May 7, 2022

Buying a Home: Have you Calculated the Closing Costs?

If you are planning to buy a home, remember to set aside a buffer to cover all the costs that need to be paid after the transaction. Closing costs must be paid immediately or within weeks of your visit to the notary.

What are closing costs and how much money do you need to set aside to pay them? Here’s what you need to know about these expenses related to the purchase of a property.

Closing costs paid by the buyer:

1. Inspection. The pre-purchase inspection is an important step to protect yourself against hidden defects and other unpleasant surprises.

2. Real estate transfer tax. This is commonly known as the “welcome tax.” The amount to be paid varies according to the value of the property. This is separated into brackets and the applicable rate increases as you move to a higher bracket. The welcome tax is collected everywhere in Quebec, but the calculation grid is different in Montreal.

3. Sales taxes. The GST and QST must be paid by the buyer of a new house. If you buy your property on the resale market, you do not have to pay these taxes.

4. Notaries. The notary takes care of creating the mortgage and transferring the property title.

5. Title insurance. This type of coverage may be required by your lender. Title insurance can save you a lot of trouble if, for example, there is an error in the location certificate or if your property encroaches on your neighbour’s.

6. Mortgage loan insurance. If your down payment is less than 20%, you will need to purchase mortgage loan insurance from the Canada Mortgage and Housing Corporation (CMHC). This can be included in your mortgage payments.


Closing costs paid by the seller:

1. Location Certificate. This document is essential to confirm the boundaries of the property and the location of buildings. A location certificate one is mandatory to obtain a mortgage loan. It is the seller who is required to provide it to the buyer and their notary.

2. Penalties for paying off the mortgage prematurely. If a homeowner sells their property before their mortgage matures, they will have to pay a penalty to the lending financial institution.

3. Real Estate Broker. Real estate brokerage fees incurred in the sale of a home are the responsibility of the seller who has teamed up with a real estate broker. Even if the buyer has also retained the services of a real estate broker, they do not have to pay anything for the brokerage fees.

4. Mortgage release fee. To release the mortgage, the notary must remove it from the land register.


Other rectifications to expect

The sale date is the 12th, but you paid the water heater rental until the 26th? The sale occurred just after the municipal tax payment date? The sellers will continue to live in the house for a month after the property is transferred?

These are common scenarios when buying a home. Your notary will make the precise calculations so that everything is in order at the time of the transaction. What does this mean for you? Expect some changes to the sales price to ensure that everyone is satisfied.

How much?

How much money do you need to set aside to cover all closing costs? If you’re a buyer, expect to pay about 3% of the property’s value.

To get a clearer picture of closing costs and avoid surprises, team up with a real estate broker. They’ll give you the straight goods.

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