Closing Costs: Our Guide to Everything You Need to Know
One of the most common mistakes first-time homebuyers make is failing to account for all of the necessary closing costs.
For each and every first-time homebuyer, it’s always best to prepare for these costs from the very beginning. In doing so, you can ensure that you’re budgeting correctly and avoiding any problems or surprises come closing day. When you’re eager to get your keys and your moving truck is scheduled for arrival, the last thing you want is to delay your closing because you forgot to account for these closing costs.
Let’s start from the beginning.
In a nutshell, closing costs are the fees that are associated with the purchase of your home. These fees are based on the purchase price of your home and are due on closing. As a general rule, you should budget between 3% and 5% of the purchase price of the home for your closing costs. If you’re unable to pay these fees in full come closing day, the keys will not be released and your closing day will be delayed. Let’s just say that all parties involved are not exactly going to be ecstatic about this delay.
While failing to account for closing costs does happen rarely, it still occurs from time-to-time for buyers that were unaware of these costs from the start. More often than not, the fault is on the real estate agent or the mortgage agent who failed to communicate the realities of these costs to their clients.
The reason that closing costs are sometimes forgotten is because they are costs that are not directly related to the property itself. For example, a buyer is unlikely to forget about costs such as the down payment or the deposit. This is because these costs are directly related to the property itself. However, closing fees are slightly more hidden costs that are essential to the purchasing of your home. Many times, they account for things that are happening behind-the-scenes of your home transaction.
These are costs such as land transfer tax, title fees, the statement of adjustments and paying your attorney. Closing costs will also account for costs such as property insurance, title insurance appraisal fees, and surveys. While some of these fees go to the bank or to the government, others go to third parties that are associated with the transaction. Either way, these fees are unavoidable for all real estate transactions and must be paid in full on closing.
So, how can you ensure that you’re prepared for these fees on closing?
A few days prior to closing, your attorney will provide you with a summary of your closing fees. These fees are added to the cost of your home and will be due on closing day. The summary will document the title of each and every closing fee cost as well as how much it’s costing you. In the end, the summary of closing costs will be added to your overall amounts owed. Come closing day, you will provide your attorney with a cheque in the amount of this final number. We hope you found this article helpful. Check back soon for more first time home buying tips and advice.