Make sure closing costs aren’t a surprise

Imagine, you’ve worked hard and you’ve saved for a substantial down payment, your lender approved your mortgage at a great rate, you take possession in just a few days, and you’re sitting down with your real estate lawyer to go over the final paperwork…. you can barely contain your excitement.

Then you see a document called Fees and Disbursements.

$200 in title insurance? What is that? $1,200 lawyer fee? Property taxes for the current year? Hasn’t the current owner already paid those?

Sometimes these costs come as a shock to first-time buyers, and if they haven’t kept some money aside, the transaction could be in trouble.

Title insurance works like a standard insurance policy. As insurance, it covers the loss of an interest in a property due to legal defects. Your lender may require title insurance, which you, as the buyer, will have to pay for even though the lender’s title insurance policy is for the sole benefit of the lender.

Your real estate lawyer works with you and your lender to ensure the purchase funds get from the lender, to you, to the seller. They register you and your mortgage on the property title, and make sure the previous owner’s information/mortgage is discharged. Your lawyer will review the property’s Real Property Report with you, largely to ensure compliance. The services your lawyer provides will be a cost to you, the buyer. Ensure you have money in your budget to pay your legal fees. They can easily be $1,000 or more.

Property taxes in most Alberta municipalities are due by June 30. So if you take possession of a house on July 2, the previous owner (the seller) has already paid property taxes for the entire (current) year, even though they won’t own the property for part of the year. Property taxes are adjusted upon closing. As the buyer, you are responsible for property taxes for the months of the current year in which you are the owner of the property. You will have to pay (reimburse) to the seller the portion of property taxes they paid for the current year for months in which they will not be the owners of the property.

Be prepared

Ask the experts. Talk with your real estate and mortgage professional. They can help you determine what closing costs you need to plan for. Talk to a tax expert if you are still unsure.

Read about title insurance and other closing costs on reca.ca. November is Financial Literacy Month, and RECA encourages Albertans to think beyond the purchase price.