When you are considering buying a house, you will need to have additional funds set aside for closing costs. These costs can add up to a substantial amount.

The following is a list of the most common costs, with an indication of prices. Costs vary greatly across the country, so check with your mortgage broker to learn what the costs will be in the area where you are intending to purchase.

APPLIANCES     $0 to $ thousands
APPRAISAL      $150 - $250
BUILDING INSPECTION     $300
GST   (Goods & Services Tax)  $0 to $ thousands
HOUSE INSURANCE     $150 - $650
LAND TRANSFER TAX     $0 to $ thousands
LEGAL FEES     $350 - $2,500
MORTGAGE BROKER FEES     $0 to $ thousands
MOVING EXPENSES     $200 - $ thousands
PROPERTY TAX ADJUSTMENT $0 to $ thousands
PROPERTY TRANSFER TAX     $0 to $ thousands
REALTOR FEES     $0 to $ thousands
RENOVATIONS     $0 to $ thousands
SURVEY CERTIFICATE     $250 - $750
TITLE INSURANCE     $200
UTILITY CONNECTIONS     $150 - $250

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APPRAISAL      $150 - $250

Lending institutions usually require an appraisal to be done to confirm the property value, and to make sure that it is the kind of property they will mortgage - for example, some lenders will not finance hobby farms or heritage designated homes.

It is not part of the appraiser's function to look for structural problems. For that task, you need a building inspection.

The appraiser will consider the size of the property (both land and buildings), the location of the property and the condition of the main house to determine a 'replacement value'. She or he will then compare the property with a few recent sales of similar properties in the same area.

The appraiser will arrive at a dollar figure that, in his or her professional opinion is a fair market value for the property. It is not unusual for the value to be the same as the purchase price of the property.

If the appraised value is higher than your purchase price, you know you have made a good buy.

Problems can occur if the appraised value is lower than the purchase price and you are making the minimum possible downpayment. In most cases, the lending institution is obligated to lend mortgage money based on the lower of the purchase price or the appraised value.

When the appraisal is below your purchase price, you have 4 choices:

• renegotiate your purchase price,
• collapse the deal,
• come up with the difference between the appraised value and the purchase price - over and above the equity you already have, or
• pay for another appraisal to be done by another firm. Sometimes different firms will arrive at different prices, but this is a gamble.

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ASSESSED VALUE

Local property taxes (which pay for items such as municipal services e.g. police, fire and ambulance departments, sewers, sidewalks etc.) are calculated based on the assessed value of your property. Appraisers working for the local tax authority will give each property an estimated value based on its approximate size and location.

These values are rarely accurate when it comes to fair market value, but are sometimes used by the lender (instead of a full appraisal) when the loan amount is low compared to the purchase price.

It should be noted that not all provinces / local governments use this system for determining property taxes.

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BUILDING INSPECTION     $300

A building inspection (also called a home inspection) will identify problems with a house. For example, is the roof leaking or needing replacement? Do the beams have woodrot? Is the foundation sinking? An inspection does not give any indication of property value.

The building inspector will usually give you a list of necessary repairs and sometimes an approximate cost for each.

You should make your purchase agreement subject to a satisfactory building inspection.
What if there is a problem? Your realtor with you. There are various solutions, depending on the problem.

• You could decide the problem is minor and accept the property as is.
• You could try to negotiate a reduction in purchase price.
• The vendor could fix the problem to your satisfaction.
• If any major structural faults are found, or if the combined total of minor problems is in excess of an agreed amount, you can refuse to remove the 'subject to...', walk away from the deal and have your deposit refunded.

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GST   (Goods & Services Tax)     $0 to $ thousands

7% GST is charged on most types of services involved in the real estate transaction. Some examples include: legal fees, Realtor commissions, appraisals, and surveys.

GST is NOT charged on the purchase price when you are buying a previously occupied residence. This includes a house, apartment, vacation property or non-commercial hobby farm.

GST IS charged when you are buying (or building) a newly constructed residence (house, apartment etc.). The entire amount including land value is subject to the tax. If the residence is to be owner-occupied then you may qualify for a GST rebate of approximately 36% of the GST charged, depending upon the completed value of the property.
GST is sometimes charged on the purchase of a lot.

Check with your lawyer to learn the current rules regarding 'new construction and the GST'.

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HOUSE INSURANCE     $150 - $650

House insurance covers the replacement value of the building(s), premiums will vary depending on the value. Lenders insist on house insurance because the property is their security for the loan. Your lawyer will need confirmation that insurance has been arranged.

Should your house burn down, the insurance company is required to pay the lender first. You will still own the lot and will then have to re-negotiate with the lending institution to borrow to build a new house.

If you rent all or part of your house, be sure to declare this to your insurance company to avoid any future problems arising from insufficient or invalid coverage.

