Monday, May 16, 2016 / by Hani Faraj
CLOSING COSTS - 9 ITEMS TO REMEMBER
Closing costs and the remainder of your down payment are usually due a couple of days before the actual closing date. Payments are made directly to the lawyer.
- GST (Goods and Services Tax): Houses purchased from the builder are subject to GST. A purchaser of a newly built house should be satisfied as to how the GST is treated before signing the contract. The contract they have entered may require the payment of an additional 5% in GST. Relief is available by way of a GST New Housing Rebate. The rebate equals 36% (to a maximum of $8,750) of the GST payable on the purchase of homes under $450,000. In other words, a qualified purchaser will pay 4.48% GST after rebate. Sometimes the purchaser will assign the benefit of the rebate to the vendor with this being reflected in the purchase price.
- PTT (Property Transfer Tax): This tax is payable on the purchase of all real property in B.C. The calculation is based on 1% of the purchase price up to $200,000 and 2% of any amount above $200,000. Most first time buyers are exempt from this if they meet certain criteria. The main criteria are: a) borrower has never owned a principal residence anywhere; b) maximum purchase price of $475,000; c) borrow at least 70% of the purchase price; d) be a Canadian citizen or permanent resident, and residing in B.C. for a minimum of 12 months.
- CMHC/Genworth/CG Insurance Premium: If a purchaser has less than 20% down payment, they will need Mortgage Loan Insurance. Buyers with mortgage loan insurance can purchase a home with as little as 5% down. The cost of insuring the loan (loan insurance premium) depends on the size of the down payment. The premium can be added to the mortgage and paid as part of the monthly payment, or paid in a single lump sum at the time of purchase.
- Legal Fees: Legal representation will cost you approximately $875-$1000 for a purchase and a mortgage, add another $450 if you are selling a property at the same time. The legal fees to only register a mortgage will be in the $500-$600 range. Your legal fees should be negotiated up-front with your lawyer or notary.
- Property Tax Adjustment: Generally, property taxes for the calendar year are paid at the beginning of July. If you purchased a property before July 1st, the seller will be paying you for the days they owned the home from January 1st to the completion day. You then are responsible for the entire amount to be paid to the municipality on July 1st. If you purchase a property from the completion day to December 31st, as they will already have been paid the entire amount to the municipality on July 1st. To calculate this amount: one day's taxes on owner occupied properties is the annual taxes, less $570 homeowner grant, divided by 365 days.
- Title Insurance: Title insurance is an insurance policy that protects you, the home owner, against challenges to the ownership of your home or from problems related to the title to your home. The policy provides coverage against losses due to title defects, even if the defects existed before you purchased your home. A title defect is a problem with the title which prevents free and clear ownership. There are many types of defects such as rights of way, encroachments (from neighboring properties), unpaid liens, Fraud, etc. Title insurance policies protect you for as long as you own the property. Cost can range from $100 - $400
- Property Inspection: An inspection is a thorough evaluation of the structure, systems and components of a home. The inspection report is usually multi-paged, and comments on the condition of, but not limited to: foundations, electrical, plumbing, heating, water heaters, appliances, fireplaces, drainage, roof, walls, floors, attic, crawl spaces, patios, etc. This inspection is optional and normally costs $250-400.
- Insurance Binder: This is a requirement by a financial institution to ensure that the borrower has arranged sufficient insurance to cover any losses that may be incurred on the purchase. Proof of coverage by way of an insurance binder supplied by the insurance agent is necessary and usually costs $35.
- Processing/Appraisal Fee: This covers property valuation, administration, and processing of documentation for your mortgage. The fee (usually $240-$275) will vary according to the value of the property, and whether you have a conventional or highratio mortgage.