We love working with first time home buyers and are always striving to educate clients to ensure their first closing experience is a smooth one.
Let’s face it. Buying a home isn’t easy. There’s a lot to know about buying and closing a home and while there’s a flood of information out there, it is important to get the right professionals working with you to make your home buying experience as smooth and stress-free as possible.
The most common first time closing mistake we see with buyers is forgetting to budget for closings costs. With all the excitement, first time buyers often forget that these closing costs must be paid upfront in cash, unlike the mortgage which is amortized and paid in instalments over time.
Before the keys can be handed over, however, there are still a few expenses buyers need to shell out for. These closing costs must be paid upfront in cash, unlike the mortgage which is amortized and paid in installments over time.
Below we’ve broken down the closing costs you need to know about as a buyer so you don’t fall for the most common first time closing mistake:
While your lender will provide your mortgage funds to your real estate lawyer on closing day, as a buyer, you must have the cash down payment ready to go, minus any amount that has already been paid as part of your deposit.
If you aren’t liquid (meaning you don’t have the down payment money sitting in cash), make plans to have the down payment cash ready at least 3-4 days prior to closing. Keep in mind that if you have your money with an online bank, it may take a few days to transfer funds, so plan accordingly.
Your lawyer will be in touch a few days prior to closing to let you know the exact amount to bring towards the closing. This amount will include any adjustments, legal fees, land transfer tax and other costs we’ll discuss shortly.
For information on how your family may be able to help you cover this cost visit our gifting a down payment blog post.
What’s an “adjustment”?
If you are buying a resale or new construction property, you will likely have to pay for several adjustments on closing. Adjustments can include payments for utilities, property taxes or in cases of new construction, account setup fees, development charges, and others.
Adjustments can range from a few hundred to several thousand dollars. For example, if the seller of your property has paid property taxes for the year and you are buying the property halfway through the year, you will owe the seller your portion of the property taxes.
Your lawyer will inform you of adjustments a few days prior to closing.
Land Transfer Tax or Property Transfer Tax (LTT / PTT)
Home purchases in Ontario and British Columbia are subject to a provincial land transfer tax. Outside of the down payment, this is likely the largest outlay to be paid at the time of closing so it is very important to budget for.
Home buyers in the City of Toronto pay municipal land transfer tax (MLTT) in addition to the Ontario LTT, which effectively doubles the land transfer amounts owed.
Legal Fees, Disbursements, Title Insurance
Legal costs include a number of services, such as registering the transfer of the property and registering the mortgage. Your lawyer will also facilitate the purchase of title insurance, which protects the buyer from any other claims made toward the property. It can also include the ordering of the property survey, should the buyer wish to obtain one.
Legal fees and title insurance premiums can vary depending on the property type, location, and several other factors.
When you can anticipate and budget properly, the stress associated with closing your first property can be drastically reduced. Remember to consult with professionals such as your Realtor, Mortgage Broker and Real Estate Lawyer, and ask lots of questions… there’s no bad or silly questions you can ask.
Important note: This article is not Legal Advice. No one should act, or refrain from acting, based solely upon the materials provided on this website, any hypertext links or other general information without first seeking appropriate legal or other professional advice.