minimum of 20% of the purchase price as a down payment. Other options to raise a down payment include:
- High-ratio mortgage. When you don't have the 20% down payment required, you may be eligible for a high-ratio mortgage. In this case mortgage default insurance is supplied by a third-party vendor like CMHC (a federal Crown Corporation) or Genworth Financial. High-ratio mortgages are available with as little as 5% down – often the difference between being a renter or a buyer.
- Gifts from others. Although you may not have been able to save the money you need for a down payment, someone in your life may be willing to help you.
- RRSPs. If you have funds saved in your RRSP and qualify as a first-time home buyer, chances are you're eligible for the government's Home Buyers' Program. Both you and your spouse or partner can contribute $35,000 each (to a maximum of $70,000) from your RRSPs to establish your down payment. The amount you withdraw from your RRSP is paid back in equal annual payments over 15 years.
- Mortgage. Your financial advisor will provide you with a summary of costs that contribute to your mortgage payments. This will include principal, interest and may include mortgage default insurance if you have a high-ratio mortgage. Your payment may also include mortgage life insurance, which pays the mortgage in full in the event of death of one of the borrowers. Mortgage payment protection insurance may also be available to cover your mortgage payments in the event of disability or loss of employment.
- Property Transfer Tax. In British Columbia, the amount of tax due depends on the fair market value of the property transferred. If the fair market value is $200,000 or less, the tax is 1%. If the fair market value is greater than $200,000, the tax is 1% up to $200,000, plus 2% on the portion of the fair market value greater than $200,000 and up to and including $2,000,000. It's 3% on the portion of the fair market value greater than $2,000,000, and if the property is residential, a further 2% on the portion of the fair market value greater than $3,000,000 (effective February 21, 2018). A useful tool is the Property Transfer Tax Calculator for Residential Property Over $3M, (Ministry of Finance).
Under the First Time Home Buyers' Program, eligible purchasers can claim an exemption from Property Transfer Tax if the fair market value of the home is less than the threshold amount of $475,000 or less if registered on or before February 21, 2017, or $500,000 or less if registered on or after February 22, 2017. That means if you're buying your first home and its fair market value is less than $500,000, you don't pay this tax.
Beware of all the fees
- Legal fees. Be sure to read the breakdown of costs carefully and ask questions about anything you don't understand.
- House insurance. All mortgage lenders require you to have a home insurance policy in place on closing day. The price for a home insurance policy varies widely.
- Mortgage default insurance. This insurance is for the protection of the lender when funding a high-ratio mortgage. Both CMHC and Genworth Financial supply insurance to lenders and charge the purchaser a one-time fee based on the mortgage amount. The percentage charged varies from approximately .50% to 2.75% of your mortgage amount and can be added to your mortgage principal, making for manageable payments.
- Mortgage application fee. Although some lenders don't charge for your mortgage application, some still do require a payment of $100 or more.
- Provincial registration fees. Title transfers, mortgage registrations and other documents are often required to be filled locally. Registration can cost $100 or more.
- PST/HST. All new homes are subject to provincial sales tax. April 1, 2013 marks the date of the return to PST; however, there are specific rules for the housing transition. Details can be found on the BC Government website.
- Property tax and prepaid utilities adjustment. Because property taxes are pre-paid for the coming year (as well as utilities like water and sewer in some communities) you'll need to reimburse the seller for your share. Costs will vary depending on the time of year you purchase as well as the property's tax assessment.
- Land survey. Some lenders require a survey of the land to ensure the house or buildings are situated within the legal confines of the lot. If your financial institution requires a survey, it could cost you up to $1500 or more.
- Compliance letter. Similar to a land survey, a compliance letter may be required by the municipality to confirm that buildings conform to the lot and there are no outstanding requirements for the owner to fulfill from the municipality's perspective before the land title transfers. Costs vary based on municipality.
- Interest adjustment. Required by your lender, this amount covers any days of accrued interest on your mortgage between the closing date and the date of your first payment. This adjustment will be based on your interest rate, amount borrowed and the size of the gap.
- Estoppel certificate fee (or certificate of status). This fee applies if you're buying a condominium or strata property; it describes a condominium corporation's financial and legal state.
- Title insurance. This is an optional expense and protects the purchaser and the financial institution from loss due to defects of the title to the property arising from the previous owners.
Expenses after purchase
- Moving. Although it may be more affordable to pack everything you own into a few trucks, a professional moving company can make your move easier. Costs will vary, of course, depending on how much you have and how far you're moving.
- Strata fees. Any complex with a strata-style management structure will charge monthly strata fees to contribute toward shared expenses. Even seemingly "non-strata" developments may charge a fee for parking or maintenance. These will vary widely depending upon the development.
- Utilities / connection fees. Cable, telephone and utilities will all charge a connection fee even if the services were in place prior to your moving in. When you contact each provider to set up services, be sure to ask them what the fee is for establishing connections and whether it can be added to your first bill.
- Repairs / improvements. Not every house is in perfect move-in condition. You may need to repaint rooms or replace flooring in some areas.
- Maintenance. If you're moving from an apartment to a fully detached home, the maintenance required may surprise you. From mowing the lawn to cleaning the gutters, there are a variety of tasks required throughout the year on an ongoing basis. If you aren't interested in taking care of these routine tasks, there are many companies you can hire to do the work for you.
- Services. In some municipalities there is a fee for garbage pick-up, recycling, water and other services. Check with your realtor or the municipality to be sure.
- Making your house a home. No matter how prepared you are to move in, there will be something you need to buy. Perhaps the appliances weren't a part of the sale, you don't have a lawnmower or you need new curtains for the bedroom. Be prepared to spend money on a few extras to make your home livable.
The costs of selling.
- Staging. Professional stagers redecorate your house to appeal to a wider range of buyers. Staging services are available from $150 to $1000 depending on the size of the house and scope.
- Legal fees. Similar to the legal fees when buying, the "order to pay" from your legal counsel will contain a variety of items including the fees to perform the services, land title searches, title clearing fees and other fees generated by the sale of the property.
- Realtor fees. Realtor fees vary depending on the selling price of the home, the agency the realtor works for, and any arrangements made with the realtor prior to signing the listing agreement. The realtor fees are generally paid by the seller and may be split by both the buyer and seller's agents.
- Mortgage penalty. Most likely if you're paying off your mortgage before your maturity date, you'll incur pre-payment penalties from your lending institution. If you re-purchase property immediately, you may be able to transfer your mortgage from your previous property to avoid some of the penalties. Your financial advisor will explain your options to you.
- Mortgage discharge fee. In order to ensure the mortgage is fully paid with no principal or interest owing after the proceeds have been calculated, your financial institution may charge you $50 to $100 for a Mortgage Discharge Administration fee.
- Reading about fees fee. This is usually about 0%. Thanks for taking the time to go through all this. We know it's a lot to take in. Any questions? Talk to our mortgage experts.