You're looking for a new home. Or you've found your dream home, and made an offer (hopefully with my help!). No doubt an exciting time!
But hold on. Ensure you understand all the costs involved with the purchase of a new home. Taking a bit of time up front to understand the potential costs – and the buying process – will ensure that things move along smoothly for you, with no last-minute surprises.
Following is a quick overview of the typical costs and the steps involved with buying a home, from offer acceptance through to completion day. (As always, please discuss details with the appropriate professional, whether your Realtor, accountant, or lawyer.)
1. Your offer is accepted
Congratulations! Your offer's been accepted. You may wish to have a home inspection, performed by a qualified home inspector as part of your subject conditions. This can typically cost about $500; in most cases, well worth it.
If you're financing your purchase, your financial institution may require a property appraisal to ensure the property's value is in line with your offer price. You may be asked by your lender to pay for the appraisal up front (approx. $400-$500); alternatively the cost may be blended into your mortgage payments.
2. You remove subject conditions
You're happy with the inspection report, your lender is satisfied with the appraisal and has confirmed your financing. Once you remove all subject conditions on your offer, the offer is now firm. You'll need to provide a contract deposit, typically within 24 hours of signing the subject removal form. This deposit is typically 5% of the purchase price. The deposit will be held "In Trust" by your Realtor's brokerage firm, and will form part of your down payment.
3. You inform your lawyer or notary to get the ball rolling!
Now, what's next? Completion, or closing, day! While no doubt exciting, it can also be stressful. Understanding the process, and particularly the amount of funds you need to complete the transaction, will help to minimize stress and let you truly enjoy receiving the keys to your new home.
Several parties are involved during the closing process:
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Your Realtor
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The seller's Realtor
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Your lawyer or notary
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The seller’s lawyer or notary
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Your mortgage lender or broker
You'll primarily be working with your own lawyer or notary throughout the closing process. They'll work with the other parties as necessary to develop the Statement of Adjustments, which itemizes the final fees and disbursements ("closing costs") you need to pay when you see them to sign the transfer documents. Typical closing costs include:
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Your down payment (your contract deposit typically forms part of this down payment)
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The Property Transfer Tax (1% on the first $200,000, 2% on the balance up to $2,000,000, 3% on the balance between $2 and $3 million, and 5% on the balance over $3 million; e.g. for a $1.4 million home expect to pay $26,000)
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Legal/notary fees and disbursements
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Title insurance (not common, but possible)
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Property tax/utility bill adjustments
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Other taxes as applicable: GST if you're buying a new property; the "foreign buyers tax" if you're not a Canadian citizen or permanent resident, and buying within specified areas of BC. (Note: If you buy in specified areas of BC and don't live in or rent your home full-time, you may need to pay some additional annual taxes. While not due on completion day, you should be prepared for these.)
A few other costs may come into the closing equation:
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The default (or high ratio) mortgage insurance premium (usually blended into your mortgage payment by your lender)
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Property insurance for your new home (your lender will often want to see proof of insurance prior to releasing funds)
4. You meet with your lawyer or notary to finalize the transaction
Your lawyer or notary will tell you the final closing balance prior to your appointment. Bring a bank draft for the closing balance amount, usually made out to the lawyer or notary "In Trust". Also bring along two forms of ID.
Once at your lawyer or notary's office, review all documents carefully, particularly the Statement of Adjustments. Ask questions or request clarification as you need to.
Once you're comfortable with everything you’ve reviewed, you can sign the documents. These may include your mortgage documents as well if you're financing the purchase.
5. Welcome to your new home!
You'll receive the keys to your new home on possession day (typically one or two days after completion day). Whenever possible, I like to meet my clients at their new home on possession day for a quick walk-through to ensure everything's as we expect.
And that's it! Now that you've moved through the closing process well-prepared, it's time to truly enjoy your new adventure!
