Closing: Dealing with the Deal

The house is yours!  What now?

Managing Your Feelings

Web image by foto mais
Web image by foto mais

For some, buying a home is like finding out a baby is on the way:  you’re super excited, but also apprehensive about what the next few months – and the rest of your life – will hold.  It’s normal to experience some anxiety around one of the biggest purchases you will likely ever make in your life!  As usual, your best defense against worry is the right information.  Keep your eyes on the prize – your new home – and rest assured that Jamie will guide you through the closing and moving process.

A Legal Professional

Jamie is not alone in helping you through closing; he will help you build a professional team to see you through the closing period, which is typically anywhere from 30-120 days depending on what’s stipulated in your offer.  Jamie can recommend an experienced legal professional to you.  Your real estate lawyer will be taking on a long list of duties in the process of transferring the property from the seller to you.

Here is what you can expect from your legal professional:

Reviews the Agreement of Purchase and Sale

Reviews the standard document to make sure all the I’s are dotted and T’s are crossed; makes sure that the seller has made good on all terms outlined in the offer to purchase, and that you have met your legal obligations so that the deal may close.

Conducts property title search

This is a check of the Land Registry Office records for the current homeowner’s name and what liens, mortgages and easements are registered against the property.

Title insurance

Your lawyer will probably recommend that you purchase title insurance in the event that some detail about your property is inaccurate.

Fire insurance

Your lawyer will probably advise you to buy your own insurance rather than assuming the insurance policy of the seller. She or he will ensure that the fire insurance is placed on the house you are buying, at the right time.

Building and zone compliance search

This search ensures your new home, including any renovations or additions, is in compliance with local building and zoning codes.

Ensures utility and property taxes are up to date

This involves finding out if there are tax arrears or utilities owing on the property. If this is the case, these bills will be paid and deducted from what you pay the seller upon closing.

Reviews the mortgage agreement

Your lawyer will ensure that you understand the terms of any mortgage for which you are accepting responsibility.

Calculate the amount owed for land transfer tax

Your lawyer will do the math and ensure your money gets into the right hands on time.

Closing Costs

Closing costs are the charges that your real estate lawyer will present to you on the closing date.  It surprises many people to learn that in Toronto, these additional costs usually add up to 3-4% of the purchase price of the home.  It is important to have that money saved and available in time for closing day; your lawyer will advise you on the exact amounts for each service, but below is a breakdown of typical closing costs that might help you start planning.

Appraisal Fee

The appraisal provides your lender (bank or mortgage broker) with a professional opinion of the market value of the property. This cost is usually in the $200 range, plus H.S.T.

Fire Insurance

Proof of insurance is required by all mortgage lenders from the time you take possession of the home. The amount of insurance is generally at least the amount of the mortgage or the replacement cost of the home; premiums can vary anywhere from $250-$600 for most properties.

Harmonized Sales Tax of 13% (H.S.T.)

For new homes purchased from a builder, HST will be applicable on the purchase price of the home, although new homes purchased as primary residences across all price ranges will qualify for a rebate of up to $24,000 of the 8% provincial component of the H.S.T.  Many builders have built the H.S.T. into the purchase price of the home so you don’t have to come up with this amount at closing, but it’s best to verify this beforehand.

Provincial Sales Tax of 8% (P.S.T.)

If your mortgage is CMHC or GE Capital insured (less than 20% down payment), the provincial portion of the H.S.T., formerly known as the P.S.T. and sitting at 8%, is payable at closing, on the CMHC or GE Capital fee. While the insurance premium itself can be added to the mortgage amount, the P.S.T. must be paid at closing.

Land Survey Fee Or Title Insurance Fee

A recent Survey of the property is usually required by the lender, and if one is not available, it normally costs about $1000 for a new survey. In lieu of the Survey, however, most lenders today will accept Title Insurance, at a much lower price of approximately $225.

Legal Costs and Disbursements

Obviously your lawyer will charge a fee for their professional services involved in drafting the title deed, preparing the mortgage, and conducting the various searches. The disbursements are out-of-pocket expenses incurred, such as registrations, searches, supplies, etc., plus H.S.T.

Land Transfer Tax

This tax is based on the purchase price of the home, though first time home buyers are eligible for significant rebates.  In Ontario, the land transfer tax is calculated as follows:

  • Up to $55,000 X 0.5% of total property value,
  • From $55,000 to $250,000 X 1% of total property value,
  • From $250,000 to $400,000 X 1.5% of total property value,
  • From $400,000 up X 2% of total property value.

The City of Toronto levies a matching Land Transfer Tax on Toronto real estate in addition to the provincial rate (to calculate the total tax owing on your home purchase, simply double the figure you calculated above).

New Home Warranty

If you are buying new from a builder, the home should be covered by a new home warranty program. The cost to the purchaser for this warranty is approximately $600, and should the builder default or fail to build to an agreed-upon standard, the fund will finish or repair the deficiencies.

Mortgage Application and Processing Fee

On a high-ratio insured mortgage (mortgages above 80% of the purchase price), the mortgage insurer (CMHC or GE Capital) charges a fee of about $200 for applying and processing the file, as well as appraising the property. On new homes, this fee is about half, or $100.

Closing Adjustments

An estimate will be made for closing adjustments for bills that the seller has prepaid such as property taxes, utility bills, and other charges. Any bills after the closing date are your responsibility, and your lawyer will let you know exactly how much you owe once the various searches have been completed.

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