Closing Costs


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The following are the most common costs associated with closing:

APPRAISAL

Lending institutions usually require an appraisal to be done to confirm the property value, and to make sure that it is the kind of property they will mortgage - for example, some lenders will not finance hobby farms or heritage designated homes. The appraiser will consider the size of the property (both land and buildings), the location of the property and the condition of the main house to determine a 'replacement value'. They will then compare the property with a few recent sales of similar properties in the same area. The appraiser will arrive at a dollar figure that, their professional opinion is a fair market value for the property. It is not unusual for the value to be the same as the purchase price of the property. If the appraised value is higher than your purchase price, you know you have made a good buy. Problems can occur if the appraised value is lower than the purchase price and you are making the minimum possible down payment. In most cases, the lending institution is obligated to lend mortgage money based on the lower of the purchase price or the appraised value.

ASSESSED VALUE

Local property taxes (which pay for items such as municipal services e.g. police, fire and ambulance departments, sewers, sidewalks etc.) are calculated based on the assessed value of your property. Appraisers working for the local tax authority will give each property an estimated value based on its approximate size and location. These values are rarely accurate when it comes to fair market value, but are sometimes used by the lender (instead of a full appraisal) when the loan amount is low compared to the purchase price. It should be noted that not all provinces / local governments use this system for determining property taxes.

BUILDING INSPECTION

A building inspection (also called a home inspection) will identify problems with a house. For example, is the roof leaking or needing replacement? Do the beams have wood rot? Is the foundation sinking? An inspection does not give any indication of property value. The building inspector will usually give you a list of necessary repairs and sometimes an approximate cost for each.

GST (Goods & Services Tax)

· 7% GST is charged on most types of services involved in the real estate transaction. Some examples include: legal fees, Realtor commissions, appraisals, and surveys.

· GST is not charged on the purchase price when you are buying a previously occupied residence. This includes a house, apartment, vacation property or non-commercial hobby farm.

· GST is charged when you are buying (or building) a newly constructed residence (house, apartment etc.). The entire amount including land value is subject to the tax. If the residence is to be owner-occupied then you may qualify for a GST rebate of approximately 36% of the GST charged, depending upon the completed value of the property.

· GST is sometimes charged on the purchase of a lot.

Check with your lawyer to learn the current rules regarding 'new construction and the GST'.

HOUSE INSURANCE

House insurance covers the replacement value of the building(s), premiums will vary depending on the value. Lenders insist on house insurance because the property is their security for the loan. Your lawyer will need confirmation that insurance has been arranged. Should your house burn down, the insurance company is required to pay the lender first. You will still own the lot and will then have to re-negotiate with the lending institution to borrow to build a new house.

LAND TRANSFER TAX / PROPERTY TRANSFER TAX

This tax is charged by the province when ownership of property is changed. It is normally paid by the purchaser when property is bought. You should check with your lawyer whenever you are considering any changes to title of real estate property (including adding spouses or children). It is better to understand all the ramifications prior to making any changes.

In BRITISH COLUMBIA the Property Transfer Tax (PTT) is as follows:

· 1.0% on amounts up to and including $200,000

· 2.0% on the amount exceeding $200,000

Calculated as follows:

$ 200,000 X 1.0% = $2,000.00

$ 50,000 X 2.0% = $1,000.00
Adding these two amounts together = $3,000.00

FIRST-TIME BUYERS - The main points are listed below but please contact your Lawyer for more details. Currently first-time buyers do not have to pay the tax as long as they qualify under ALL the following conditions:

	The purchaser must be a Canadian citizen, or a Landed Immigrant.
	The purchaser must have resided in the province of British Columbia for at least 1 year prior to the registration of the purchase.
	It must be the purchase of a principal residence, and the purchaser must occupy it within 92 days of registration of the transfer of title.
	The purchaser must not have previously owned an interest in a principal residence, at any time, anywhere in the world.
	The mortgage amount borrowed to finance the purchase must be 70% or more of the property value. The amount financed must be registered against the title.
	The amount borrowed must have a term of at least 1 year. If you wish to have a term of less than 1 year you will have to pay the Property Transfer Tax, but will then be able to apply for a refund at the end of the year.
	The fair market value of the property must not exceed $275,000 within the Capital Regional District (Victoria), Greater Vancouver area, Fraser Valley, Dewdney-Allouette and Fraser Cheam. In all other areas in B.C., the property value must not exceed $225,000.

If more than one person is on title, then the Property Transfer Tax will be pro-rated.
For example;

	If two people will each own a 50% interest in the property, and both qualify for the first time buyers plan, they will not pay any Property Transfer Tax.
	If two people will each own a 50% interest in the property, but only one person qualifies for the first time buyers plan, the other will owe half of the Property Transfer Tax.
	If the first-time home owner will own a 90% interest in the property, and the non-qualifying person will own a 10% interest, then an amount equal to 10% of the Property Transfer Tax will have to be paid.

REDUCTION OF PRINCIPAL IN THE FIRST YEAR

	In the Capital Regional District (Victoria), Greater Vancouver area, Fraser Valley, Dewdney-Allouette and Fraser Cheam, the principal amount of the mortgage cannot be paid down by more than $11,000 in the first year.
	Outside these areas, the mortgage principal cannot be paid down by more than $9,000 in the first year

No matter the area, the mortgage principal may not be reduced below 70% of the purchase price in the first year. This includes the principal portion of your normal payments, plus any lump sum payments.

LEGAL FEES

The lending institutions require you to have a lawyer or notary prepare and register the mortgage contract. You can usually choose your own lawyer and as the fees can vary it is wise to shop around.

MORTGAGE CONSULTANT FEES

For the vast majority of mortgage applications, Mortgage Consultants do not charge the client any fees. Consultants are paid by the lending institution. The fees paid by the lending institutions are very similar, so the main reason for your Consultant to place your mortgage with one lender over another is to get you a better rate or a better product. In some cases, Consultants charge fees. Fees are charged for various reasons when the financing is through private lenders, and when commercial property is purchased. In all cases, your broker will tell you up front if there will be a fee. You will be informed in writing of the amount of the fee.

MOVING EXPENSES

These costs vary greatly, depending on how much furniture you have to move - and how far you are moving..

PROPERTY TAX ADJUSTMENT

No matter what time of year you are buying your house, there will be an adjustment of property taxes. In some cases you will owe the vendor - in other cases the vendor will owe you. Property taxes pay for your local services such as fire, police & roads.

REALTOR FEES

The vendor (the person selling the house) usually pays these fees. The amount of the fees must be taken into account if you are selling one property and buying another. The amount of the fees will reduce the amount of money you have available after the sale is completed. Realtor fees are subject to the GST.

RENOVATIONS

Don't forget to allow funds for any repairs you may want (or need) to make.

SURVEY

A legal survey is frequently required by the lending institution. The survey shows the exact legal boundaries of your property and the exact location of all buildings, rights of way, and any other encroachments.

UTILITY CONNECTIONS

Lastly, don’t forget the amount the utility companies charge us to connect to their services!