It is important to have a budget when you are looking for a cottage or recreational home. Most people do have a number in mind when they begin their search for the perfect property. But what many people do not include in their budget, especially first time home buyers – are their closing costs. Closing costs generally range from 1.5% to 4% of the selling price of your home. They are the legal and administrative costs that you will need to pay on closing day.
Below I have compiled what I consider to be basic closing cost estimates. These are in no way an exact number but more of a guideline to help you understand what costs you will incur when buying your cottage.
a) Home Inspection: typically around $500
b) Deposit: this is required when you make an Offer to Purchase. The amount required will vary depending on where in cottage country you are purchasing your new home. Generally, I would count on putting down about 2-5% of the purchase price in your deposit.
c) Legal Fees and disbursements: these start at $500
d) Title Insurance: needed to protect against losses in the event of a property ownership dispute. You will get it through your lawyer and will cost $100-$300. Most lenders will require this.
e) Mortgage Insurance: this is mandatory in Canada for any down payment between 5% and 19.99%. This insurance will protect the lender if you default on your mortgage. It should cost approximately 1.75% – 2.75% of your mortgage amount
e) Land Transfer Tax: this is charged on closing day and can vary depending on the price of the home, whether you are a first time home buyer and which city the house is in. Here is a link that will help explain the amount and tax credits that you may be eligible for: http://www.fin.gov.on.ca/en/tax/ltt/
f) Property Tax and Prepaid Utilities Adjustments: at the time of a sale, if the previous owner has prepaid property taxes or other utilities for the year, they will be credited the prepaid portion on closing.
g) Moving Costs: these costs are often the most over looked and can cost quite a bit. Factoring in how much it is going to cost you to transport your belongings and your family to your new residence is a good idea.
It is important to be aware of closing costs at the cottage. Most people do not budget properly for their recreational home – if it’s out of sight, it tends to be out of mind. Don’t be thrown off by closing costs; plan accordingly and do your research. If you need some help figuring out what your closing costs will be, feel free to contact me for advice.