Closing Cost
By on Jul 28, 2008
When you're budgeting for your new home, whether it is new or resale, one of the important factors to consider, as soon as you decide to walk down the path towards a real estate purchase, is your closing costs.
Closing costs are those additional expenses that come as part and parcel with making a real estate purchase. These costs are different based on whether you are buying and selling, or just doing one, and they also differ depending on whether you're purchasing new or resale. They can also differ if you qualify as a first time homebuyer. Here is an overview.
In order to qualify as a first time homebuyer you must not have owned any piece of real estate anywhere in the world ? not just North America . Where you save as a first time buyer is on the land transfer tax. If Ria is looking to purchase a brand new condo in Toronto or North York (which falls within the 416 area code) she will be subject to not only the ?old? land transfer tax but also the new municipal Toronto land transfer tax.
In a nutshell the total tax is near the 2% mark of the purchase price ? it's slightly lower than 2% if your purchase price is near $300,000 and slightly higher if it is nearer to $400,000. As a first time homebuyer, not only are you exempt from the municipal tax, cutting your cost in half, but you also receive a rebate of $2,000, if you're buying new. If you're purchasing resale you are still exempt from the municipal tax.
So for Ria, if her condo purchase price is $350,000 her land transfer tax would stand to be around $7,000. But if she qualified as a first time buyer, and if she were purchasing a brand new development, the cost would whittle its way down to about $1,800.
It's important to keep in mind that buying new carries additional closing costs of about $1,000-$1,500 when compared to resale.
The other major closing cost component is the legal side. This includes your legal fees, disbursements, title insurance and registration. The cost here would be around $1,250-$1,500.
When you realize that many buyers have a plan of using that $10,000 of their hard earned money, sitting in their bank, for their down payment, and they forget about the closing costs they'll require additional liquid assets to cover, you quickly comprehend the need to understand these closing costs in detail.
For Ria, her closing costs could arguably close in on $10,000 alone. On the same token, by educating herself on her rights and possibilities as a first time buyer, for instance, she could save potentially $4,000.
A wise man once said that anything worth doing is worth doing well. When it comes to buying that house or condo, doing well also means saving money!
Amit Paul is a realtor, owner and partner with two Toronto real estate firms. He can always be reached at ap.1@rogers.com.
