Purchasing a home, condominium, mobile home, or piece of land is, for many people, the largest and most important transaction in which they will ever be involved. Financing such a purchase can take considerable planning, involving meetings with banks and other mortgage lenders and brokers. Along with the purchase price, it is also helpful when planning your finances to understand the other closing costs involved in buying real estate.
Most lawyers will provide a detailed breakdown of each item that a buyer is responsible to pay at closing. The “statement of adjustments” typically shows the amount of the purchase price, any deposit that was made, municipal charges, deed transfer tax amounts, recording fees, title insurance fees, and legal fees. Especially for first time buyers, it is good to understand these charges in advance.
Municipal property taxes, as well as other municipal charges (such as sewer, water, or betterment charges), are calculated on an annual basis. The municipal tax year goes from April 1st to March 31st, and the tax bills for each municipal unit are issued early in the tax year, after each municipality has approved its annual budget.
When you purchase a property, it will usually be the case that the annual municipal taxes have been paid already. At closing, there will be an adjustment to give the seller a credit for the taxes they have paid in advance. The amount of the credit will depend on the time of year closing takes place, and the total annual municipal charges for the particular property.
Each municipality also charges a deed transfer tax. This is paid by the buyer, and collected at closing by their lawyer, who then transfers the funds to the municipality. Municipalities are permitted to set their own deed transfer tax rates. For example, Antigonish County, the District of Guysborough, and Victoria County charge a rate of 1.0% of the purchase price. The District of St. Mary’s charges 1.25%. Halifax, Antigonish Town, Inverness County, the Town of Port Hawkesbury, and Richmond County charge 1.5%.
Each deed and mortgage document needs to be recorded at the Registry of Deeds. This is typically done electronically from the lawyer’s office, but still involves a payment to the Province of $100 for each document recorded. This amount is collected at closing and is paid by the purchaser.
Title insurance is a product that provides insurance against fraudulent deeds or mortgages being recorded against your property, as well as other potential title defects, such as people claiming adverse possession of your property. The one-time cost of title insurance will range from $200 – $500, and will cover you for as long as you own the property.
Finally, you will have your own legal fees to pay, which you can always discuss with a lawyer at the initial meeting or at some other time early in the process. Most law firms will have a set price for certain types of transactions, which will vary depending on various factors. For example, if you are getting a mortgage, if it is a construction mortgage, if there are multiple properties involved, and many other variables. For most purchases, you should expect $1000 – $2000 (Plus HST) for your legal fees, though for more complex matters it can be higher.
In addition to the basic fees, your lawyer will charge for disbursements such as courier fees, photocopying, other administrative charges, and HST. These items should all be individually disclosed to you in the statement of adjustments.
Especially for first-time buyers, underestimating the amount of money you will require to complete your purchase can cause unnecessary stress. Understanding the full extent of the cost of your new property, including closing costs, will help make your new purchase as exciting an occasion as it should be.