Closing Costs

The terms below are costs that apply to mortgage and property purchase transactions. Note that not all costs apply in all circumstances, but are listed here for information.

Property Transfer Tax: This is a provincial tax charged every time a property changes hands. The cost is 1% on the 1st $200,000 of value, and 2% thereafter. If you are a first time homebuyer, there is a program to provide full or partial relief from this tax under specific conditions. We can help you find out if you qualify.  BC Property Transfer Tax

GST: If you are buying a newly subdivided lot or a new home, GST will generally be charged at 5% on the full amount of the purchase. If you are building the home, the situation varies as some contractors include the GST, and others may refund partial GST to themselves or to the purchaser, so it is important to find out at the time you make your offer.  In some cases the GST can be included in your mortgage so it is best to discuss this with me ahead of making your offer.

Appraisal:  If you have a down payment for less than 20% of the purchase price, you may not need to have an appraisal done on the property that you are buying. In other cases, lenders will require an appraisal of the property to support the lending value of the property. Fees are higher for revenue properties, waterfront, acreages, or more complex purchases. Commercial appraisals are significantly more expensive and more time consuming to prepare given the complexity of the appraisal required.

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. The inspection is usually performed a day or two before the market value is determined by the property appraisal. An inspection can cost anywhere between $300-$500 but the cost is well worth identifying any major cost repairs required.

Title Insurance: To protect the lender's interest in the mortgaged property in the event there is some discrepancy on title that would create a legal problem, many lenders require title insurance. Title insurance is often a less expensive and acceptable alternative to getting a survey prepared for the property.

Survey: Lenders may require a survey to support the transaction. A survey is a drawing by a certified surveyor of the property lines and where the building sits on the property. This is done so that the lender can verify exactly what and where they are lending on, and to provide some assurances that the buildings are not illegally encroaching on neighbouring properties, etc. The cost of the survey varies for size/complexity of the property but standard neighbourhood lots have a survey cost of about $270.

Mortgage Insurance: The term Mortgage Insurance is used in two different ways, and each have different and specific purposes:

Life/Disability Insurance: This insurance is often recommended by lenders to ensure that you are able to meet the mortgage payments should you or your co-borrower become disabled or die during the term of your mortgage. Rates and Coverage vary widely, so let us help you make sure you are getting the most coverage for your money.

Default Insurance: Default insurance is usually required on loans where the borrower is borrowing more than 75% of the value of the property. Genworth and CMHC provide this insurance and the cost varies with the amount borrowed relative to the property value. There is a $165 application fee for these programs.

Realtor Commissions: If you are purchasing and use a Realtor to help you, the seller will pay for their Realtor and yours so you will not usually incur any charges.  If you are selling, fees vary, but are often 7% on the 1st $100,000 and 4% thereafter. There are a number of lower commission Realtors, and their fees will vary. GST at 6% of the commission payable is also charged to the seller.

Legal fees: If you are selling a property, you will be responsible for legal fees regarding clearing the title for the purchaser. If you are the purchaser, you are responsible for conveyance fees, preparation of statements of adjustment, and mortgage registration.

Interest Adjustments: This is the interest that you will pay for receiving the mortgage funds for periods outside of standard payment periods. For example, if your completion date was on the 23rd of a 30 day month, you owe 8 days interest for those days before normal payment cycles commence.

Property Tax Adjustments: Generally, property taxes for the calendar year are paid at the beginning of July. If you purchase a property before July 1st, the seller will be paying you for the days they owned the home from January 1st to completion day. You then are responsible for the entire amount to be paid to the municipality on July 1st. If you purchase a property after July 1st, you will pay the seller for the days you own the property from completion day to December 31st, as they will already have paid the entire amount to the municipality on July 1st.

Rental Deposit Adjustments: If the property has a rental suite the vendor must transfer the tenant’s security deposit to the purchaser. If completion takes place mid-month, adjustments must also be made for rent collected by the vendor and pro-rated payment made to the purchaser.

Property Insurance: If you have a mortgage on a property, almost every lender will want to make certain that you have adequately insured the property for loss from fire, flood etc. Note that the insurance must be for the full property value rather than just the mortgage amount. In the event of a loss, it is standard practice mortgaged property generally notes the financial institution as the payee. There is a fee of about $35 for the insurance company to confirm coverage in this manner and is often referred to as a “binder.”

