Closing costs
What are these mysterious closing costs for which I’m being asked to have additional funds?
For a purchase, all lenders require that you as a borrower have sufficient funds on hand for closing costs. The requirement amounts to an additional 1.5% of the purchase price. As a result, with this added cost, it means that the minimum cash reserves to buy a house are not 5%, but rather 6.5%. Like the down payment, the closing costs can come from savings or can be a gift. Please note that if the funds are being gifted, there donor will need to sign a letter that they do not expect to be repaid. These funds go to pay for things like:
- Appraisal
- Moving
- Home inspection
- Legal fees
- Adjustments
- Land transfer tax (first $4000.00 waived for first time home buyers)
Adjustments
Please note that your solicitor will inform you of the last 3. All of the items on the above list are pretty much self-explanatory except for adjustments. Adjustments refer to anything the seller has prepaid from which you’ll gain future use. Some sample adjustments might be:
- Property taxes
- Propane (if there is propane)
- Hot water heater rental (if there is a rented hot water heater)
- Road fees (if the property is on a private road)
Be aware that your lawyer will prorate the adjustments so that both the seller and you as a buyer pay for the proportion of the year for which each owns the property.
Finally, you should note that lenders that offer cash-back mortgages will not consider the cashback as part of the down payment or closing costs. 🙁
If you would like to set up a savings plan to get into a position to purchase a new home, please do not hesitate to contact me at: 249-353-3278 or at bturner@nextdayapprovals.ca. Alternatively, you can download my app to see closing costs in detail!