One of my Clients has requested that I write an article about "closing
costs", a real surprise for some first-time buyers.
Shelly is buying a freehold townhome for $117,000. She has already
given $1000 towards the down payment, as a deposit with the offer, and
will put a further $10700 down at closing. She has been approved
for the difference ($117,000- $11700 = $105300) through a CMHC insured
mortgage. She realizes that there are closing costs. Canada
Mortgage & Housing Corporation (CMHC) pamphlets indicate that most
people with only 5% down must prove they have 1.5% of the purchase price
in reserve to pay for closing costs. Even though she is putting down
10%, she assumed the same 1.5% rule would apply to her, therefore closing
costs should be $1755 (that's $117000 X 1.5% = $1755). She has saved
all her young life for this opportunity at independence ........Home Ownership!
She wanted to put down 10% to save on the amount of the CMHC insurance
premium. With 5% down, the premium would be $4168; while with 10%
down the premium would decrease to $2632. From various sources, she
reads that there are surprises at closing so instead of $11700 down plus
$1755 for closing (totals $13455), she sets aside $15,000. She has
already given $1000, so she has $14000 left over. Two days before
closing, her lawyer's office calls and left a message on her answering
machine advising her to bring in certified funds for $16285. How
much? The lawyer had to be mistaken! How could she be short
$2285? The Real Estate Agent already had $1000, closing costs should
be $1755, and the balance of her down payment, $10700 does not add up to
$16285. Even though she planned for incidentals, where would she
finds $2285, two days before closing?
She called the lawyer who said he would look into the arithmetic and
send her a "statement of adjustments" later that day. About 4PM it
arrived. Here is a copy of that statement:
Law Society Levy $ 50.00
Search of Title $ 90.00
Tax certificate $ 50.00
Water certificate $ 30.00
Condominium Estoppel Certificate (joint use of common areas)
$ 53.50
Hydro Arrears Enquiry $ 10.00
Gas Arrears Enquiry $ 16.05
Sheriff's Certificate $ 88.00
Registration Costs (deed & mortgage) $ 100.00
Courier Charges $ 30.00
Zoning Compliance $ 128.00
Miscellaneous Disbursements (photo copies, postage, long distance
etc.) $ 50.00
Survey $1070.00
TOTAL LEGAL DISBURSEMENTS $1765.55
Legal Fees $ 642.00
Land Transfer Tax $ 895.00
PREPAID PROPERTY TAXES (lender requirement) $1452.00
CMHC application fee $ 235.00
PST on CMHC Premium $ 210.60
House Insurance Premium $ 384.85
Balance of Down Payment $10700.00
The expensive "surprise" was the survey at $1070. The lending
institution insisted on a current building location survey. The prepaid
property taxes was explained to her by her lender but she figured she had
it covered by putting away that extra little bit at the onset. What
was she to do? She presented herself to her bank who told her to
borrow on her credit card (at almost 20% interest). She thought buying
a home was supposed to be a pleasant experience; it turns out that it was
a frustrating, and expensive proposition.
When you put in that offer, make sure you have enough in reserve to
handle any little emergency.
She is not the only Client I have had to complain about the cost of
"closing" the deal.