Many buyers that are new to the home buying process are unaware of the additional costs that are incurred when closing a Real Estate transaction.
Most frequently with individuals buying their first home I find that they are unaware of the costs in addition to the purchase. There are several costs that you will need to be aware and have funds set aside for. This list I am providing is in no means comprehensive but will give you a good idea of what the average closing costs for a home are.
Legal fees- A lawyer should complete the purchase of your home. Legal fees vary from lawyer to lawyer but on average it is safe to allow $500 to $800 for legal fees and another $300- $400 for disbursements such as registering the deed etc.
Deed Transfer tax- (In Canada this is more commonly called Land Transfer Tax.) The municipality (or province in Canada) the home is located in will charge a fee to transfer the deed into your name. In most of the metro area this fee is 1 1/2% of the purchase price of the home. For example in a $100,000 purchase you would pay $1,500 deed transfer tax. This tax is paid on closing to your lawyer who then pays the municipality.
Mortgage application fees- Mortgage providers will sometimes have fees for applying for a mortgage and an appraisal of the property you want to purchase. If you are borrowing more than 75% of the value of the property there will likely be some sort of fee applied to the financing package. These fees vary considerably depending on the mortgage product and the financial institution.
Moving costs- Remember that buying a new home means moving your stuff into that new home. Truck rentals and movers cost money so don’t forget them.
Building Inspection Fee- I highly recommend that you have the property you are buying inspected by a professional inspector. The Inspector will check out the home for structural soundness, electrical issues and plumbing issues to name a few. The cost for this service ranges between $300, to $500 depending on the home.
Power and telephone hook ups- Allow for the cost to reconnect your telephone and transfer power. Allow $75 each for these.
Tax adjustment- The owners of the home you are buying have paid yearly taxes the municipality. You will be required on closing to reimburse them for the taxes they have prepaid for the year. So if the taxes are $2000 then you will divide that amount over the remaining number of days in the tax year and you will know what your share of the property taxes are.
Fuel adjustment -If the home you are buying has oil heating or has a propane fireplace you will be required to pay the owner for a full tank of fuel on closing. The owner will fill the tank the day before closing. You will pay this at your lawyer's office on the closing date.
Fire/Homeowner's Insurance- Most financial institution will require you to have fire insurance on your home on the day of closing. Your financial institution will require proof on insurance prior to closing on the property in question. The cost of insurance will vary based on the replacement value of the home.
Water quality and quantity tests - If the property you are buying is on a well the mortgage company will require that you obtain a water test for quality. The water is tested for bacteria, arsenic and uranium. The cost to have this test completed if you do it yourself, which is the most common, is about $100 (In Canada Water pot ability testing is usually free). You should also consider having a " Flow Rate" test completed also. This test will determine the amount of water the well is currently producing. The cost to have a professional do this is about $400. This is an optional test but one I would strongly recommend.
Septic field test- If the property you are buying has a septic field is it advisable to have it tested for leaks etc. This costs about $300 to complete. This cost can be avoided by having your Realtor include a septic warranty in the purchase agreement, however if you want to ensure that the septic is in good repair and will function for years to come then an inspection is necessary.
As a general rule of thumb buyers should be budgeting 3% to 4% of the purchase price of their new home in order to cover the closing costs. If you budget for 4% hopefully you were just being overly cautious and will be rewarded with lower than expected costs at closing.
