Don't forget about the Closing Costs!

Mortgagenomics Canada

Imagine running a marathon and you are 50 strides away from completing the race. But suddenly, a race official appears out of nowhere and moves the finish line another 500 meters ahead. This is what closing costs verification feels like...the applicant has just recently (painstakingly) satisfied the down payment verification and is now presented with another task of proving that they have enough cash to pay for the legal fees, property transfer taxes, moving truck and other peripheral costs associated with the purchase of a home. At the end of the day, it's not that big of a deal, but it is definitely worth addressing and making the buyer aware very early on in the buying process so as to avoid any unnecessary drama and tension.

3 key points about Closing Cost Verification:

• lenders typically calculate the Closing Cost as 1.5% of the purchase price and in provinces like BC and Ontario where Property Transfer Taxes are significant, the request for it during the mortgage process simply reiterates the inevitability of it. In the past it was a cost that was conveniently forgotten about all the way until the closing date, but now it (mainly) lies with your mortgage provider to act as the informer/messenger
• as purchase scenarios come in all sizes, lenders often modify or revise their closing cost calculation to reflect more realistic figures in relation to their respective regions and underlying taxation obligations. For example, BC has Property Transfer Tax, Alberta does not. Therefore, the closing cost requirement in BC will be higher than in Alberta.
• when it comes to verifying closing costs, a 90 day history is not required. And provided you have ample room in your debt servicing ratios, you could also factor in the costs as credit card debt (CAUTION: some lenders do not allow for this)

There are 8 Closing Costs to be aware of:

1. Property Appraisal ($300 and above) Often times your mortgage broker or lender may provide a partial or full reimbursement for this cost. Appraisals are typically required for applications that have down payments of 20% or greater (conventional/uninsured mortgages).
2. Home Inspection ($300 and above) Banks/lenders never require a Home Inspection as a condition of the mortgage itself, but they do factor the cost of one in their overall closing cost estimate. This is simply at the buyers discretion if they desire one, or not.
3. Title Insurance ($400 and above) typically included in the overall legal fee, but sometimes lenders pass on the cost to the buyer. More and more lenders are requiring that mortgages close with title insurance.
4. Mortgage Life Insurance ($10 and above) this is optional and premiums can vary significantly due to age and pre-existing conditions of the applicants. As is the case with a Home Inspection, Mortgage Life Insurance is not required from the lender, it is an option.
5. Property Insurance ($500 and above) fire insurance is the most common property insurance that is required by the lender. Some lenders may also require earthquake insurance.
6. Land Transfer Taxes (formula based) Click Here to be redirected to BC's Property Transfer Tax guidelines. In BC, this is by far the largest closing cost to be aware of (1% of the first $200,000 and 2% of the balance up to $2M...then it jacks up to 3%).
7. Legal Costs ($800 and above) BC allows for the services of a Solicitor/Lawyer or a Notary to close out a real estate purchase transaction. Generally speaking, you can expect a slightly lower fee with Notaries than with Lawyers. But be aware, that doesn't mean Notaries are authorized to perform the same tasks as a lawyer.
8. Moving Costs ($500 and above) This cost could vary depending on the scope of your move.

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