Closing costs are a necessity when it comes to purchasing a home. They are not included in the down payment, the monthly mortgage payments, nor are they included in the purchase price of a home yet you are still responsible for paying them in full. Knowing they exist is half the battle. Nobody wants to find out a week before possession date that they suddenly owe thousands of dollars before they can get the key to their new home. Correctly budgeting for closing costs will take that huge weight off your shoulders.

In order to approve your mortgage, lenders will require you to have 1.5% of a property’s purchase price available in cash to be able to cover closing costs. This amount is in addition to the 5% minimum required for a down payment. Actual closing costs could be closer to 3% of the purchase price and even higher in some cases. What are closing costs specifically? The following is a list of what you might be able to expect for closing costs depending on your province:

1. Appraisal – sometimes required by the lender to determine the value of a home.
2. Interest Adjustment – the amount of interest due between your mortgage start date and the date from which the first mortgage payment is calculated.
3. Property Transfer Tax – a tax paid to the provincial government when a property changes hands.
4. Legal Fees – costs associated with finalizing the sale or purchase of a property.
5. Prepaid Property Tax & Utility Adjustments – amount you will owe if the person selling the home has prepaid any property taxes or utility bills.
6. Property Survey – legal description of the property you are purchasing including its location and dimension.
7. Sales Taxes – some properties are sales tax exempt (GST and/or PST), and some are not. Always ask before signing an offer.

As you can see, many factors go into determining the size of these costs. That is why it is also important to speak with a mortgage broker prior to making an offer on a home. Also, some costs may be exempt, such as the property transfer tax for first-time home buyers in BC. Contact a Dominion Lending Centres mortgage professional to find out if you would qualify to have these costs covered.