CHAPTER 2: ON CLOSING DAY

Once your offer to purchase has been accepted and all conditions of the offer have been satisfactorily met, you must close the property. The closing process is generally very straightforward and involves you sitting down to sign documents with your lawyer.

Shortly before closing, your lawyer will contact you with specific instructions, including requests for documentation. You will need to bring these documents to your lawyer’s office (or email/fax them). Your lawyer will then prepare the closing documents and schedule an appointment for you to come in to sign the closing documents. Your lawyer will go over the Statement of Adjustments with you, a document that outlines exactly what is payable by you and what is payable by the seller.

While the process is quite straightforward, there are some costs associated with closing the property. We’ve listed some below. You will need to have sufficient funds to cover these costs when closing the property. Generally, closing costs range from 3% to 4% of the purchase price of the property. For example, if the purchase price of the home is $650,000, the closing costs could range from $19,500 to $26,000.

Of course, these are estimates — the actual amount you will need could be higher or lower, depending on factors like where you live, the type of home you’re buying, or if it’s a new construction.

Default insurance
If your mortgage is considered a high-ratio mortgage, you will be required to obtain default insurance that protects the lender in the event that a borrower defaults on their mortgage obligations. High-ratio mortgages are generally defined as mortgages where the purchaser’s down payment on the property is less than 20% of the purchase price.

The most common default insurance is provided by Canada Mortgage and Housing Corporation (CMHC). The premium for the insurance policy ranges between 0.6% and 4.50% of the mortgage amount and can be paid at the time of purchase or added to the principal amount of your mortgage. The borrower is responsible for the insurance premiums.

Levies and taxes
Depending on the location of your property and the unique circumstances of the real estate transaction, you may have to pay GST/HST, land transfer taxes, development levies, and other fees. Your legal counsel will provide you with a Statement of Adjustments on closing that outlines exactly what your financial obligations are.

Property taxes, utilities, and condo fees
In some cases, the seller may have already prepaid property taxes, utility bills, or condo fees before you take ownership of the property. You will need to reimburse the seller for the portion of the costs from the closing date forward. Your Statement of Adjustments will list exactly what is owed to the seller and what is owed to you as the buyer.

Legal fees
In order to properly close your real estate transaction, it is strongly advised to seek legal counsel. Your lawyer or solicitor will go over the closing documents, provide you with a Statement of Adjustments, and ensure that your transaction is completed in your best interests and in a timely manner. Legal fees vary widely depending on a number of factors, but generally budgeting around $1,500 for these services should be sufficient.

Property (home) insurance
Property (home) insurance, protects your home and its contents from financial loss due to conditions covered in your policy such as fires, windstorms, water damage, or other disasters. It covers your home’s replacement value, as well as amounts to cover the contents (i.e. personal belongings) you have in your home. It can also protect your belongings from theft. Property insurance is generally a requirement if you have a mortgage loan.

Home insurance premiums vary widely based on numerous factors, such as the value of your home and your contents; however, you can often get a discount on insurance premiums when you bundle your home and car insurances together.

Life, disability, and critical illness insurance (for your mortgage)
These insurance policies cover your mortgage payments in the unfortunate event that you become seriously ill. If you pass away, your insurance will pay the outstanding balance of your loan to your lender. Life, disability, and critical illness insurance offers peace of mind knowing that should anything happen to you; your family is financially protected.

Again, insurance premiums range widely based on numerous factors, such as the amount of your mortgage loan, your age, gender, and whether or not you smoke.