What are Real Estate Closing Costs?
Your new home will most likely be one of the most significant investments you ever make, and the purchase price is just the beginning. British Columbia closing costs equate from 2% to 4% of the property value and are important considerations when buying a home.
Calculating additional costs and legal fees into your BC real estate purchase will help avoid any big surprises come the time of completion. Understanding closing costs is more than the expense. Knowing what to expect when you sit down with your lawyer and mortgage lender will prepare you for the transfer of property title once you have an accepted Contract of Purchase and Sale.
The process of buying and transferring real estate property and ownership requires multiple steps involving government, lending institutions, lawyers, real estate agents, insurance companies, inspection and appraisal professionals, and other land property experts. This critical support system is part of your home buying experience.
Closing costs are described as all fees to buy a property and move in. The purchase price of your real estate transaction is excluded from closing costs.
Some expenses are expected, such as moving and setting up utilities. If you have ever changed locations, you will most likely understand the typical costs involved. Purchasing a property and transferring the title is very different.
Outside of mandatory closing costs, you may wish to spend extra for a home inspection prior to your real estate Contract of Purchase and Sale becoming unconditional. A home inspection is for your protection and will provide a clear understanding of the property's current condition.
The average cost for a BC home inspection is approximately $500 and will vary depending on the total square footage of the house. If you are buying a condo, the price of your home inspection will likely be less.
To learn how to write an offer that protects you and more about the Contract of Purchase and Sale process, see: Making an Educated Offer.
So, what exactly are closing costs and what is the breakdown?
BC Mortgage and Real Estate Financing
When a lending institution becomes involved, they require a level of security the new owner will need to satisfy. Your bank may require several documents and various forms of insurance.
- Property Appraisal: A professional appraisal report performed independently of your bank that outlines the fair market value of the property you are buying may be mandatory. This report verifies the accepted offer amount stated in your real estate contract is accurate and not inflated. Your lender might only accept appraisals performed from their own list of approved Appraisers.
- The cost of a property appraisal will vary on the complexity and starts at around $350.
- Land Survey Certificate: This legal document shows the exact placement of the existing house on the property and includes lot dimensions and boundaries. The current homeowner may have a copy, but if not, you may need to have a land survey performed. To learn more about land surveys, LTSA explains it here: Land Survey Plans.
- The average cost for a Land Survey Certificate is approximately $500.
- House Insurance: To obtain a mortgage, you will need to show proof of house insurance. Your lending institution may have policy requirements for your home insurance that will factor into the overall cost.
- Yearly home insurance premiums for BC properties vary considerably and typically start at $1,200.
- Title Insurance: This insurance policy protects yourself and your lender from unforeseen costs relating to the Property Title, such as undisclosed liens, land encroachment, survey errors, fraud, etc. If you require Title Insurance, your lawyer can help you obtain it.
- Title insurance cost is normally $225 for properties valued under $1,000,000.
- Mortgage Default Insurance: This CMHC insurance protects your lender if you cannot make mortgage payments. When a down payment is less than 20% of the appraised value, meaning you have a high-ratio mortgage, default insurance will be required. CMHC explains their insurance here: Mortgage Loan Insurance and Premiums.
- The cost for default insurance will range from 2.8% to 4% of your total mortgage amount.
- Payout Penalty Fees: If you currently have an existing mortgage, you may have penalty fees for early payout.
- Penalty fees vary significantly for every lending institution or bank.
- Estoppel Certificate: This is a letter or certificate used to verify strata financial specifics between the strata, seller and buyer for the purchase of a condominium or townhouse. Your lender may request this document.
- The typical cost for an Estoppel Certificate is $100.
Some of the above documents and fees are variable and may or may not be required by your lending institution. The purchase of a house, bare land, condo, townhouse, duplex or other strata will determine what documentation is needed and how much they cost to obtain.
Working with a Mortgage Specialist and securing a pre-approved mortgage will help you understand your lender's requirements. Loyal Homes has a helpful article: Benefits of Mortgage Pre-Approval to learn more on mortgage pre-approval.
Legal Fees and BC Real Estate Property Transfer Costs
Your lawyer is involved in your real estate transaction from the moment your offer becomes accepted until completion. Your law firm or notary will prepare the necessary mortgage and property documentation, transfer funds to the seller's lawyer, transfer property title, pay appropriate fees and more. Fees paid will vary for each property.
- Legal Fees: These are fees paid to your lawyer for the necessary work involved to move funds and transfer property title and ownership into your name. Legal fees vary depending on your real estate transaction and mortgage complexity. Expect your legal fees to start at approximately $1,200 to $1,400 for your home purchase.
- Disbursements: Miscellaneous costs your lawyer may incur such as Land Title Office filing fees, strata forms, strata property costs, insurance binder (for your mortgage), courier costs, photocopying, etc. Some of these expenses may be included in the cost of your legal fees.
- Adjustment Fees: Any costs the seller has already paid for the property that goes beyond the completion date. These can be property taxes, city utilities, strata fees, manufactured mobile home rental fees, adjustments for an existing tenant, etc. Adjustment fees vary depending on how much the seller has paid in advance for your new property.
- Property Transfer Tax: Tax paid to transfer property title and ownership. This closing cost is typically the biggest expense of buying real estate. Your lawyer will handle payment when your property transfer takes place, and the amount due is based on the fair market value of your new home. Unless your property is valued at over 3 million, you will pay General Property Transfer Tax.
General Property Transfer Tax is broken down as follows:
- 1% of property value up to and including $200,000
- 2% of property value greater than $200,000 up to and including $2,000,000
- 3% of property value greater than $2,000,000
For example, if the house you are buying is valued at $750,000, the total Property Transfer Tax costs amount to $13,000.
- $2,000 for the first $200,000
- $11,000 for the remaining $550,000
- $13,000 Total Property Transfer Tax
If you are a first-time home buyer in BC, purchasing a newly built home or transferring property title between family members, you may qualify for a transfer tax exemption or reduction.
The Province of British Columbia further explains BC Property Transfer Tax, exemptions and calculations here: British Columbia Property Transfer Tax.
Buying a New BC House or Strata
GST is a tax payable strictly on new builds or homes considered to be new if they are more than 90% remodelled. Sometimes, the Goods and Services Tax is factored into the purchase price of a new home. GST is calculated at 5% of the property's fair market value.
GST is due at the time of completion and will be paid through your lawyer. The Government of Canada offers partial GST rebates that you may be eligible for. Learn more about Canadian rebate requirements here: GST/HST Housing Rebate. Buyers must pay GST in advance and then submit documentation for a rebate.
Total Closing Costs to Buy a Home in British Columbia
Many variables and considerations affect the final amount of British Columbia real estate closing costs; however, you can generally expect between 2% to 4% of your property value.
For example, if the purchase price of your new BC home is $750,000, the calculation of 2% to 4% will be $15,000 to $30,000 in closing costs. The most considerable sum will be Property Transfer Tax that amounts to $13,000 for a house valued at $750,000. In this scenario, you will most likely exceed 2% (or $15,000) of fair market value in closing costs on a property purchase of $750,000 when you add legal fees, mortgage requirements and moving expenses.
Buying a home in British Columbia is a wonderful experience and likely one you will never forget. Our skilled and experienced BC Real Estate Experts and Mortgage Specialists at Loyal Homes are always available to help your BC home buying journey be one that is positive, productive and seamless.