Closing the deal

In this article, we will explore the third stage ‘Closing the deal’ in detail. This is when you turn your mortgage pre-approval into a full-blown approval.

Accept the home inspector’s report

A home inspection is a visual examination of the physical structure and systems of a house, from the roof to the foundation. In British Columbia, inspections are performed according to the Standards of Practice of The Home Inspectors Association of BC (HIABC).

Allow up to five days to schedule an inspection. As a home buyer, you want to make sure there’s nothing wrong with your home that would make you not want to own it or would make you seriously reconsider the price you’re paying. A home inspection should identify the need for major repairs, builder oversights or other building deficiencies.

Generally, an inspection includes a home’s heating system; interior plumbing and electrical systems; the roof, attic and visible insulation; walls, ceilings, floors, windows and doors; the foundation, basement and structural components.

Registered Inspectors are required to meet rigorous requirements, including passing comprehensive written technical exams, and be registered with the BC Government. Click on this link to confirm if your inspector is licensed.

A home doesn’t pass’ or ‘fail’ an inspection. The home inspector will evaluate the current condition of the home and indicate components and systems which may need repair or replacement. If you discover major issues with the home, you can:

1. Ask the seller to make repairs

2. Ask the seller to reduce the price of the home and schedule someone to make the repairs

3. Accept the deficiencies and live in the home anyway.

Obtain a final mortgage approval

Before having an accepted offer on a home, you got a “pre-approval” which isn’t a full approval. It’s essentially a confirmation from the lender that they have qualified you as a borrower, but they haven’t confirmed all of the information you provided is accurate, and they need to approve the property that you’re buying

At this stage, they’ll want to review the property purchase agreement, the MLS listing, and strata corporation documents to verify they are happy with the property. If all goes well, they will provide an conditional approval with a commitment letter. The commitment will also list all of the conditions you need to meet in order for them to fund the mortgage.

Satisfy lender conditions.

You want to move quickly to satisfy lender conditions because if you are unable to meet their documentation requirements, you may have to find another lender in a hurry. Typically, they will want documents to confirm:

• How much money you make

• Sources of your down payment

• The value of the property

• The property ‘conforms’ to their lending standards

What do lenders mean when they say they want your deal to ‘conform’ to their lending standards? If the property has some characteristic that makes it less desirable, then they may not want to use it as collateral for a loan. Examples include former grow-op, heritage status building, poorly managed strata corporation.

Schedule the move

When scheduling movers there are 3 steps:

1. Find 3 movers who you believe will do a good job

2. Ask for a quote

3. Schedule the move

Find 3 movers who you believe will do a good job

Check the background of a moving company and read their reviews. With movers, you often get what you pay for, but just because they are expensive, does not mean they will be good.

Ask for a quote

Ask for a quote in order to compare the costs by different movers and their availability. Don't just compare the sticker price, understand how they're calculating their quote. This is important because they're providing you with an estimate based on the information you provided, and you’ll want to understand how changes to this information will impact the final price. If you have antiques to move or other items that require special care, be sure to tell the movers before they give you a quote.

Make sure the moving company has the necessary equipment to dismantle and reconnect kitchen appliances and has knowledge about how to handle fragile or expensive items. Consider the experience level of the movers which is based on factors like years in the moving business, speed of delivery, availability on the moving dates you’re interested in, and whether they are providing any additional services, such as packing or storage. Factors like packing are important when you live in a larger home or have no time to pack yourself.

Schedule the move

If you have a deadline by your landlord to leave your home, then availability on specific dates is important. Make sure you get written confirmation of the important dates in writing before you sign any commitments.

Get home insurance

When you buy a home, the lender requires you to get home insurance but they only require bare-bones coverage for the value of the building. That being the case, your home is likely your most valuable investment and it is wise to ensure that you have enough coverage to protect yourself in case of emergency.

For more information on the types of home insurance read our full report. To get a quote on house insurance, visit our partner site SquareOne Insurance.

Schedule a locksmith

You have no idea to whom the previous owner or builder may have given copies of the home keys. There are many legitimate reasons to give people copies of keys but, as a homeowner, you want to know that no one unexpected will be walking through the door while you’re in your pyjamas!

