Have You Saved for Your New Home's Closing Costs?
Not only do you need to have enough money for your downpayment and any renovations, you also need to put money aside for your new home’s closing costs.
Closing costs are the legal and administrative costs that you need to pay when you are buying a house. They are separate from your down payment, mortgage, and home insurance costs.
Most of the closing costs are covered by the buyer
Closing costs are somewhere between 2% and 4% of the cost of your new home.
These costs may include:
Loan origination fee: This fee covers any administrative costs associated with processing the mortgage loan.
Appraisal fee: The cost of having the property appraised to determine its value.
Credit report fee: The cost of obtaining a credit report to determine the borrower's creditworthiness.
Legal fees: The cost of hiring an attorney to review the closing documents and ensure that the transaction is legally sound.
Home inspection fee: The cost of hiring a home inspector to assess the condition of the property and identify any potential issues.
Property taxes and school taxes: Prorated property and school taxes for the portion of the year that the buyer will own the property.
Land transfer fees: Fees charged by the local government for recording the transfer of ownership and mortgage documents.
Prepaid interest: Interest that accrues between the closing date and the end of the month.
Title insurance: It’s optional and it is insurance that protects you against challenges to the ownership of your home.
Can you lower your closing costs?
- Check with your bank, if you are getting your mortgage at your bank you can ask for a discount or a waiver.
- Check for buying programs incentives by the government, specially if you are a first-time-buyer
- Open a First Home Savings (FHSA) tax-free, you can invest up to $8,000 a year (with a lifetime maximum limit of $40,000)
Homebuyers must review their loan estimate and closing disclosure documents carefully to understand all the closing costs associated with their home purchase. Additionally, buyers may negotiate with the seller to cover some or all the closing costs as part of the purchase agreement.
Tips to help save on your home insurance
- Increase your deductible to the highest amount you feel can afford
- Install burglar alarms and fire alarms/sprinkler systems and make sure your insurance broker is aware you’ve taken these steps to protect your home
- If you have a new roof or furnace, make sure your policy reflects the improvements
- Ensure the replacement cost of your home and its contents are accurate on your policy. For example, have you sold a big-ticket item that no longer requires coverage?
- If you’ve recently downsized your home, your insurance premiums should reflect that
- Pay your home insurance premiums annually, rather than monthly
- Bundle your home and auto insurance together for a discount
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