Costs Associated With Purchasing a Property in BC

Purchasing a property can be a very exciting time, but the worry of keeping track of all of the cotsts associated with a purchase can seem daunting. Here is a quick reference list of most of the costs associated with the purchase of a property in BC, followed by an explanation of what they are, and when a purchaser will be required to pay them. In some cases it may be possible for me to get you the funds to cover some, or all, of these costs.

Don't be concerned about remembering all, or even any, of these costs. I am here to guide you, and will go overyour unique costs with you. If you are a First Time Buyer, and are buying with No Money Down, the minimum amount of money that you will usually require is approximately $1500. Here is a list of costs that may or may not apply to you, with the longer explanaton to follow:  

Down payment: the amount of your own money that you wish to use as part of the purchase price of theproperty. The more of your own money that you use to pay for the home, the smaller the mortgage, and therefore the smaller the mortgage payment.

Deposit on property purchase-usually givento teh realtor when you have to show that you are a serious buyer. (usually anywhere up to 5% of the purchase price) This will be returned to you when you take possession of the new property, therefore it can form part of the down payment, or be used for closing costs if you wish.

Appraisal susally $275 to $375 (higher for certain properties) likely requested by the lender, but not usually applicable if you have less than a 20% down payment because the mortgage is then usually insured by CHMC or Genworth (there may be instances where an appraisal is required eve if an insured mortgage).

Home inspection if you wish to have one done $300 to $450 or more. this is completely optional, but given the large investment that you arelikely making, this is usually recommended. I can give you the name of a very reputable inspection company if you wish.

Survey or title insurance if necessary usually $170 to $375 (but may not be necessary) I also recommend that you purchase additional title insurance for your protection at a nominal cost. Feel free to ask me why.

CMHC application fee if applicable (usually only for construction mortgages)

Lawyers fees and disbursements (the disbursements are costs that the lawyers pay on your behalf) minimum of $750 for a purchase so ask your lawyer for a quote.

Property transfer tax $0 if you qualify as a First Time Buyer (if full exemption) to: 1% of first $200,000 and 2% on remainder-ask me about qualifying as a First Time Buyer.

GST (only on brand new or substantially renovated properties). This may be included in your purchase price. I recommend that you discuss this with me before making an offer if GST will be involved.

CMHC/Genworth premium if applicable (in most cases, only if you have less than 20% as down payment)-- will be added to motgage amount and included in your payment, so this will not usually be something that you need funds available for.

Property taxes -these are taxes taht are paid by property owners each year. They may be included in your mortgage payment, or you may be responsible for paying them yourself. I have options for paying on a monthly basis if you choose to do so, and if your lender is not collecting them. They are paid at the beginning of July, so you may be responsible for reimbursing the seller for the portion of the current year that you will own the property, if he/she has already paid for the entire year. ( For example, if you take possession in august, you will need to give the seller the taxes for Aug. to December as they will usually have already paid them for the entire year)

Strata fees if purchasing a condo or townhouse etc. This fee is usually used to pay for the upkeep of the building, grounds, repairs and maintenance, as well as the insurance of the property. Please note that in most cases, you will still require insurance for your possessions. You may also need insurance for any upgrades that have been made to your unit, and this can usually be included in the policy that covers your possessions.

Estoppel certificate if purchasing a condo or townhouse (approximately $100) --interest adjustment-- your mortgage payment s calculated for a particular period such as per month if you wish to make monthly mortgage payments. If the time between your purchase date and your first payment is longer than your payment period, ther may be intrest owing for the days befor the regular payment period begins. I can help you determine this amount.

HPB repayment if you are using the Home Buyers Plan to purchase a property, then you may need to make contributions back into your RRSP. I can explain this to you or send you information.

Mortgage insurance if desired. Mortgage insurance is optional, and is designed to pffer protection from financial hardship when there is a loss of income due to injury, death, or critical illness. This optional insurance is usually a monthly payment.