Discuss with your insurance broker other aspects of house insurance such as: contents, liability, and business coverage if you intend to run a home business.

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LAND TRANSFER TAX / PROPERTY TRANSFER TAX
$0 to $ thousands

The name varies from province to province.

This is a tax charged by the province when ownership of property is changed. It is normally paid by the purchaser when property is bought.
You should check with your lawyer whenever you are considering any changes to title of real estate property (including adding spouses or children). It is better to understand all the ramifications prior to making any changes.

Below are details for Ontario (Land Transfer Tax) and British Columbia (Property Transfer Tax). Check with your mortgage broker or lawyer for up-to-date details and for similar taxes in other provinces.

In ONTARIO the Land Transfer Tax (LTT) is charged as follows:

•  0.5%  on amounts up to and including $55,000
  
• +1.0%  on the amount exceeding $55,000 up to and including $250,000
  
• +1.5%  on amounts above $250,000 up to and including $400,000
  
• +2.0%  on the amount in excess of $400,000
  

 55,000 X 0.5% =   $275.00
195,000 X 1.0% = $1,950.00
Adding these two amounts together = $2,225.00

FIRST-TIME BUYERS   -   The main points are listed below but please contact your lawyer for more details.

• You cannot have received an OHOSP based refund of the Land Transfer Tax.
  
• First-time buyers who purchase a newly constructed house prior to March 31, 2000 will receive a rebate of the Land Transfer Tax.
  
• Buyers with an agreement to purchase a house with a possession date before December 31, 2000 qualify for the rebate. The land transfer must be registered before December 31, 2001.
  
• The maximum rebate is $1,725 - this is equivalent to the Land Transfer Tax on a $200,000 house.
  
• You do not qualify for the rebate if you, or your spouse, have previously owned a house or an interest in a house.
  

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In BRITISH COLUMBIA the Property Transfer Tax (PTT) is as follows:

•    1.0%  on amounts up to and including $200,000
  
•    2.0%  on the amount exceeding $200,000
  

200,000 X 1.0% = $2,000.00
  50,000 X 2.0% = $1,000.00
Adding these two amounts together = $3,000.00

• The purchaser must be a Canadian citizen, or a Landed Immigrant.
  
• The purchaser must have resided in the province of British Columbia for at least 1 year prior to the registration of the purchase.
  
• It must be the purchase of a principal residence, and the purchaser must occupy it within 92 days of registration of the transfer of title.
  
• The purchaser must not have previously owned an interest in a principal residence, at any time, anywhere in the world.
  
• The mortgage amount borrowed to finance the purchase must be 70% or more of the property value. The amount financed must be registered against the title.
  
• The amount borrowed must have a term of at least 1 year. If you wish to have a term of less than 1 year you will have to pay the Property Transfer Tax, but will then be able to apply for a refund at the end of the year.
  
• The fair market value of the property must not exceed $275,000 within the Capital Regional District (Victoria), Greater Vancouver area, Fraser Valley, Dewdney-Allouette and Fraser Cheam. In all other areas in B.C., the property value must not exceed $225,000.
  

• If two people will each own a 50% interest in the property, and both qualify for the first time buyers plan, they will not pay any Property Transfer Tax.
  
• If two people will each own a 50% interest in the property, but only one person qualifies for the first time buyers plan, the other will owe half of the Property Transfer Tax.
  
• If the first-time home owner will own a 90% interest in the property, and the non-qualifying person will own a 10% interest, then an amount equal to 10% of the Property Transfer Tax will have to be paid.
  

REDUCTION OF PRINCIPAL IN THE FIRST YEAR

• In the Capital Regional District (Victoria), Greater Vancouver area, Fraser Valley, Dewdney-Allouette and Fraser Cheam, the principal amount of the mortgage cannot be paid down by more than $11,000 in the first year.
  
• Outside these areas, the mortgage principal cannot be paid down by more than $9,000 in the first year.
  
  OR
  
  
• No matter the area, the mortgage principal may not be reduced below 70% of the purchase price in the first year. This includes the principal portion of your normal payments, plus any lump sum payments.
  

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LEGAL FEES     $350 - $2,500

The lending institutions require you to have a lawyer or notary prepare and register the mortgage contract. You can usually choose your own lawyer and as the fees can vary it is wise to shop around.

Some lenders will insist on you paying for two separate lawyers - one to represent the lender and one to represent your interests. When only one lawyer is used by both parties he or she will not represent either party should a dispute arise.

You may wish to have your lawyer review your purchase agreement as a condition of your offer. It is recommended that a lawyer be involved with the negotiations from the beginning if you are purchasing privately (without a Realtor), or if the property is under foreclosure.

