Every so often, a story will appear in the news: “Condo buyers caught off guard by closing costs.” Someone purchases a condo or a house without doing their homework. As the sale goes through, they’re surprised to find that there are fees that they didn’t budget for.
It’s unfortunate that high closing costs surprise some people. But the truth is, it shouldn’t come as a surprise. Buying property can be a challenging process, and it’s one of the most expensive. If you’re spending all that money, you should be doing your research!
Closing costs can be a bit mystifying at times. That’s why in today’s article, we’ll help clear up the confusion around closing costs. Here are some of the most expensive closing costs that investors should factor into their accounting.
What are Closing Costs: Deposit
The deposit should come as no surprise. You’ll need to pay a certain percentage of the price of the condo on signing, and throughout the building process. Make sure you know exactly what the payment structure is, and ask for this in writing up front. One advantage to new condo builds is that builders break up the deposit structure into smaller amounts. That way, you don’t have to pay the deposit all at once. You can space it out into three or four smaller payments over a few months to a few years. A 20% dump of cash can be a little intimidating! But, many developers accept four 5% payments over the course of the building process. This is much more manageable!
The deposit makes up a large part of the fees, but don’t get comfortable – the little stuff adds up!
What are Closing Costs: CMHC Insurance Premium
Are you going to put less than 20% down on your condo? If so, the Canadian Mortgage and Housing Corporation (CMHC) will charge you a premium on your mortgage insurance.
This varies from province to province, but is typically between 0.5% and 2.5% of the principal of the mortgage insurance.
Often, this fee can be factored into your mortgage and you don’t have to pay it up front. Most real estate investments require a minimum of 20%, so you likely won’t need to consider the CMHC fee.
What are Closing Costs: Legal Fees
Legal fees are another standard closing cost. Depending on the lawyer you use, you’ll pay between $1,000 and $2,500 in legal fees.
It’s important to choose a competent lawyer to take care of your condo’s closing. Condos are a big purchase. You want to make sure you dot those i’s and cross those t’s!
What are Closing Costs: Other Fees the Builder May Pass to You
A savvy investor knows how to ask the right questions when buying a property. There are some important questions you, too, should be asking. What other fees are the builder passing on? Will the builder cap closing costs?
Other fees you need to consider, but may not be necessary depending on your situation are:
Home inspection
GST, where applicable
Title insurance, and Utility service deposits
Builder and Educational levies
Generally speaking, closing costs usually add up to 1-4% of the purchase price. Although a 1% difference in closing cost may seem small, it could be thousands of dollars. The more homework you do, the better prepared you’ll be for your purchase. And the less likely fees will surprise you.
Source: Canadian Real Estate Wealth
Note: This article has been revised for the Alberta market. Please click the link below for the original article:
Canadian Real Estate Wealth - What are closing costs? An insider's guide to condo purchases and fees