Hook up charges for utilities..-hydro, cable, phone, etc.  ..rental adjustments-if the property that you are purchasing is rented, or has a suite that is rented, then there may need to be adjustments made regarding deposits and rent. Your lawyer should calculate these costs for you.

Here is the process in greater detail:

The first cost a buyer will likely incur is the depositthat they must put on the property when they make an offer to purchase. When you view properties with a realtor, and decide to make an offer to purchase a property, the realtor will usually recommend that you include a deposit in your offer. To know that you are a serious buyer, and will not just change your mind later, a seller (called a vendor) will expect you to give them a deposit. This deposit will be held in trust until you actually take possessiong of the property. You should receive intrest on this amount, and it will form part of your down payment. Therefore, say you purchase a home for $300,000 and are going to put down $30,000 of your own funds and take out a mortgage for $270,000. If you give a deposit of $5000 to your realtor when you make the offer, you will need to add $25,000 of your own funds when you sign the documents at the lawyers office.

 The next cost you may incur is an appraisal fee. When you apply for a mortgage the lender may ask you to supply an appraisal so that they can be assured of the calue of the property that you are purchasing. This calue is part of the lenders security on the money that they are lending you. In other words, if a lender is willing to lend you 90% of the value of the property, otherwise, they will actually be lending you more that 90%. You don't have to arrange for the appraisal; your mortgage broker will do this for you. The appraisal must show that you paid fair market value, or less, for the property if you are applying for the maximum amount that the lender is willing to lend you. If you do not need to borrow the maximum amount then it might not matter if the appraisal comes in lower; your mortgage broker can advise you on this if necessary. If you are obtaining a CMHC insured mortgage (explanation follows) or in the case of some other mortgages, you may not be required to supply an appraisal. Your lender will let you know this.

--Home inspections are usually optional, but it may be a wise decision given the cost of a hom inspection, and the amount of the investment that you are likely making in the Victoria housing market. Home inspections are for your protection, and are usually in the $200 range or could be more. The home inspector should be checking for such things as structural integrity, wiring problems,water problems such as leaking, mold, and pest problems. I can recommend and experienced home inspection company if you wish.

House or fire insurance is always required by the lender. House insurance also protects you in the case of fire, but the lender willrequire proof that you have valid insurance, so that the lender knows that his security for the loan is protected. I can recommend an insurance company if you wish, or you can you any one you like. If you are purchasing a strata property, such as a condo or townhouse, the property insurance will usually be included in your strata fees. You will want to obtain your own insurance, which is usually very reasonable, otherwise your possessions will not be covered.

If the property you wish to purchase uses a well for the water supply, you will likely want, and it may be required by the lender, to have the water tested to ensure it's safety (see if it's potable), and to ensure that the water supply is adequate. You can negotiate these costs with the vendor and/or put them in your offer to purchase.

Unless you are obtaining a CMHC insured mortgage, the lender will likely require a survey. A survey is necessary to show that all buildings and other improvements, such as the home, garages, etc, are actually built within the property boundaries. If a lender is using the value of both your house and land to secure themoney that they are lending you, then need to be sure that you actually own the building. If the building is partially on the neighbors property, then you do not own that portion of the building, and the value of the entire building may be in question. If you are puchasing a brand new home, there should be a survey readily available and your realtor should be able to obtain a copy, saving you the expense of haveing a survey done. If the property is older, there still may be a survey in the possession of the seller, otherwise you may have to pay to have a survey done. If you afe purchasing a condo, then a survey will not be necessary. I can advise you as to whether or not you need a survey done, and i can have this done for you.

What is CMHC insurance? The Canada Mortgage and Housing Corporation helps Canadians purchase home more quickly by supplying lenders with insurance to cover them in the case of borrowers not being able to make their mortgage payments. So, CMHC insurance allows purchasers to borrow a higher percentage of the value of a property, so up to 95% or 100% instead of the 75% to 80% which is usually allowed without insurance. What this means to a borrower: you can buy a home sooner without having to save up such a large down payment, however, you will have to pay the CMHC Insurance Premium.

The premium will be a percentage of the mortgage amount (the amount that is being insured) and it will likely be in the 2% to 3% range. The premium will be added on to the amount tha you borrow, and will make your mortgage larger, and will be included in your payment. In most cases, you will not have to have the funds available for this premium.

