Updated December 20, 2017
Buying a home? Being informed and prepared helps minimize extra Real Estate Closing costs and stress.
Buying a home is an exciting — and expensive — purchase. It’s easy to get caught up in it all, especially when you finally find “the one.” Keeping excitement levels high is important; it helps get you through the tough work ahead as you prepare to take ownership of your new home. That’s why it is also important to be as informed and prepared as possible in all aspects of the home buying process to help reduce unexpected financial outlay and stress regarding real estate closing costs.
What are real estate closing costs?
Just when you think you have crunched the numbers and scrimped and saved for what feels like forever so you have a down payment and a healthy mortgage budget, lo and behold, with possession day just around the corner, suddenly you’ve got to come up with extra funds to cover closing costs. How much do you need and what costs can you expect?
Real estate closing costs depend on a few different factors, but a good rule of thumb is to budget about 2% of your purchase price for additional costs. While not generally considered a ‘closing cost,’ bear in mind that if your down payment is less than 20%, you are required to have default mortgage insurance, which can add another 1.25-3.15% to your total mortgage amount, although this is typically worked into your monthly mortgage payments. So, while you might be tempted to push your mortgage to the top of your approval amount, you don’t want an extra 2.5% to prevent you from affording things like curtains, family vacations, or keeping the thermostat above 16 degrees…
Typical Real Estate Closing Costs in Edmonton:
1. Legal fees ($500-$1000). A real estate lawyer will facilitate the actual legal transaction of the home purchase. He or she will initiate a title search and provide you with title insurance, and will register important documents on your behalf, such as land title transfer fees.
2. Adjustment costs (~$300-$500). In the case where any utility payments or property taxes were prepaid by the seller beyond the closing date, you are responsible for reimbursing the seller those amounts.
3. Property insurance. (~$700-$1000 if paid in a lump sum or $60-$90 if paid monthly). Most mortgage lenders require proof of insurance covering the value of your home and its contents.
4. Moving expenses (varies). These include things like hiring professional movers, purchasing boxes and moving supplies, renting storage space, professional carpet cleaning, and installation or service charges for setting up your utilities
5. Home inspection ($350-$500). A thorough home inspection helps give you peace of mind that the home you’ve fallen for won’t fall apart anytime soon. For tips on finding a good home inspector, check my previous blog.
6. Property appraisal ($300-$500). Some lending institutions will insist you have a property appraised in order to get an up-to-date, accurate valuation.
The Following Costs are typically paid by the Home Seller.
7. Title insurance (~$300). Title insurance is a guarantee of the “quality” of a title — specifically that there is compliance with applicable zoning bylaws and that there are no encroachments upon the lands or onto adjoining lands. If there was an issue with zoning compliance or encroachment, the title insurance company would pay the cost of such compliance or removal of the encroachment.
8. Estoppel certificate fee (~$100). If you are buying a condominium, this certificate tells you whether or not the previous owner owes any outstanding condo payments or special assessment amounts including interest amounts owing.
9. Property survey ($1000-$2000). Some lending institutions will require this for mortgage approval, but it may be included as a condition of sale. A Real Property Report will inform you of any boundary and improvement locations on the property, as well as any problems relating to the property boundaries. In some cases, a lender may accept title insurance instead. In most cases the home seller will be responsible for this cost.
The above list is not exhaustive — the items listed here and the estimated real estate closing costs are meant to serve as a general guide to help you plan accordingly. An experienced Realtor will be able to give you a more accurate overview of closing costs based on the home you choose and your particular situation.
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