The home buying process is a long and involved one. At the end, the buyer must pay closing costs before the transaction can be complete. It's very important to know what closing costs are, about how much they'll be and when they're due. Home buyers who are aware of their closing cost obligations may find the home buying process easier and less stressful. Here's what you need to know.
When, Why and How Much to Pay
During the home purchase process, buyers require the services of many different government offices, businesses and professionals. Closing costs are the various fees associated with these services.
Closing costs are due at the end of the "escrow period." This is when the payment for the house is transferred from the home buyer to the seller. Closing costs are generally between 1.5%-4% of the purchase price of the home. However, it's hard for home buyers to determine exactly how much they'll owe for closing costs until they're very close to the end of the escrow period.
The reason that closing costs vary so much is because different provinces and different communities have different fees associated with home buying. In addition, some home purchases are more complicated than others, and require different services in order to go smoothly.
Examples of Closing Costs
A typical example of closing costs are the legal fees paid to the real estate attorney who helps with the home buying process. Usually attorneys charge between $500 and $1,500 for these services, depending on what's needed and their hourly rate. Home insurance is another example of fees that are often paid at closing.
Home insurance is a requirement for home buyers who are getting a mortgage, but it's a good idea for everyone to get home insurance. The first year of home insurance is paid just before the sale finalizes, to ensure the policy is in place when the house transfers ownership.
Title insurance is one more example of a closing cost. Title insurance protects home buyers from a variety of problems, including identity theft and forgery.
Budgeting for Closing Costs
Budgeting for closing costs can be a challenge. Staying in close contact with the lender, real estate agent and lawyer may enable buyers to get a rough estimate on the final total for the closing costs early on in the home buying process.
When setting aside money for closing costs, buyers must also remember that they must also have money for their down payment and money for relocation. These expenses are generally considered separate but essential costs in the home buying process. In addition, most buyers will also need to have money on hand to make home improvements after moving into their new house.
Making a budget early in the home buying process can help the home buyer to afford the closing costs. Budgeting for the outside maximum amount (4% of the purchase price of the home) will help ensure that the buyer will have enough when the time comes to finalize a sale.
Contact Your Real Estate Professional
If you're a Springbank home buyer who will soon be making an offer on a home, work with your real estate professional to learn more about the closing costs and the home buying process. Your real estate professional can answer your questions and guide you throughout the home purchase.
Justin Havre is the top producing REALTOR® with RE/MAX First, Canada's very first RE/MAX brokerage. Calgary real estate is his passion; Justin specializes in Southwest & Northwest Calgary homes for sale. He can be reached at 403.217.0003 or contacted through this site.