Legal costs--A few days befor your completion date ( the date that you take ownership) you will sign all of the documents at your lawyer's office. Your lawyer has to pay to have several things done; register the property in your name and the mortgage against the property, and protect both you and the lender, from such things as other charges against the property. These costs that the lawyer must pay are called dibursements. You will have to pay the lawyer a fee for their time, plus reimburse them for the costs that they have incurred on your behalf. There will also be GST and PST on some of these amounts. If you are getting quotes from lawyers, makesure that your quotes are for the same thing:are they for both the lawyers fees and the disbursements; do they include both taxes? I can recommend an excellent lawyer with an excellent rate if you wish. After you leave the lawyer will register the title in your name, with the mortgage on your title as well, and the home will be yours. You will get to move in on the day negotiated on your contract. This can be the day you tak ownership, of it may be a few days leter, so ask me or check your contract.

The other large cost that you may incure is the provincial Property Transfer Tax. The Property Transfer Tax is a BC sales tax on property, but there are exemptions under certain circumstances if you are a First Time Homebuyer. To find out if you qualify as a First Time Homebuyer, of for more details visit: www.rev.gov.bc.ca/RPT/ and pick the Property Transfer Tax button.

If you purchase a brand new home you may also incur GST. In some cases GST will be included in the purchase price, and in other cases you will be responsible for the GST. Be sure that you know which situation applies, as the GST can be substantial. Check with me if you wish. Also, there may be situations where I can include the GST in your mortgage, so please check with me before you make an offer if this is something that you wish to consider. There are partial GST rebates if you will occupy your property. Ask me for more information.

It must be determined how much of the current year's property taxes will be paid by the seller, and how much will be paid by you (this will be settled at the lawyers office). The annual property taxes are due in early July. When a property is sold, the buyer and seller must each pay the property taxes fot the portion of the year that they owned the property. Therefore, if you take possession of you home before July, your lawyer will collect the seller's portion of the property taxes, and give them to you when you sign the documents. If you take possession of the home after July, the seller will already have paid the taxes for the entire year, and you will need to reimburse them for your portion. The lawyer will collect this amountfrom you when you sign the documents. If you purchase a home in September, you will have to reimburse the seller for four months, of one third, of the property taxes for that year.

Property taxes-the property taxes are due each July to the municipal Town Hall or City Hall for the municipality in which the property is located. Property taxes usually change from year to year, and the property that you are purchasing may only have the amount of last years taxes available, as the current years tax amount may not yet be available. The taxes for each year are usually available a few months before the July due date. Each municipality has different operating costs, and taxes can vary greatly. You could view two houses only a block from each other but located in different municipalities, but there could be a substantial difference between the amount of property taxes that must be paid each and every year so it is a good idea to compare the property taxes on different properties, when you are home shopping. If you plan to reside in the property and not rent it out, there is a Home Owners Grant available that will help lower your property taxes. Contact me for information on the value of the grant, and if you qualify for it, you can take the amount of the property taxes and deduct the grant from that amount. then simple divide the net amount by 12 and you can estimate the amount that you must put aside each month to cover the property taxes. Example: if you qualify for the grant, and the MLS lists taxes as $1500, and if the grant were $570, then $1500-$570=$930 which divided by 12 months is $77.50 per month. Keep in mind that taxes usually only go up so it may be wise to add 10% or more if you dont know the actual taxes for the current year.

