What to expect at Closing
Congratulations! Your financing is approved, and all conditions of your offer to purchase have been completed. You next step is to meet with your Notary or Lawyer to complete the transaction. Expect a call from your notary/lawyer two to three WEEKS prior to your scheduled possession date to set up a meeting. Then, two to three DAYS prior to your possession date, you will meet with him or her to finalize the transaction. The following are some of the costs and other charges to expect at the meeting. Please keep in mind that these costs are an estimation, and that your lawyer will provide the exact numbers.
Down Payment
You will be expected to pay the remaining portion of your down payment at the meeting. This amount is the difference between the down payment amount you stated on your mortgage, and the deposit amount you gave to your Realtor.
Tax Adjustment
Property taxes are calculated yearly from January 1st to December 31st, but are billed on June 30th. Confusing right?! This means that if you move prior to June 30th, you’ll receive a tax bill for the entire year come the end of June. Your lawyer will ensure that the vendor gives you a credit for the number of days they’ve occupied the home, and are responsible for paying. If you move in after June 30, then the vendor has paid for the year’s taxes, which you will be responsible for reimbursing.
Tax Holdback
If your mortgage lender is going to be collecting your property taxes, a tax holdback may be required. For example, if your property taxes are $1200 per year, and you move in on October 1st with a first payment November 1st, your lender will only have the following 8 months to collect taxes. Assuming that they collect 1/12 of the 1200 or $100 per month, come June 30th of the next year your tax account would then be $600 short. By requiring a tax holdback of $600.00 at closing, they insure that you have sufficient funds in your tax account to meet your property tax obligation for the following year.
Interest Adjustment Date
This is the date from which interest on your mortgage is calculated. For example, if your transaction closes on the 27th of the month, but you would like payments to be on the first of the month, your Interest Adjustment Date would be the 1st of the next month.
If your Interest Adjustment Date and your closing date are not the same date, you’ll be required to pay the interest on your mortgage for the period between your closing date and the Interest Adjustment Date. In the example where you took possession on the 26th, assuming a 30 day month, you would be responsible for 4 days of interest on the mortgagee amount. Some lenders will deduct this from the original mortgage advance. This means that you will make up the shortfall at your lawyers. That being said, some lenders will simply deduct this amount directly from your bank account.
Title Insurance
Your lender may require title insurance, or you may choose to take title insurance in replacement of a new Real Property Report or Survey. Title insurance can protect the mortgage lender, or you from title defects. In most cases Title Insurance is mandatory in BC.
Bridge (Interim) Financing
When you take possession of your new home, all funds are required on that date. This includes the mortgage money and the down payment (or cash shortfall). If your down payment is coming from the sale of your existing home, and this date is after tje possession date of your new home, you will not have that money yet. In this case, you take out a short-term loan (usually with the lender you are doing the mortgage with) that covers the cash shortfall required to complete your purchase. You will pay interest on this loan, and depending on the lender, a fee will be charged. This loan is paid off when your lawyer gets the money from the sale of your home. Please note that a requirement to obtain bridge financing is that there is a firm and accepted offer on the sale of your home with no conditions outstanding.
Fire Insurance
You are required to provide your notary/lawyer with a copy of fire insurance on the home you’re purchasing. Your insurance agent will usually handle this, but you need to make sure you have an insurance agent in time to get the relevant documents to your lawyer. When purchasing a condo, your condo fees usually include fire insurance coverage. Therefore, when you call your insurer, tell them that you’re buying a condo, and therefore need condo insurance. This charge is usually cheaper than house insurance. You will need the following lender information for your insurance company. This is who should be listed as first loss payee on the policy.
Lawyer Fees
This is your lawyer’s cost to complete the closing process. When setting up a meeting, make sure to ask if the quoted price is just legal fees or includes disbursements. Feel free to contact me to review his quote, and see if I can source you a better option.
Other charges
In some instances, when moving into a Strata managed building, there will be added costs that you should expect to paid for at the notary/lawyer.
- Move in fee
- Insurance Binder Fee
- Strata form Fee
- Utility fee for the remaining potion of the year
Appraisal
If required, you may be responsible to pay for an appraisal. Ask your Broker for an approximate cost. Appraisals are not usually required with a high ratio mortgage (LTV >80%).
In conclusion, at the meeting your lawyer will provide you with a statement of all the relevant adjustments that have been made. This will outline in detail the costs incurred for your transaction. If you have any questions or concernsI’d be happy to review this with you. Before going to your lawyer’s office, they’ll ask you to bring funds to close your purchase in the form of a draft or certified cheque. They will also ask you to bring the following:
- 2 pieces of ID. One must be a picture ID
- VOID cheque on the account you would like the payments to be withdrawn from.
- You may also be asked to sign a Life/Disability Insurance acceptance/waiver. This is insurance that is offered by the lender.
As always, feel free to contact me if you have any questions.
All the best,
-D