When you buy a new home, lenders like to see proof that you can cover the closing costs.
To satisfy this condition you typically have to demonstrate your ability to pay an additional 1.5% of the purchase price at closing, on top of your down payment.
But not everyone knows what closing costs entail. TD recently released an interesting survey that touches on this. It found that 13% of first-time buyers “overlooked some of the one-time fees associated with buying a home, such as inspection fees and land transfer costs, and 6% didn't budget for anything beyond the down payment and monthly mortgage payment.”
That’s partly a failing of the mortgage advisers counselling those borrowers.
“It’s incumbent on professionals to help first time buyers go through the process and point out some of the other expenses,” TD’s Director of Mortgage Advice Farhaneh Haque told us in an interview a few weeks back. And of course she’s right.
In all, the list of closing and move-in expenses can be over a dozen items long. To help homebuyers keep track of these costs, CMHC has an up-front expense checklist.
Here are a few things to consider:
If you don’t know what amounts to budget for, ask your mortgage planner to walk you through this list and fill in the blanks. That way you’ll have a set budget with no surprises on closing day.
One thing we’d add to CMHC’s list is provincial tax on mortgage insurance premiums (if you’re putting down less than 20% and live in Manitoba, Ontario or Quebec). That tax needs to be paid out of pocket on closing.
“It’s incumbent on professionals to help first time buyers go through the process and point out some of the other expenses,” TD’s Director of Mortgage Advice Farhaneh Haque told us in an interview a few weeks back. And of course she’s right.
In all, the list of closing and move-in expenses can be over a dozen items long. To help homebuyers keep track of these costs, CMHC has an up-front expense checklist.
Here are a few things to consider:
- HST/GST if the home is brand new or substantially renovated (sometimes this can be included in the mortgage to avoid the upfront cost)
- Appraisal, if required
- Home inspection if required by lender or opted for by purchaser
- Deposit - while this does come off your down payment you need to make sure you have it upfront before closing, most deposits are required at time of offer or subject removal
- Land registration
- Legal fees - these can vary depending on your area and whether you use a lawyer or notary
- Default insurance on your mortgage (CMHC fees) typically included in mortgage
- Property tax adjustment if buying in the second half of the year
- Property transfer tax if you're buying in BC and are not a first time home buyer
- Title insurance - required by some lenders
- Home insurance
- Moving costs - truck, boxes, movers, etc
- Applicances if the home you're buying is brand new and doesn't have them
If you don’t know what amounts to budget for, ask your mortgage planner to walk you through this list and fill in the blanks. That way you’ll have a set budget with no surprises on closing day.
One thing we’d add to CMHC’s list is provincial tax on mortgage insurance premiums (if you’re putting down less than 20% and live in Manitoba, Ontario or Quebec). That tax needs to be paid out of pocket on closing.
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