This is why you need to rekey all the locks in your new home. Rekeying should not be confused with replacing a lock. You don't need to replace the locks in your new home. A locksmith simply disassembles the lock cylinder - the area that accepts the key - discards the old pins and replaces them with ones that fit your new key. This is not an expensive procedure and usually only takes a few minutes to change several locks.

Confirm property is in good condition

Arrange a final walk-through with your real estate agent at least one week before closing the deal. The goal is to confirm the property’s condition hasn't changed since you last saw it, that any agreed-upon repairs have been made, and that any other terms or clauses of your contract have been met.

Understand all the closing costs

The closing stage involves everything that occurs between finalizing a purchase agreement and the date when you complete the purchase.

Pre-Closing Costs

Prior to the closing date, there are often costs related mortgage conditions and your own due diligence. These include a home inspection, property valuation, and a land survey. Land surveys are rare in major urban centres and more common in rural areas.

Home Inspection

Approximately $250 or more

Homebuyers should always make an offer to buy a home subject to the property meeting certain conditions, and a critical requirement is a satisfactory home inspection. A home inspector will do a physical inspection of the home, will review the sellers’ disclosures, and, in the case of a condo, they will also review the strata documents. They will report the condition of the home and the cost of any repairs that will be needed in the near future.

Keep in mind the home inspection is primarily a visual inspection and may not uncover problems hidden behind the walls. Nor will it necessarily tell you if work has been done on your home without appropriate permits.

You may also want to ask the seller if there's any stigma attached to the property. This is a sensitive topic. You are trying to determine if the property has a history that may be of concern to you but is not related to the structure or physical condition of the property. Examples of events that could attach a stigma to a property are things like:

• a death has occurred at this property

• a former resident was a suspected member of a criminal organization

• the property has a history of break-ins or vandalism

• there are reports the property is haunted

• a sexual offender has lived on the property

• a violent crime has occurred on this property

In some provinces, real estate agents are not required to disclose information related to stigmas. If any of these examples would concern you, make sure your real estate agent is aware of them and that the seller and sellers’ agent are specifically asked about these types of events.

Property Valuation

$100 or more for Automated Valuation

$360 or more for an Appraisal Report

When you are approved for a mortgage, the lender will advance cash equivalent to a specified percentage of the value of the property. As a home buyer, we tend to think that the value of the property is the same as the agreed price of the property. A lender, however, will always use the lower of the purchase price and the property valuation when determining how much cash to advance.

There are three primary methods for valuing a property. They are:

1. An appraisal by an appraiser;

2. Automated valuation, and;

Both methods rely heavily on a comparison between the property appraised to other similar properties recently purchased in the vicinity.

Land Survey

Approximately $500 or more

When buying a detached home (particularly with a large piece of land), lenders may require you to obtain a land survey to confirm the dimensions and characteristics of the property match municipal records and the description in the purchase agreement. 

Closing Day

Closing day is the date you meet with a lawyer or notary public to sign all of the documents. When you use Mortgage Sandbox calculators, they will provide you with a rough estimate of closing costs.

Legal Fees

$800 or more

Legal fees cover the cost of researching the property, confirming what mortgages and liens will need to be removed from it to effect the transfer.

The due diligence means reviewing the contract, the mortgage instructions, the property tax certificate, the strata forms, and the title search.

To complete the transfer, the lawyer will to prepare several documents, including a statement of adjustments and land title documents.

On the completion date, they will file the documents with the land title office and send out the cheques (including the sale proceeds cheque to the other lawyer).

The legal fees don’t necessarily cover the land title office fees, title searches, courier fees, tax certificates, insurance binders, or strata forms. Many firms charge you for those fees separately, so be sure to ask what is included in the quoted legal fees.

Insurance Binder Fees

The lender will require that you have home insurance before advancing the mortgage funds, so your lawyer will request an insurance binder from the insurance company that proves you have property insurance. There's typically a fee $35 - $40 to obtain an insurance binder.

For strata properties, the necessary insurance will have been bought by the strata corporation.

Title Insurance

There are two types of title insurance. Insurance for the lender and insurance for the homeowner.