Prior to completion date, lawyer will set up a meeting with you to explain the mortgage documents and witness your signature. He or she will also give you a statement of adjustments and disbursements detailing the various amounts of money you have to pay to complete the transaction.

Avoid 'deals' arranged by lenders where only your signature is witnessed and you are not represented by a lawyer. You may save a couple of hundred dollars, but the legal representation is worth it when you are borrowing so much money!

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MORTGAGE BROKER FEES     $0 to $ thousands

For the vast majority of mortgage applications, mortgage brokers do not charge the client any fees. Brokers are paid by the lending institution.

The fees paid by the lending institutions are very similar, so the main reason for your broker to place your mortgage with one lender over another is to get you a better rate or a better product.

Ask your broker to show you the different mortgage interest rates and explain why she or he thinks the product offered by one institution is better than another.

In some cases, brokers charge fees. Fees are charged for various reasons when the financing is through private lenders, and when commercial property is purchased. Fees may also be charged in other circumstances. In all cases, your broker will tell you up front if there will be a fee. You will be informed in writing of the amount of the fee.

If, for any reason, you are unhappy with the service a broker provides, you may change brokers. The original broker should be 'fired' in writing and a copy of that letter provided to the new broker. You must check to see if the broker has incurred any charges on your behalf, as you will have to reimburse these costs.
Many lenders will not deal with a new broker if the original broker has submitted an application or pre-approval to them.

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MOVING EXPENSES     $200 - $ thousands

These costs vary greatly, depending on how much furniture you have to move - and how far you are moving. For example, the cost of a few friends helping someone to move a bachelor apartment will be much less than moving the contents of a four bedroom house across the country.

If you are going to hire a professional moving company to do the work for you, you should definitely shop around as rates vary significantly. You may also want to consider the savings of packing everything yourself versus having the moving company do this for you.

Don't forget to take into account the cost of insuring your possessions against moving accidents.

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PROPERTY TAX ADJUSTMENT     $0 to $ thousands

No matter what time of year you are buying your house, there will be an adjustment of property taxes. In some cases you will owe the vendor - in other cases the vendor will owe you. Property taxes pay for your local services such as fire, police & roads (see assessed value).

Property taxes are calculated for the calendar year (January to December). In some municipalities these are paid once a year - in early July. In other areas, such as Vancouver, they are paid twice a year - January and July. In some parts of the country, taxes are collected quarterly or even monthly!

Your lawyer will find out how much the property taxes are for the new residence and will calculate how much the vendor owes and how much the purchaser will owe. This depends upon the adjustment date on the purchase agreement.

For example:

• You are buying in Victoria
• your taxes are $1,825 per year
• taxes are due July 4th
• your adjustment date is September 30th

Your lawyer will divide $1,825 by 365 (days in the year) then multiply by the remaining number of days in the year, in this case 92 days.

$1,825 / 365 x 92 = $460

In this case you will owe the vendor $460.00

In some cases the vendor will owe you money!

For example:

• You are buying in Victoria
• your taxes are $1,825 per year
• taxes are due July 4th
• your adjustment date is February 28th

Your lawyer will divide $1,825 by 365 (days in the year) then multiply by the amount of time from January 1st until your adjustment date, in this case 59 days.

$1,825 / 365 x 59 = $295

In this case the vendor will owe you the amount of $295.00 - however, when July 4th comes around you will have to pay the whole annual tax bill of $1,825.00

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REALTOR FEES     $0 to $ thousands

The vendor (the person selling the house) usually pays these fees.

The amount of the fees must be taken into account if you are selling one property and buying another. The amount of the fees will reduce the amount of money you have available after the sale is completed. Realtor fees are subject to the GST.

RENOVATIONS     $0 to $ thousands

Don't forget to allow funds for any repairs you may want (or need) to make.

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SURVEY     $250 - $750

A legal survey is frequently required by the lending institution. The survey shows the exact legal boundaries of your property and the exact location of all buildings, rights of way, and any other encroachments.

Examples of a right of way are the Hydro power lines. The Hydro authorities have the legal right to their power lines and towers, and the right to access your property to maintain these structures.

An example of an encroachment is when part of a neighbour's building extends over another's property boundary.

The reason a lender requires a survey is to make sure that your building does not illegally encroach another's property. If this is the case, the neighbour could insist on the removal (destruction) of the offending building!

Frequently the vendor will have a copy of the survey certificate and gives or sells it to you, with a declaration to the lawyer that there are no changes. In such cases, new surveys may not be needed.

One recent development is the introduction of title insurance. This is a way of avoiding the need for a survey. However, you are not protected by this title insurance. If you are encroaching a neighbour's land you could still lose part of your property. Title insurance protects lenders and lawyers.

UTILITY CONNECTIONS     $150 - $250

Last, but not least, don't forget the additional costs that all our wonderful utility companies charge us to connect to their services!

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