More often than not, as a Dominion Lending Centres mortgage broker, I come across clients who may not yet know, understand or simply forget about all of the costs incurred in purchasing a home. Closing costs are something you should be made aware of by your Mortgage Broker as well as your carrying costs once you move in! These numbers should always be discussed prior to even making an offer so that you are aware of the funds you require to actually complete the transaction.
Your Mortgage Lender may want to see proof that you have both the Down Payment required as well as approximately 1.5% of your purchase price on hand for other various Closing Costs. It is important to understand that closing costs may exceed or end up slightly less than this 1.5%, but it at least demonstrates your ability to have near realistic funding and your overall preparedness.
So let’s list out all of the closing costs you should consider with your purchase in our Vancouver market for residential clients; commercial files see even more complexity.
1. Minimum 5%+ Down Payment
In my last writing, I talked about minimum down payment rule changes that took effect in February 2016. Minimum Down Payments required range from 5% on homes under $500,000 to 7.5% on homes up to $999,999, and 20% required on homes over $1,000,000. Calculator here for you: https://dominionlending.ca/tools/mortgage-calculators/
2. Allowable Sources for Down Payment
Your own savings, TFSA’s, RRSP’s, Gifted Funds and/or Existing Equity in property you are selling.
RRSP’s can be used by first time home buyers via the Home Buyers’ Plan up to a maximum of $25,000 per individual. You must have never owned property anywhere in the world, RRSP funds have to be there for minimum 90days and accessible prior to your closing date. Another major consideration is that some Employer RRSP Plans may NOT be eligible for withdraw so verify this first!
Gifted Down Payments can come from immediate family such as Mother, Father, Brother, Sister or Grandparents.
Many lenders require 90 days history of your down payment funds and require explanation or proof of any large deposits, so early preparation is more necessary than ever.
Existing Equity is the Net Equity you walk away with after selling your home, paying out any mortgage, legal fees and realty fees in the process.
3. GST – Goods and Services Tax
You can expect to pay 5% GST on any home that has not been lived in, including new builds, new subdivided land parcels, property primarily used in business etc.
There are various GST rebates available on homes under $450,000. GST may be included in the overall purchase price OR excluded meaning you may need to come up with the funds, finance the GST into the mortgage.
If qualifying for a GST rebate, there are occasions where you pay full GST and apply for the rebate yourself OR the Builder accepts assignment of your rebate, in which case you require less upfront!
4. PPT – Property Transfer Tax
Property Transfer Tax (PPT) applies to purchases in BC. PTT is charged at a rate of 1% on the first $200,000 of the purchase price and 2% on the remainder, up to $2,000,000 and 3% on any amount above $2,000,000. First-time home buyers may be exempt from paying the PTT on homes up to $475,000 with a partial exemption between $475,000 and $500,000.
New Builds now have a PPT exemption up to $750,000 which is fantastic for new buyers and those upgrading to a new property.
5. Realty Fees – if selling current home
Realty Fees payable to a Brokerage are a multiple percentage split typically a % on first $100,000 another % on the remainder. Both Buyers and Sellers Agents usually also receive different amounts from one another but usually close to 50/50.
6. Legal Fees and Title Insurance
Legal Fees include many service charges such as Land Title Registration, confirming signatures on Mortgage Contract, Title Insurance (required by most lenders today), ensuring Property Insurance, Property Tax Adjustments, payout of debts such as credit or mortgage on other property etc.
Typically we see charges in the $850 – $1000 range for a complete real estate transaction.
7. Home Inspection
Would you normally gamble $500,000? Having a qualified and licensed Home Inspector look at your prospective new home is a worthwhile exercise. Typically we are seeing prices between $400 – $500 for this valuable service. Uncover any current or potential issues with this property in advance and perhaps use this information to assist in negotiation! This is your own assurance that you are placing a good bet!
8. Appraisals – With bidding wars and increasing valuations, expect this more today!
It may come as no surprise to you that current increases and bidding wars are seeing offers higher than the expected or listing price. Lenders and Insurers alike can request an appraisal as a condition of financing to support the purchase price.
Important note to those with minimum down payments – If the appraisal or an Insurer has difficulty supporting the valuation of the home, you could be asked to come up with a higher down payment! This occurs when an insurer is only comfortable at a max amount that is below the actual purchase price. This is not only a possibility; Appraisals ARE being requested more often in this market. Sometimes as a Broker with good Lender relationships I can get this waived but only if the request and the numbers are reasonable or supported.
An appraisal can range from $300 – $500 for residential and higher for remote rural areas OR larger acreage.
9. Property Tax Adjustment – Municipal Property Taxes
Each year Property tax bills are due July 1st. Property taxes in BC are adjusted annually from January 1st – December 31st, so even though property taxes are paid in July, they are based on the calendar year.
So how do we adjust?
Your Lawyer will calculate the property tax reimbursement for either the Buyer or the Seller pro-rated to the Adjustment Date on contract. Each party is responsible only for the portion of the year, to the day, that they will own the property.
If you purchase your home on or before July 1st and before taxes have been paid, you should be receiving credit for the Sellers portion of the annual property taxes as you will be responsible for paying the full amount of the annual property taxes.
However, if you purchase your home after July 1st or the Seller has paid for the full tax year, you will owe your portion of the Property Taxes to the Seller.
As always, if you need more information, contact any of the mortgage professionals at Dominion Lending Centres!
Courtesy of Kris Grasty, AMP – DLC Canadian Mortgage Experts