A quick review of common closing costs

When people start planning to buy a home, the first things they usually think about are the down payment and the mortgage. While these are the biggest financial commitments you’ll take on, they aren’t the only ones, and it’s important not to forget about common closing costs! Many buyers are surprised by the number of additional expenses that pop up throughout the buying process. However, you don’t need to be caught off guard by closing costs. If you know what to expect, you can plan ahead and avoid any unpleasant surprises. Here are some of the most common closing costs you should budget for!

Legal fees

Hiring a lawyer during the home buying process is not optional. They are an essential part of homeownership, reviewing contracts, and drafting title deeds. Since they play such an important role, they can come with a large price tag. Legal fees vary depending on the property and the transaction, but many home buyers should expect this bill to be in the range of several hundred to a thousand dollars or more. It’s due upon closing, so you can plan for it as part of your final expenses.

Home inspection

While a home inspection is technically optional, it’s one of the smartest decisions you can make. We recommend treating this as an essential part of the buying process. During the inspection, a professional will evaluate the property’s condition and make note of potential issues. Common issues can include structural problems, faulty wiring, or a roof that may need replacing sooner than expected. The inspection usually costs a few hundred dollars, but it gives you peace of mind and can save you thousands down the line. If serious issues are uncovered, you may be able to renegotiate the purchase price or ask the seller to make repairs. In some cases, it may even save you from buying a home that could become a financial drain in the future.

Land transfer taxes

Another one of the most common closing costs is paying a land transfer tax. This fee is charged by your province or municipality whenever a property’s ownership changes. The amount you pay is tied to the purchase price of the home, so the bigger the price tag, the larger the tax. For example, Halifax has a land transfer tax of 1.5 per cent. This would mean that on a $500,000 property, this tax equals $7,500. As you can see, this is quite a large number. The good news is that first-time home buyers may be eligible for rebates or tax credits to help minimize this cost. Still, make sure this fee is included in your budget!

Property taxes

Property taxes are not a one-time closing cost, but something to prepare for every year. However, many first-time buyers forget about this expense, which is why we are including it here! These taxes fund local services like road maintenance, schools, and emergency services. The amount you pay depends on both the value of your property and the municipality you live in. In Halifax, for example, the average property tax rate sits around 1.25 per cent. While this doesn’t seem like much, it adds up over time, so be prepared!

Home appraisal

People sometimes confuse a home appraisal with a home inspection, but they are two separate processes. While the inspection points out issues with the house itself, an appraisal focuses on its overall market value. Many lenders require a professional appraisal before they’ll finalize your mortgage. This is because lenders typically won’t provide financing for more than a property’s worth. An appraisal compares your property to similar homes in the area, and determines whether your purchase price matches the property’s value. If the appraisal comes in lower than your offer, you will need to take action. You can try to negotiate a lower purchase price, or make up the difference yourself. If your offer included an appraisal condition, this would be your chance to walk away from the sale. While appraisals typically only cost a few hundred dollars, their impact can be huge.

Utility adjustments

Finally, we reach the cost of utilities. While many home owners have something to say on the cost of utilities, new buyers will face some of the highest bills. On closing, you may need to reimburse the seller for prepaid utilities like heat or electricity. At the same time, you’ll also be responsible for setting up your accounts, which can include connection or installation fees. While these may not be the largest costs on the list, they can add up quickly and are often due very close to your move-in day.

Common closing costs and extra expenses typically work out to around 1.5 per cent to 4 per cent of a home’s purchase price. You might be thinking that sounds miniscule compared to your down payment, and that may be true. However, it’s still a significant amount of money to have ready. By budgeting early for inspections, legal work, taxes, and moving, you’ll avoid unnecessary stress and step into your new home with confidence. Buying a home is one of the biggest financial decisions you’ll ever make, but don’t let hidden costs catch you off guard! With the right preparation, you’ll be ready for every step of the journey.

If you have any questions about your mortgage, get in touch with us at Clinton Wilkins Mortgage Team! You can call us at (902) 482-2770 or contact us here.