Closing Costs, Legal Fees and Other Future Costs

Closing Costs, Legal Fees and Other Future Costs

All real estate transactions cost money and most people focus on the down payment. You as the purchaser are responsible for paying these costs and fees.

In fact the lender and mortgage insurer normally have a condition that you must prove you have these funds available for your new home purchase. Some lenders require proof of up to 1.5% of the purchase price to prove you have the funds available to close the deal.

You must prove these funds are in your account before removing your financing conditions.

Every real estate deal has additional costs, The regular closing costs for a real estate transaction are listed below:

1) Legal fees: The cost of a good real estate lawyer will be estimated between $1200 and $1500. This is the average price of a good lawyer in Canada and should be the budget you prepare for.

2) Home Inspection fees: As described in previous chapters the cost for a home inspection will range between $400 to $600 plus travel costs.

3) Appraisal fees: As described they will range from $350 to $500 plus travel costs.

4) Title Insurance: We have not discussed this cost as in many cases it is included with the legal fees. Title insurance protects home owners in two areas. The first one, is to ensure the transaction closes on time. Using title insurance allows the lawyer to guarantee the title will transfer on the possession date with no issues. The second protection, allows the buyer to protect their equity in the property in case someone else attempts to commit a fraud against the property or you the owner. If this occurs the Title Insurance company will pay the legal fees to defend your rights in a court of law. Many lenders require this with every transaction.

5) IAD: Interest Adjustment Date costs: Sometimes you may take possession of a house on a day other than the 1st or 15th. The lender may push the start date or funding date forward to the 1st or 15th of the month. If paying weekly or biweekly you they may move this date to a Friday or Monday. If this happens you must pay the interest on the new mortgage for the few days’ difference. The lawyer will estimate the cost of this when informing you of the cash you need to bring into the closing meeting.

6) Property Tax Adjustment costs: Property taxes are normally due on June 30th of each year. This means that depending on your possession or funding date you may either owe the past owner cash for property taxes he has prepaid. Or the seller may owe you money for taxes he has yet to pay. Taxes are normally paid 6 months in advance and 6 months in arrears. The lawyer will normally figure this out for you and you will be informed of the costs before the closing meeting.

These are the normal closing costs in every transaction

Each transaction could have some expenses that are not accounted for but most transactions will have these costs and fees listed above.
The unexpected expenses are normally fall into the categories below:

1) Late closing expenses: Sometimes a transaction will not close on time for numerous reasons. Each day it takes to transfer the sellers cash to his account will cost you money. You will be the one that pays the bill.

2) Lender legal fees: In some cases the lender may charge their legal fees to your bill. This is not normally done but it can be done in some cases.

3) Extra Lawyer legal fees: Some lawyers will charge more for doing mortgages for some lenders due to more time involved in the transaction and more paperwork requirements. Lenders hate these extra charges from some lawyers but it does happen.

4) Disbursement fees: Lawyers have extra charges for transactions and these fees are added to the final fee they charge.

5) Special Assessments: Sometimes condos have special assessments for repairs on the building and these fees must be paid at closing as a requirement of the lender. This is not a normal expense but it has happened.

6) Provincial Land Transfer Taxes: Some provinces have special taxes assessed added to every transaction for people that have not lived in that province. Ontario and British Columbia have these assessments that normally range from 1 to 3% of the property value. These taxes are not allowed to be added to the mortgage so they must be paid in advance at the possession date.

The costs involved in a real estate transaction can add up so it is important to budget for them from the start. Having $2000 extra on hand is a very good budget number and as a mortgage broker I suggest this be your targeted budget for closing and legal fees.

Call ahead to get the estimated costs

It’s a great idea to contact your lawyer well ahead of the possession date to get an estimate of the closing or legal fees so you are prepared for these costs.

Posted in Lawyers & Legal Costs, Paperwork, Resources.

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