Buying a new home can bring with it a number of expenses, whatever house or condo prices are like in your market. There’s the deposit you’ve saved if you’re a first-time buyer, the staging you’ve done in order to sell the place you already own and possibly a home inspection all before you’ve even signed on the dotted line for your mortgage.
There’s 1 expense that can often come as a surprise, and that’s should consider budgeting, and whether there are any other surprise costs to watch out for before you move into your new place.
Remember: If you don’t pay your costs at the time of closing, the deal won’t go through, so it’s important to have this money readily available well before the big day. If you’re in a buyer’s market, you may be able to negotiate to have the seller cover your closing costs, so it’s always worth asking.
What are closing costs?
This is a blanket term for a bucket of expenses that usually happen just before you “close” your house or condo purchase, the moment when you finally get the keys and take legal possession of your new home.
Your closing costs could include:
Legal fees
When you buy a home, you’ll likely need to pay a real estate lawyer to draft the title deed, do a title search, complete paperwork related to a mortgage if you’re getting one, and other administrative costs like having documents couriered.
Estimated cost: A minimum of $500 to $1,500.
Land transfer tax
This is the price you pay to the government to transfer the title of the property from one person to another. Every province has its own land transfer tax rates based on the purchase price, and some cities, including Toronto, have an additional municipal land transfer tax, too. Depending on where you live, there may be rebates available for first time home buyers.
Estimated cost: Varies.
Title insurance
Your mortgage lender will often require you get title insurance, which helps protect against risks specific to your home’s title, like title fraud or existing liens because previous owners didn’t pay property taxes or utilities at the time. Your real estate lawyer can help handle this for you.
Estimated cost: $100
Property insurance
While your bill – usually monthly or annually – might not be due on the exact day of closing, your insurance policy has to be in effect when you move in. This is insurance that covers your home and contents in case of fire, for example.
Estimated: Depends on the value of your home and its contents
Interest adjustment
While interest is not due on the day you close, your lender will collect the interest accrued between your closing day and the day of your first mortgage payment. The due date will be before you make your first mortgage payment, and, depending on the size of your mortgage, could be several hundred dollars.
How much should you budget for closing costs?
There’s no set number, but the general rule of thumb is to estimate between 3 and 5% of the home’s purchase price. This means that if you’re buying a $500,000 home, you should have between $7500 and $20,000 ready to go when you’re approaching closing day.
Are there any other expenses to look out for around closing?
Closing costs aren’t the only expense that might pop up around the time you move. Make sure you set aside money for:
Movers
Technically, you can do this yourself but many people prefer to pay the pros for this. If you were renting before buying, you might also want to budget for cleaners at the old place.
Reimbursing utility bills and property taxes
If the previous owner prepaid any bills or their property tax, you will have to pay them back for any amount that covers time period after you officially take possession.