Mortgage Blog

What are Closing Costs?

July 3, 2018 | Posted by: Brandi Pierik and Matthew Pierik - Red Deer and Calgary Mortgage Brokers

Everything you need to know about possible costs in the home buying process

What Are Closing Costs?

Closing costs include all legal and administrative expenses you’ll be responsible for paying on, or leading up to, your home’s closing date. It’s important to include these costs in your budget because, in most cases, they can’t be rolled into your mortgage payments.

Closing costs range depending on the specific property you plan to purchase but, as a safe bet, set aside 5% of the purchase price as a buffer to cover these expenses. They typically amount to anywhere from 1-4% of the actual home’s price, but it’s always wise to err on the side of caution by saving more money than you need. Any surplus can be used to help furnish and decorate your new home.

Following is a list of the most common closing costs to help you calculate your true costs and prepare for your Red Deer home puchase:

Property & Mortgage Registration Fees – These are provincial fees charged whenever a property is purchased and you require a mortgage. Here’s how these two fees are calculated: Property registration fee – $50, plus $1 for every $5,000 of property value (rounded up to the nearest $5,000); and Mortgage registration fee – $50, plus $1 for every $5,000 of your mortgage amount (rounded up to the nearest $5,000).

GST – Tax is only charged on new homes. But, if the home you’re purchasing is less than $450,000 and will be your primary residence, you may be eligible for a partial rebate. Certain conditions may apply. Contact your lawyer/notary for more detailed information.

New Home Warranty – This is mandatory if you’re building a new home in Alberta. Minimum coverage includes: one year for labour and materials; two years for delivery and distribution systems; five years for building envelope protection; and 10 years for major structural components. The average cost is $2,000-$2,500.

Appraisal Fee – An appraisal is an unbiased estimate on the value of your home. It certifies the property’s resale value to the lender in case you default on your mortgage. The cost is typically $300-$500.

Legal Fees & Disbursements – Your lawyer/notary will charge you a fee for drawing up the mortgage and conveyance of title. The amount of the fee will depend on the individual that you use. The typical cost is $800-$1,000.

Survey – If you’re purchasing a single-family home, you’ll need to provide your lender with a survey certificate showing where the property sits within the property lines. Some exceptions are made, however, on low loan-to-value deals and acreage properties. A survey will cost approximately $750-$1,000, but the lender will often accept a copy of an existing survey. Closing Costs Interest Adjustments – You’ll need to pay interest on any gap between the closing date of the purchase and the first payment date of the mortgage. You can avoid an interest adjustment by scheduling your first mortgage payment exactly one payment period after your closing date.

Statement of Adjustments – Your lawyer/notary will calculate and prepare a statement of adjustments for your portion owing on utilities, property taxes and other bills based on where your closing date falls within the month/payment cycle. As some owners prepay these services, the adjustment could be quite costly.

Title Insurance – Most lenders require title insurance to protect against losses in the event of a property ownership dispute. This is purchased through your lawyer/notary and costs approximately $200-300.

Home Inspection – A home inspection is a wise investment, as a professional will offer an objective visual examination of the physical structure and systems within a house. Cost range is $350-500.

I can help you determine the closing costs you’ll have to pay based on your specific property.

Do you have questions about closing costs and calculations, or your Red Deer mortgage in general? Answers are a call or email away!

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