Lender Title Insurance

Most lenders will require that you purchase title insurance to protect the lender from any issues with the title, including the potential for fraud. A lender policy can cost as little as $100.

Homeowner Title Insurance

Homeowner title insurance may be as cheap as $25. Homeowner title insurance protects your legal rights to own your home. Purchasing a home is the biggest financial commitment we make and few of us realize the potential risks of someone threatening our clear ownership of our home. You can buy title insurance when you are buying your home or you can purchase it later after the deal has closed (There is often a 6 month waiting period after your close date to add on a homeowner policy if it was not bought at the time of your home purchase). It is never too late to buy a homeowner policy and typically the cheapest time to purchase a homeowner title insurance policy is when you buy.

Read: Why do you need title insurance?

Mortgage Default Insurance

If you're putting less than 20% of the value of your home as a down payment, you will have to pay mortgage default insurance. The cost of the insurance premium is between 2.8% and 4.5%.

Read: Mortgage Loan Insurance Costs

Property Transfer Tax (PTT)

Provinces and municipalities can charge homebuyers when a property is transferred into their name. Below we summarize the PTT for Toronto and Vancouver. Vancouverites only pay a provincial tax whereas Torontonians pay a provincial and municipal tax.

Toronto PPT

Ontario Land Transfer Tax:

• 0.5% of the value of the property up to and including $55,000

• 1% of the value which exceeds $55,000 up to and including $250,000

• 1.5% of the value which exceeds $250,000; and

• 2% of the amount by which the value of the consideration exceeds $400,000 for land that contains at least one and not more than two single family residences.

Toronto Land Transfer Tax:

• 0.5% up to and including the first $55,000

• 1% of the value which exceeds $55,000 up to and including $400,000

• 2% of the value over $400,000

Vancouver PPT

BC property transfer tax rate is:

• 1% on the first $200,000,

• 2% on the portion of the fair market value greater than $200,000 and up to and including $2,000,000,

• 3% on the portion of the fair market value greater than $2,000,000, and

• 5% on the portion of the fair market value greater than $3,000,000 (effective February 21, 2018).

Unhappy with BC Property Transfer Taxes? Count yourself lucky! If you live in Toronto, you will pay both a provincial and Toronto property transfer tax. People in Toronto pay a cumulative 4% on the value of a home above $400,000. That’s double BC’s rate.

Goods and Services Tax / Harmonized Services Tax (GST/HST)

Depending on your province, you will need to pay GST or HST. In some cases, you may be eligible for a rebate. GST in British Columbia is 5%, but in Ontario where they pay HST the tax is 15%. Buying a new home in a province with GST is significantly cheaper than buying in a province with HST.
The harmonized sales tax (HST) is a consumption tax in Canada. It is used in provinces where both the federal goods and services tax (GST) and the regional provincial sales tax (PST) have been combined into a single value added sales tax.

Property Tax and Municipal Utilities

Property tax and Municipal Utilities like water and sewers are paid annually. As a result, the seller of a property may have already paid the taxes and fees for the year when you take ownership, so the buyer needs to reimburse the seller for the buyer’s portion of any taxes or utilities paid. This is called an adjustment and it will be calculated in a statement of adjustments that the lawyer will present to you and confirm.

More important than the adjustments, your lawyer will ensure the seller doesn’t owe any outstanding amounts to the city because any money owed to the city is attached to the land rather than attached to the person. In other words, if there is an outstanding unpaid bill the city will seek to be repaid by the current owner, even if that isn’t the owner who owed the money in the first place.

Post-Closing Costs

Mortgage Discharge Fees

Eventually, you will want to pay off your mortgage. The cost for cancelling a mortgage is relatively standard unless you are transferring it to another financial institution. Your lender may charge you anywhere from $75 to $365 when you transfer to another lender, and there may be other fees.

Moving Costs

Moving costs can be significant. If you pay for the movers to wrap and pack your belongings and move them to your new home, the cost can easily reach thousands of dollars. Before you start shopping for a home, we recommend that you get a moving company to provide an estimate and include this cost in your home-buying budget.