Paying your annual property taxes: som lenders will insist on collecting this monthly amound form you(they will add it to your mortgage payment amount) and will pay it to the municipality, and others will require that you pay the taxes yourself. Please be aware that if the lender collects them with your payment, that due to the fact that this amount is anestimate, the lender may need to ask you to top up the junds that they have been collecting whenit is time for them to pay the municipality. In other words, if the taxes were $1500 last year and the lender collected $1500 from you in monthly payments again this year, if the taxes turn out to be higher when the municipality sends out the tax notices a few months before July, and say they are now $1700, you will need to top up your tax account by $200 so that the lender will have enough to pay your taxes for you. If you are concerned about this, it may be wise to reques the lender to collect more that they estimate the taxes to be, that way, they will have a refund to give you at tax time. Other lenders don't want the added administration costs of collecting your property taxes and will leave it up to you to save up and pay them. You may have two options: some municipalities will take a monthly amount out of your bank account automatically for you if you set it up with them-I can give you information about this. Otherwise, it may be wise to start a "tax account"ar your bank as soon as you purchase a home. calculate how much your taxes will be on a monthly basis and put that amount, plus an extra cushion amount if you like, into the account each month.(don't forget the Home Owner Grant) If you decide to add a good cushion amount and you end up not needing it, you can enjoy a dinner out to celebrate your fiscal responsibility as far as property taxes go. If you would like help in any way such as calculating the monthly amount, don't hesitate to call.

--If you are purchasing a condominium or townhouse, you will likely be responsible for monthly strata fees. The strata council (every owner of a condo or townhouse is a strata member. The council is made up of the members that have been voted in to form the council, and make descisions on the management of the building), will decide on the amount of fees needed to fun and manage the building, and the owners are each responsible to pay these monthly fees. The strata council is responsible to have emergency funds for such things as repairs to the building, but in some cases, owners are required to pay a lump sum when substantial amounts are needed for unexpected and large repairs. Make sure that you know what the strata fees cover;some may cover hot water, heat,or cable vision. The lender will likely wish to obtain copies of some strata documents to ensure that the building is in good repair, and that the strata council is doing a good job of caring for the building. It is a good idea for purchasers to protect themselves as well, and if you are making an offer on a condo or townhouse, I highly recommend taking a moment to phone a member of the strata council, and ask them about the condition of the building and property, and any potential problems they may be aware of. You can obtain the phone numbers of the strata council members from your realtor, who will be able to get them for you.

 --An estoppels certificate may be requested by the lender, and if not available, may cost you anywhere up to $100, to obtain one. Your mortgage broker can advise you on this.

--Mortgage insurance is optional and helps to protect you and your family by reducing the rick of you defaulting on your mortgage payments if you can't afford to make them due to a cause of illness or death. Mortgage insurance is usually a premium that you pay monthly, and you can usually shoose between illness, death, or both. Each insurance plan is different, and i can give you more information on this type of insurance.

 The Home Buyers Plan allows each person on title to withdraw up to $20,000 from their RRSP, to purchase a home, without triggering income tax on the withdrawal. There are rules regarding a HBP, so check with an accountant orvisit the government site at-     http://www.cra-arc.gc.ca/E/pub/tg/rc4135/README.html Some of the rules are: the funds must menain in an RRSP for 90 days before being withdrawn under the Home Buyers Plan. The funds must be withdrawn from an RRSP no more than 31 days after the purchase date.

If you participated in the Home Buyers Plan, you will need toreplace the funds that you withdrew, inorder to avoid paying taxes on these funds. You will be given a one year grace period before you have to begin putting the necessary funda back into your RRSP.After the one year period, each year you will need to contribute 1/15th of the amount you withdrew under the Home Buyers Plan. Therefore, if you withdrew $15,000 to purchase a home, you will have a one year grace period, and then you will need to put $1,000 a year, back into your RRSP. If you fall short of the necessary amount, you will be taxed on the shortfall.

Adjustments--Sometimes you will be required to reimburse the previous owner for services or utilities that they have prepaid, such as an oil tank full of oil. The lawyer will calculate this amount and require the funds when you sign the documents.

Hook up charges--Some companies such as phone, cable, or hydro companies, charge a fee too hook up your services. You can find out about these fees by calling each of the companies.

This information is provided as a free service to my clients. Verico Select Mortgage and Lynda Smith take absolutely no responsibility for errors or omissions. Each purchasers' situation is different, and as such, the costs and fees associated with purchasing a home, will be different in each case. This is only meant as a guide to help you identify some of the possible costs that you may incur.

Please feel free to contact me if I can be of any assistance to you. You are welcome to phone or email me with any questions or concerns that you have. I hope to assist you in making your home purchase as enjoyable as possible. Thank you for choosing Lynda Smith and Select Mortgage for your financing needs.

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