As a mortgage consultant I am often I am asked, "What are closing costs?" Most lenders will ask that you have at least a 5% down payment in order to qualify for a mortgage . They will also ask you to have 1.5% of the purchase price for closing costs. Many people do not realize how much these costs can be. Lawyer's fees in the province of Alberta are on average $700. plus dispersements. My clients expect this but they are not always prepared for some of the other expenses. This is why I always tell them that they need at least 1.5%. If the seller has paid the municipal taxes and you move into the home on the 2nd of the month they might be re-imbursed for outstanding months but as were in possession of the home on the 1st most towns or ciities expect them to pay the taxes for the month. At the lawyer's office the purchaser is expected to give the seller 28/30ths of the month's taxes as they will be occupying the home for 28 of the 30 days of the month. If the house is heated with oil, the tank will have to be measured and the amount of oil left in it taken into consideration when paying off the sellers.
Depending on the municipality or province you live in you can pay some hefty connection fees for telephone,cable, electricity, and gas. In addition some towns are now charging a municipal levy. In Quebec this is called the "Welcome Tax". In Calgary, Alberta, the city government is considering charging $1500. to help pay for infrastructure to new home buyers. This is quite contriversial .
Some provinces charge a Land Transfer Tax. Alberta doesn't but I have included it in the calculations. Home Inspections and appraisials cost hundreds of dollars and are necessary to protect your investment.
Next time you are speaking with a mortgage professional be sure to ask how much they recommend for closing costs for your area. Don't be caught at the lawyer's office on closing day with insufficient funds. Believe me, you don't need the added stress. If you are prepared, closing day can be a very pleasureable experience. After all, You've got a new home!
EXAMPLE "CLOSING COSTS" Lawyer's Fees (Local) $1,000
Land Transfer Tax (Provincial)
$2,000 Registration Fees (Provincial)
$200 Default Insurance (Federal) $3,000*
Compliance Letter (Local) $100
Tax Certificate (Local)
$25 New Home Warranty Program premiums (Provincial) $1,000
Miscellaneous Municipal Levies (Local) $250
Mortgage Appraisal and Application Fees (Local) $200
Home Inspection (Local) $300
Land Survey (Local) $750
Connection Charges (Local) $200
Property Tax/ Prepaid Utilities Adjustments (Local) $1,500
Interest Adjustment (Local) $1,000**
______ TOTAL POSSIBLE COSTS $11,700 ADJUSTED FOR * ITEMS $7,700
*May be financed.
**May be offset by Lender.
David Cooke is a senior mortgage consultant in Calgary, Alberta. He writes articles on credit and mortgages for local and online publications in his spare time. You can learn more about mortgages in Alberta by visiting his website at http://mortgagealliance.ca/davidcooke
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