What Closing Costs Do Home Buyers Pay?

Posted by EdmontonRealEstate .ca on Monday, December 3rd, 2018 at 12:25pm.

8 Closing Costs Home Buyers Need to KnowIn addition to the purchase price of the home, inspection costs, mortgage fees, etc. there are costs associated with the final stages of the home purchase. Paying closing costs is one of the last steps home buyers have to take in order to complete the purchase of a home. With this information, buyers will know eight common closing costs they should expect during and at the end of the home buying process.

For informational purposes only. Always consult with a licensed mortgage professional before proceeding with any real estate transaction.

Home Inspection

Determining the condition of the home property is of chief importance to home buyers. No one wants to buy a home and later discover that there are many problems with the structure or other aspects of the property. A home inspection involves a professional assessment of the intended purchase, with a report that buyers can use. Although home inspections are not required, many home buyers put a clause for one in the purchase offer. This fee averages about $500, and must be paid at the time of service.

Property Valuation and Survey

Finding out the property's details and value are also useful tasks for the buyer and the lender. A property survey concerns an analysis of the property's boundary with neighbours, the location of outbuildings, easements, and encroachments. If a buyer is getting a mortgage, the lender will usually require a property valuation, or appraisal. This report determines the fair market value of the home, which may or may not match with the agreed-upon sale price. Lenders often set a condition that the appraisal be higher than the sale price, unless the buyer is willing to put down a larger down payment. The entity responsible for paying for the appraisal could be the lender or the buyer, depending on the lender's preferences.

Legal Fees

Home buyers typically need to engage the services of a real estate lawyer to provide them with advice, prepare documents, and inspect paperwork before a buyer signs it. These fees can vary depending on the region and the services offered, and may cost up to a couple thousand dollars in total. Buyers should request a detailed estimate of a lawyer's fees in advance, and find out if they will be expected to pay GST or HST in their province.

Title Insurance

If a seller has control of the title, generally that means that they own the property and can transfer that ownership to a buyer. However, this is not always the case. In some instances, there are prior claims on the title, perhaps due to an encroachment or unpaid contracting work done on the property. During the home buying process, liens on the title usually come up during a title search. Title insurance offers some financial support and reimbursement to the buyer and the lender if someone attempts to claim an interest in the property after the sale is done.

Prepaid Interest

Mortgage payments are typically billed one month in arrears. This means that if a payment is due on the first of the month, the payment will cover interest accrued during the previous month. When people close on a home purchase, they need to pay for any interest that will accrue between the closing date and the first billing period. This could range from a few days of insurance to almost a whole month, related to the closing date and billing date in question.

Property Taxes and Land Transfer Taxes

People have to pay property taxes on the home they buy. This payment is usually made once a year. As such, home buyers may have to pay a few months of property taxes at closing. Property taxes are not the same thing as a land transfer tax, which is a fee levied by the province and sometimes by the city as well. The amount of the land transfer tax is tied to the final purchase price for the property.

Home Insurance

Protecting the West Edmonton home against damage or loss from specific events is vital for the homeowner's investment and the lender's interest in the property. This is why homeowners insurance is often a stipulation in the closing agreement. Like property taxes, home insurance premiums may be paid only once a year. Home buyers could need to pay premiums in advance, as much as a year, depending on lender requirements.

When Can Buyers Get the Sellers to Pay Their Closing Costs?

Although buyers typically pay their own closing costs, there are some circumstances under which buyers can get sellers to pay the closing costs instead. Usually this happens in what is known as a buyer's market. A buyer's market is a market condition when there are few buyers and sellers must compete to with other homeowners in the area to sell their home. 

When a buyer is purchasing in a buyer's market, the buyer can easily ask for the seller to pay closing costs. Often sellers will pay for a portion of closing costs, and sometimes they will pay for all closing costs. Working with a real estate agent is the best way to ensure that the negotiations will be successful.  

Tax on Mortgage Insurance

Although many buyers are not obligated to make a 20 percent down payment, they might be responsible for a fee if they do not. High-ratio mortgages, or loans that have a down payment of less than 20 percent, may call for the buyer to pay for mortgage insurance. This insurance protects the lender's investment, if the buyer defaults on the payments. The cost of the insurance can be listed as a monthly premium or tacked onto the price of the loan. However, the taxes on the mortgage default insurance is typically due at closing.

Closing on a home involves a lot of fees, particularly related to the down payment and closing costs. By understanding what they have to pay, buyers can plan to cover all expenses related to buying a home.

For informational purposes only. Always consult with a licensed mortgage professional before proceeding with any real estate transaction.

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