Closing Costs — Are You Prepared for them?

Closing costs are one of the things that most first time buyers are unaware of; they are the costs of purchasing that come from the lawyers and the government when you purchase a home. The government in many but not all locations has something called land transfer taxes. The tax is applied to the purchase of properties in Ontario, Manitoba and British Columbia. This tax does not include the cost of registering the mortgage on your title.

Land transfer taxes in Ontario look like this from $55,000 X 0.5% of total property value
from $55,000 to $250,000 X 1% of total property value, from $250,000 to $400,000 X 1.5% of total property value, from $400,000 up X 2% of total property value. The City of Toronto levies an additional LTT on Toronto real estate in addition to the provincial rate and the percentages are quite similar.

So now you’ve dealt with the tax portion of closing costs, what about the lawyer’s fees themselves, did you know that it pays to shop around for lawyers? Given they all must do the same thing for you the less money you pay the better. In Alberta fees change by city, in Northern communities you will pay more for a lawyer as they will be paying more for staffing. In Ft McMurray lawyer’s fees run from 1600 to 2000 dollars. In Edmonton things are a little more competitive and we see lawyer’s fees from 750 to 1200 dollars so it does pay to shop around.

CMHC says that you need to have 1.5% of your mortgage amount for closing costs; you can see that this number is very true in provinces that have land transfer costs. Your list of expenses will also include the registration of the mortgage, title insurance may also apply, disbursements which are the cost of faxing and copying the 4 sets of documents needed for each mortgage registration. These are all little things that add up very quickly and can come as a surprise especially for the first time home buyer.

In Alberta we are fortunate to not have any land transfer tax and the closing costs associated with purchasing are quite minimal. Some of our lenders allow us to measure closing costs at only .50% which is more realistic than the CMHC guideline of 1.5% for Alberta.

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