When buying a home, it's important not to forget about closing costs. Closing costs are often overlooked by first-time homebuyers, leaving them scrambling at the last moment. Many buyers make the mistake of assuming their lender will cover them (false), or they won't amount to much (false again).
Often referred to as the transactional cost of real estate, closing costs typically add up to between 1.5 percent and 4 percent of a home's purchase price. For example, if you're buying a $700,000 home, expect to spend between $10,500 and $28,000 on closing costs. Still think closing costs are chump change? Let's take a look at three of the most common closing costs faced by homebuyers.
Real estate lawyer fees – cost: $1,500 (varies)
Unless you're well-versed in the intricacies of real estate law, it's highly recommended that you hire an experienced real estate lawyer. A real estate lawyer makes sure your home buying experience goes smoothly from a legal standpoint. Real estate lawyers often don't get the credit they deserve. They do a lot of the work behind the scenes to make sure everything goes according to plan.
Some of the duties performed by your real estate lawyer include: reviewing the offer to purchase, conducting a title search, preparing the statement of adjustments, and finally giving you the keys to your new home. When looking for a lawyer, it's a good idea to find one that specializes in real estate law. Consider asking family and friends for recommendations. Real estate lawyer fees can vary depending on the complexity of the deal.
Home inspection fee – cost: $500 (varies)
When buying a home, it's a good idea to get an inspection from a certified home inspector. For most families, a home represents the single largest financial transaction of their lifetime. A professional home inspection is money well spent. It gives you the peace of mind of knowing that you're making a rock-solid investment. Buyers typically include a satisfactory home inspection as a condition when making an offer.
When looking for a home inspector, friends and family are a good starting point. Make sure the home inspector is certified and experienced in residential properties. The cost of your home inspection usually depends on the type of property you're buying.
Land transfer tax – cost: varies (typically based on a percentage of purchase price)
Land transfer tax is certainly not a closing cost you want to overlook. It can end up being the most costly closing cost for buyers. Land transfer tax is a tax imposed on buyers by municipal and provincial governments.
The amount of land transfer tax you'll pay is different depending on the province where you buy, but it's typically based on a percentage of the purchase price. That means the higher the purchase price of your home, the more you'll shell out in land transfer tax. First-time homebuyers may catch a break – many provinces offer rebates to those buying a home for the first time.
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