Mortgage Costs at Closing when Buying Your Home

September 23, 2012

Don’t you love a good surprise! Like finding money in your winter coat that you had in storage all summer. But some surprises are a drag. Like finding out that you’re short of funds when you buy your home because of all the closing costs.

Costs Associated With Arranging Your Mortgage
SURPRISE! You’re short of funds at closing. That wouldn’t be much fun. So prepare yourself. Here are 9 costs that you might have to pay when closing your mortgage.
The good news: you probably won’t have to pay them all because some costs may not apply to your situation. But to avoid any surprises, and to avoid being left short of funds at closing, here they are:
1. Legal Fees : These fees are paid to your lawyer for registering the mortgage and to cover any of his or her related costs (called disbursements). These disbursements vary and it is best to get a quote from your lawyer. The Land Transfer Tax is also payable as part of the disbursements on closing.
2. Adjustments and Disbursements: On closing, your lawyer will make certain adjustments and disbursements to the purchase price. These are prepaid expenses, which need to be pro-rated between the vendor and purchaser. The most typical adjustment item are the property taxes paid to the municipality. The amount of prepaid taxes will be adjusted as of the closing date and one party will be required to reimburse the other.
3. Title Insurance: Your lender will require the lawyer to take out a title insurance policy before funding your mortgage. Title insurance is used to protect your ownership of your home in the event that your right of ownership is challenged or a loss occurs due to a covered title defect or a claim against your property.
4. HST: Harmonized sales taxes are only payable on newly constructed homes, vacant land (sold by developer) and commercial properties. HST does NOT apply to resales. I repeat: resales = no HST.
5. Land Transfer Tax: This is a sales tax on the purchase of your home. The amount differs from province to province. In Toronto there is an additional tax added. Rebates are offered to only eligible first time home buyers up to $3,725.
6. High Ratio Mortgage Insurance CMHC/Genworth:  If you purchase with less than 20% down payment then your mortgage needs to be insured. The insurance premium is added to the mortgage amount so you do not have to pay it out of pocket. Interest is charged on the insurance premium at the same rate as the mortgage. PST is charged on the insurance premium, this cannot be added to the mortgage and is included as part of your closing costs at the lawyer’s office.
7. Appraisal Fee: An appraisal is needed to verify the value of your purchase. Lenders use an independent, certified appraiser to evaluate the property. This is a cost payable by you. An appraisal isn’t always required. For a list of cases click here.
8. Application Fee: For borrowers who require financing from B lenders there may be an application fee to process the application. These application fees are generally associated with non-conforming mortgages. These may be paid up front or deducted from the mortgage advance.
9. Broker Fee: Good news! Most brokers do not charge to arrange your mortgage. Why? Because they are paid a referral fee from the lender. But, a broker fee may be applicable under specific circumstances due to the nature of the applicant or property. Impaired credit, non-conforming properties, and commercial properties are some examples where a fee may be charged. If you’re thinking you might need to pay a brokerage fee, then you’re probably going to need private mortgage money. So you’ll want to talk to my dad. He can help you with a private mortgage. Wondering how a mortgage broker is paid? Click here.
Are you ready to take the first steps to buy a home? You’ll want to get in touch with me. Why? Because I offer you the best rates and services to make your home purchase a reality. Get in touch. Ask me your question. Just click here.
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Christopher Molder

Mortgage Broker

Christopher is a mortgage broker based in Toronto, Canada. And a son of a broker too. He’s a second generation mortgage broker. Following in his father’s steps he joined the family mortgage business straight out of university.