When making a real estate investment it is important to keep in mind the various costs that will be incurred when the deal closes. Below is a summary of closing costs that should be considered when budgeting for your purchase of real estate.
Property Purchase Tax: The British Columbia Provincial Government imposes a property purchase tax which must be paid before any property can be legally transferred to a new owner. The tax is as follows: 1% on the first $200,000 and 2% on the balance.
Property Inspection: When purchasing a property it is important to have an inspection done even if you feel that you know the property. This fee varies often depending on the size of the property. Typically you can expect to pay between $325 and $600.
Harmonized Sales Tax: If you purchase a newly constructed home, you may be subject to HST on the purchase price. An HST partial rebate on new housing will be provided to purchasers in an amount equal to 5% of the purchase price up to a maximum rebate of $20,000. I recommend you speak with a tax professional to learn more about the rebates available and the ramifications of all current tax laws.
Adjustment Costs: If the current owners have already paid the entire year’s property taxes and water rates to the municipality, you will have to reimburse them for your share of these expenses.
Appraisal Fee: When the lending institution requires an appraisal of the property before approving your loan, it may be you responsibility to pay the appraiser’s fee.
Survey Fee: The lending institution may also require a survey certificate. The survey is used to confirm the boundaries of the property and that all buildings are within those boundaries. If the current owner cannot provide a recent survey certificate, it will be your responsibility to pay the surveyor’s fee.
Mortgage Fees: Lenders often charge a variety of fees including application and administration fees. These fees may vary between institutions.
Mortgage Default Insurance: This type of insurance is required on all high ratio mortgage loans. This protects the lender in case you default on your payments and your mortgage debt exceeds the value of the property. The insurance premium is paid to the lender and ranges from ½% to 3% of the loan value. This premium is often added to the loan amount and paid over the term of the loan.
Downpayment for Mortgage: To avoid paying mortgage default insurance a standard downpayment is 20-25% depending on the lender.
Life and Disability Mortgage Insurance: This is an optional coverage that you may choose to purchase to ensure that your outstanding mortgage balance is paid if you die or become disabled.
Fire and Liability Insurance: The mortgage lender will insist that you purchase an insurance policy which guarantees that, in the event of a fire, the lender will receive the balance owing on the mortgage loan before you receive any insurance proceeds.
Legal Fees: The transfer of property ownership from seller to buyer must be recorded in the Land Title Office to protect the new owner’s interests. I advise the hiring of a lawyer or notary public to act on your behalf during the completion of purchase. The legal fees for this service will include payment of a registration fee. If you are financing your purchase with a new mortgage loan, there will be an additional charge.
Other Misc. Expenses: Utility hook ups (cable, phone, electricity, etc.) and moving costs.
