Mortgage Closing Costs

What to Expect and Ways to Save on Closing Fees

Purchasing a new house may be exciting since it is one of the most significant financial commitments you will make. Depending on your mortgage requirements, you’ll need to have a down payment of at least 5% ready before purchasing a home. Other upfront costs that you’ll need to save up for include closing fees, and they can be hefty. 

If you’re thinking of purchasing a house soon or refinancing an existing mortgage to take advantage of today’s low rates, chances are you’ll negotiate closing expenses. Closing costs may be negotiated with your lender; you should inquire about what may be covered. 

Closing costs will generally include charges for the loan officer, title company, and lender who provides your loan and funds to purchase your home, as well as a few additional fees. To help you get ready to buy a new house or refinance your existing one, here is a detailed description of all the closing expenses you’ll encounter.

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What Are Closing Costs?

Closing costs are the legal and administrative expenses you’ll have to pay when your home purchase is completed. They are a one-time charge, but there are numerous expenses to consider, and they do add up quickly, so keep them in mind when planning your budget. 

Because most of your closing costs will not be included in your monthly mortgage payments, you must be prepared to cover these one-time expenses upfront. The fees might be as little as two percent to as much as five percent of the home’s value, depending on your location and how much you borrow.

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11 Most Common Closing Costs You'll Be Expected to Pay

Closing costs can vary based on the property you’re buying. Here are a few of the most common closing charges you can anticipate to pay.

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Land Transfer Tax

The closing cost varies depending on the province and municipality in which your home is located. This is one of the most expensive charges connected with the closure of your house. 

When a home is sold, the buyer pays a land transfer tax that’s equivalent to a one-time payment. The amount you pay depends on the price of your property and is restricted to resale properties alone.  You may be eligible for a land transfer tax rebate if you’re a first-time buyer.

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The HST/GST is a tax levied on new homes. In some cases, you may be eligible for both federal and provincial rebates. There are certain criteria that must be met. For more information, contact your lawyer/notary.

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Appraisal Fee

The lender requests an appraisal to determine the property’s market value. In the case of default, it certifies the property’s resale value to the lender. The fee can range between $300 and $500.

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Legal Fees and Disbursements

The lawyer/notary who draws up your mortgage and conveyance of title will charge you a fee for these services. The typical cost is $800-$1,000, depending on the professional you use.

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If you’re buying a single-family home, you’ll need to get a survey document that shows the property’s placement within the property lines. On low loan-to-value transactions and acreage properties, however, some exceptions are made. A survey will cost between $750 and $1,000, but the lender is more likely to accept a copy of an existing survey.

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Adjustments for Differences in Interest Rates

If you’re in a gap between the closing date of your purchase and the first payment date of your mortgage, you’ll have to pay interest on that period. If you plan your first mortgage payment between 2-4  weeks after your closing date, you may avoid interest adjustments.

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Adjustment Statement

Based on where your closing date falls within the month/payment cycle, your lawyer/notary will calculate and prepare a statement of adjustments for your utility, property taxes, and other charges. Because some owners prepay these services, the adjustment may be significant.

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Title Insurance

To guard against losses in the event of a property ownership dispute, most lenders demand title insurance. This is obtained through your lawyer/notary and costs about $200-$300.

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Home Inspection

The purpose of an inspection is to provide a professional’s perspective on the physical structure and functions of a property. The home inspection will detect any major repairs that are required and may be used to renegotiate the sale of the house in order to cover the expense of repairs. The cost range is $350-$500

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Property Insurance

You will be required to obtain property insurance, which will cover the expense of replacing your home and possessions. On closing day, you must have property insurance in place. This coverage is generally paid for in monthly or annual payments.

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Mortgage Insurance

Most lenders require mortgage insurance for downpayments that are less than 20%. Mortgage insurance protects the lender if you fail to make your payments. Mortgage insurance is paid at closing, but it may also be added into your monthly mortgage payments.

Additional Homeownership Costs

Although property taxes are not included in closing costs, you must ensure you have saved enough at the end of the year to cover property taxes. Most lenders can set up a property tax account for you and include a monthly payment for property taxes within your mortgage payments. At the end of the year, most lenders will pay your taxes from your property tax account. When it’s time to pay your taxes, you’ll get a letter in the mail. If you receive a notification that your property taxes are late, you’ll be subject to penalties and could face foreclosure if they aren’t paid promptly.

How to Save Money on Closing Costs

There are a few closing costs you can avoid to save money when purchasing a new house. Even if you’re a first-time buyer, you may not have to pay all of the closing charges listed above. Your lender will provide you with a full list of fees and any available rebates as soon as your mortgage is authorized so that you may save money. 

If you’re purchasing a resale property, you won’t have to worry about the HST/GST since it’s only collected on new construction.

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You may not have to pay for a survey if the lender will accept an existing one in specific instances, depending on the property. The appraisal is required by your lender to estimate the value of your property.

In the event that you default on your mortgage, an appraisal is used to confirm the resale worth of your home with the lender. The price varies, but it’s generally between $250 and $350; however, if you negotiate closing costs with your lender, they may cover this fee for you.

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Final Thoughts

Some closing charges may be avoided; however, many are required. Closing costs are a wide range of expenses and charges involved with the finalization of your mortgage agreement, including all legal and administrative fees you’ll be accountable for paying up until, or on, the closing date. It’s a good idea to contact your lender ahead of time and ask about the closing costs so that you can be certain you have the funds necessary to pay for them at closing. 

You must ask your lender if certain charges can be subsidized or reduced during the negotiations with them. By negotiating the closing costs with your lender, you may save money and benefit significantly. Make careful to compare quotes so you can get the most out of your new loan by saving money on it. Shop around and compare rates to get the most out of your new loan.

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