What Are Closing Costs?
You’re almost at the finish line. You’ve found the home of your dreams. You’ve settled on an offer that you are happy to make, and your financing has come through for your new home. Happy days!
But the last step is the closing, an all-important part of every real estate transaction in Calgary. This is also known as the settlement and marks the final step in the real estate deal you just made. Officially, it’s the passing of the deed, the keys from the seller to the buyer, and it’s the official beginning of your ownership of the new property.
But now you have all these papers in front of you that you have to sign. And you have to fork over a big wad of your money as a down payment as well the closing costs. Closing costs? You didn’t know about those! It can get a little overwhelming.
And do you even know what closing costs are for? You have all these fees and associated costs for the buyer that many, if they were honest, still don’t understand why they pay. Don’t be that buyer. Get to know where your money is going and what these closing costs actually mean, both for the mortgage as well as for the government. Here are some common fees you should expect to see at the closing.
Appraisal: You may have already paid this fee at the loan application or when you were pre-approved. This pays for the official appraisal of the property.
Credit Report Fee: Your lender requested your credit report, and this fee covers that cost. Again, this might have already been covered at your initial pre-approval lender payment.
Loan Origination Fee: There is an associated cost for processing the loan. You’ll usually find this is calculated at 0.5-3% of the total mortgage amount, depending on the amount borrowed. This could actually be subtracted from the loan amount instead of a lump sum payment.
Estoppel Certificate: If you’ve purchased a condominium, this is a record of the company’s financial status that assures you’re buying into a safe unit and building.
Title Insurance Fees: Every part of the title, including the search, examination, insurance, document prep and other associated fees incurs this payment.
Mortgage Insurance Premium and Provincial Sales Tax: If your down payment is less than 20% of the purchase price, most lenders will apply an insurance premium. The Provincial Sales Tax must be paid at closing, if applicable. Alberta, thankfully, is exempt from the PST charge other provinces will include.
Interest Adjustments: Depending on your closing date this fee varies. The lender asks for this fee to cover the interest accrued from the purchase date to the first mortgage repayment.
Escrow Account Fees: If you are using an escrow service to act as an intermediary, the lender will create a fund for the next year's’ property taxes and home insurance costs. This will also include one year + 2 months of the homeowner’s insurance premium as well.
Land Registry Tax: This one-time tax, or “Welcome Tax” varies from province to province. In Alberta, this equates to $50 and $1 for every $5000 of the mortgage amount. So, mortgage of $200,000 would incur a tax of $90 ($50 +(200,000/5000)).
If you want further explanation of your personal closing cost fees, talk to us. Our experts at The Chamberlain Group have extensive experience with Calgary closing costs and provincial fee structures. Did you know that you could negotiate some of those fees into your offer? Work with us to get the best closing deal you can before you set foot in your new home.