Closing day is an important milestone in the home buyer's journey. It represents the point at which the final exchange of money and keys takes place as well as the time at which you sign on the dotted line, marking the mortgage complete.
When approaching closing day it may seem as though you are ready to finalize your home purchase, however closing day can be a day full of unpleasant surprises if you are not totally prepared. In this blog we will go through common cases of how things can go wrong on closing day and how you can ensure you are prepared to close the deal on your mortgage.
Closing costs are an extremely important factor to consider as they are the legal and administrative costs associated with your purchase that you will need to pay when your house closes.
A deposit (that counts towards your down payment) is very often required when making an offer to purchase. The purpose of a deposit is to demonstrate to a seller that you are in fact serious about purchasing their property. If financing does not go through and the sale falls apart, the deposit gives the seller some security/compensation for the time spent on the sale.
The size of the deposit is based on the negotiations at the time of purchase but as a rule, rises when the house purchase price rises.
It is very common for a buyer to contract a home inspection as a condition of the purchase offer as it will reveal any unforeseen factors relating to the functionality of the house. Home inspections cost roughly $500 but can cost more depending on the complexity of the circumstances.
Assuming your home purchase was with less than a 20% down payment, you will be required to buy CMHC insurance as a part of your mortgage. Mortgage default insurance, also known as CMHC insurance protects lenders in the event a borrower stops making payments and/or defaults on their mortgage loan entirely. CMHC insurance is added to your total mortgage and is not a direct cash expense however PST on the CMHC insurance must be paid at the time of close where applicable.
Title insurance is intended to protect lenders against losses during the event of a property ownership dispute and are mandatory closing costs. Ranging from about $200 - $300, title insurance can be purchased through your lawyer/notary.
Land Transfer Tax is a provincial tax that is required for all home purchases in Canada and is calculated as a percentage of the purchase price of your home. The exact percentage that is required for Land Transfer Tax differs depending on the province.
Expect to incur fees from your lawyer for preparing and recording all the official documentation. A good estimate for these costs is around $600 plus sales tax
The purpose of property insurance is to protect the borrower in case anything happens to the house they recently purchased whereas CMHC insurance is insuring the lender if for any reason the borrower is unable to make their mortgage payments. In order for the closing to take place, the borrower is required to purchase property insurance.
Property tax is calculated based on a percentage of your home value depending on the municipality, and sometimes (Ontario) must be paid provincially as well. If the tax has already been paid by the previous owner, you may need to reimburse them for that value.
In order to avoid unnecessary issues with closing please do not make any large purchases or engage in any activity that could change your financial situation. Please work closely with your mortgage provider as well as your lawyer to ensure all documentation is completed on time. If you have any questions related to your mortgage please do not hesitate to call Blink Mortgage.
When discussing closing costs it is important to keep in mind that each purchase is different and will have different attributed closing costs based on the specific situation. When you work with Blink Mortgage we provide reports tailored specifically for your situation that show all your categorized closing costs along with all the rates you can qualify for. In order to receive said report, fill out an application through our easy to use web portal.