The excitement of purchasing your first home can come to a screeching halt when you encounter a final figure for closing costs that is higher than the pretty Excel spreadsheet you had spent months painstakingly drafting. What some new buyers may not know is how many separate line items you have to consider when calculating your closing costs.
When calculating this, begin with the purchase price (lets use the example of $500,000.00). Next, subtract how much you have already put down as a deposit with the Real Estate Brokerage who listed the property (for example $20,000.00). That is not all. You will then need to adjust for things like property tax (in the case of condominium purchases, you will also have to adjust for the common expenses or maintenance payments you pay to the condominium corporation. You make this adjustment by determining the final tax amount for the year, dividing it by the number of days in the year and use that to determine how many days the seller and buyer are responsible for paying respectively. Once you have made this adjustment, you will take the purchase price, subtract the deposit and adjust for the taxes and this will give you the balance due to the seller on closing. If you thought that was all, you would be wrong.
Your balance due on closing will be the amount you owe the seller, plus the fees and disbursements payable to your lawyer's office for completing work on the transaction, title insurance for the new property and finally your land transfer tax (based on purchase price). Once you have determined this total amount, you can then proceed to deduct from it the amount you plan on receiving from your lender and that will allow you to accurately calculate the amount you will need to have ready on closing so that there are no surprises on the closing date.
So when you are thinking about how much money to put aside for a purchase, keep in mind the following and you will be able to plan better:
Legal Fees & Disbursements
Title Insurance
Land Transfer Tax
Property / Realty Taxes
Common Expenses / Maintenance Fees
*** Please note that this blog post is not intended to provide legal advice. It is merely for educational purposes only. Please contact a lawyer for legal advice on this or any other residential real estate matter. ***
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