There are a lot of cheaper options for moving your belongings. Just remember that you put a lot of thought and care into choosing the items that you own today, and the less expensive options may have a higher risk of damage to those belongings. Speaking from experience, the cost of replacing damaged items can well exceed the savings of a cheaper moving alternative. Imagine the disappointment of finding 2 broken wine glasses out of a 4 glass set, or having a 50 inch television that works perfectly but has a 1 inch crack in the corner of the frame.

Moving costs are typically calculated using a combination of:

• the distance you will be traveling,

• the amount of space that your furniture will take up in the truck(s),

• the weight of those belongings, and

• the number of people they believe will be needed to get the job done.

If you have oversized items, or your home is difficult to access, this could add additional costs.

Utilities Hook-up and Connection Fees

Electricity and Natural Gas:

When you open a new account with your utility, they will charge you a setup charge, typically $15 to $30 plus tax.

The cost isn't that great even after you add sales tax, but, if you don’t have a strong credit history, you may also be asked to leave a security deposit with the utility. Keep in mind you may have to set up a different account for Electricity and Natural Gas.

Internet:

Mortgage Sandbox scanned an internet provider comparison site and saw activation / setup fees in a range of $30 to $100. Some providers didn't have an activation fee, but it’s a competitive marketplace so it’s likely those that don't charge an activation fee make up the difference in their monthly charges.

Minor Repairs and Improvements

You've toured the home, there's been a home inspection, and you feel really good about your new purchase. You should still budget approximately $1,000 toward minor repairs and improvements.

Whether it's damaged electrical outlets, a minor toilet leak, accidentally scratched hardwood floors while setting up your living room, or finding out there are no studs in the wall where you wanted to hang your television, there will always be repairs and improvements you'll want to make after move-in.

Annual Property Taxes

If you live in Metro Vancouver a good estimate for your property taxes is $3 for every $1,000 of home value. For example if you own a home worth $500,000, your annual property taxes would be $1,500 or $125 a month. The City of Vancouver has a lower property tax rate because the average value of a home is higher, while outlying municipalities have higher rates and more affordable home prices. 

Regular Utility Costs

A recent study found that the typical household in Toronto pays the highest hydro rates at close to $200 per month, while Vancouver sits at $115 per month, and Montreal seems to get the best deal at just over $80 per month.

Of course regional weather, the average size of a home, the construction of the home, and whether you have electric or natural gas heating, are all factors in hydro bill. Since you haven't found a home yet you should budget for the typical cost.

Paying for electricity may not be new to you but some renters have utilities included in the rent and aren't accustomed to the monthly cost.

Annual Home Insurance

Home insurance can range from $450 a month to over $1,000 a month depending on the type of home you own. Use one of our calculators to get a broad estimate of insurance costs, or get a detailed quote and add it to your home-buying budget.

Commuting Costs

In pursuit of affordability, many people are moving to new neighborhoods. In some cases they're buying homes that are further from their work, or they're no longer able to take transit to work. You should have an idea of what neighborhood you want to live in and use Google Maps to figure out distances. Then factor in any incremental transit or vehicle costs resulting from your move.

As a rule of thumb, we recommend you use 50¢ per kilometer to approximate your travel costs when driving. This is based on the Government of Canada vehicle allowance rates.

Parking Costs

Again, if you're going to start driving to work you may have to pay for parking. Research monthly rates for parking near your office and add these to your budget.

Repair Fund

The average lifespan of a roof is 15 to 20 years, a refrigerator’s is about 15 years, window seals’ 20 to 30 years, a hot water heater’s 8 to 12 years,and a furnace’s up to 20 years.  Eventually all these will need to be replaced! Then there is cosmetic maintenance like a fresh coat of paint every few years and new carpets or refinishing the floors. Whether you own a house or a condo there's a good chance that one of these major expenses will happen sooner than expected and present you with a big expense.

As a rule of thumb, we recommend you budget 10¢ per square foot per month for maintenance and repair costs. If you own a 1,000 square foot apartment, for example, budget $100 per month for maintenance and repairs. Talk to your bank or credit union about setting up a special savings or investment account that automatically takes the monthly amount on your pay day and sets it aside for that rainy day. This way in 10 years when you have to spend $20,000 on a new roof, you'll be ready. 

If there  is anything unclear in the explanations above. Please let us know so we can improve our advice for the next reader.