The ABCs of buying a house
Part III: Closing costs
In Part I of my article I discussed the different players involved in a house purchase. In Part II, I discussed the Offer to Purchase and the mortgage process. In this last part, I will discuss the many closing costs involved in purchasing a house.
After you find that perfect house that you intend to make your new home, you must now turn your attention to all the legal and financial matters involved in your purchase.
In addition to paying for the house itself, there are a number of standard closing costs that you must also prepare for. In my practice, I will provide my clients with “Estimated Closing Costs” just prior to their possession so that they know how much they need to prepare and where all their money is going to.
The breakdown of the purchase price into the deposit, down payment and mortgage was discussed in Part II of my article.
Our land titles system in Manitoba has a delayed registration process. Documents presented for registration typically take approximately two to four weeks to be finalized. If the purchaser has obtained a new mortgage to pay for the house, the lender will not release the mortgage money until they receive the lawyer’s report advising that registrations are complete and that their interests are protected.
In the meantime, although the purchasers are now living in the house, due to the delayed registration system, the vendors still do not have their money. Consequently, lawyers are under an obligation, based on standard closing conditions, to collect interest for a period of one month. These funds are then used to pay the vendor interest, which is calculated by using the unpaid portion of the purchase price, the interest rate of the purchaser’s mortgage and the number of days from possession date until the date of payment.
Please note that during this time the purchasers have not yet begun to pay interest on their own mortgage. They only begin to pay interest once the mortgage proceeds are advanced. Consequently, the purchaser is not paying “double” interest during this time.
Land Transfer Tax
In Winnipeg, this is paid to the provincial government at the Winnipeg Land Titles Office (WLTO) at the time the documents are registered. The tax is based on a percentage of the price of the house – the higher the purchase price, the higher the tax.
The registration fee for the transfer of ownership is $70.00. The cost of registration for the mortgage is $80.00.
The following is a rough guide of how to determine your land transfer tax. However, your lawyer will provide you with the exact amount of your actual land transfer tax and registration costs prior to your possession date.
|Value of Property
|On the first $30,000
|On the next $60,000 (i.e. $30,001 to $90,000)
|On the next $60,000 (i.e. $90,001 to $150,000)
|On the next $50,000 (i.e. $150,001 to $200,000)
|On amounts in excess of $200,000
Survey Certificate and Zoning Memorandum (survey and zoning)
Financial institutions will normally require a “survey and zoning” before they advance mortgage proceeds. Purchasers should determine if an existing original survey is available. If, however, no such survey is available, or if other structures have been added to the property since the preparation of the existing survey, a new survey might be required.
Manitoba Land Surveyors currently charge approximately $400 to $500, including GST, for the preparation of a survey of a single-family home in Winnipeg.
The survey is then submitted to the City of Winnipeg in order to obtain a Zoning Memorandum. This document is required to verify whether the property complies with the city’s zoning regulations as to yards and alignments. The City of Winnipeg currently charges $58.28 including GST.
Many financial institutions will now accept a title insurance policy in lieu of an actual survey and zoning. It is always advisable to obtain a survey and zoning before purchasing a new home because only these two documents will tell you if there is something wrong with the property. However, with the advent of title insurance policies, more purchasers are choosing to obtain title insurance instead of a survey and zoning. As long as the financial institution issuing the mortgage allows the use of title insurance, it is the choice of the purchasers to purchase one or not. The typical cost of a title insurance policy is about $200 to $300 –depending on the value of the property being purchased.
In Winnipeg realty taxes are payable by June 30th every year, even though they are based on the calendar year (January 1 to December 31). The exception is if the property owner is enrolled in the Tax Installment Payment Plan (TIPP) program, which allows them to make monthly tax payments instead of one lump sum payment every year.
When a property is purchased, a tax adjustment between the purchaser and the vendor is done to ensure that each party only pays for the tax that they are actually responsible for (i.e. only for the time that they owned the property).
For example, if the possession date is March 1, the purchaser will be entitled to a two-month credit to cover the vendor’s share of realty taxes from January 1 to February 28. The purchaser will then be responsible for payment of the entire calendar year’s taxes.
However, if the possession date is October 1 and the vendor is not on the TIPP program, the vendor will be entitled to a three-month credit to cover the purchaser’s share of realty taxes from October 1 to December 31 because they will have already paid for the full year’s worth of taxes by June 30th.
This document is required to verify if there are any unpaid realty taxes. The City of Winnipeg currently charges $41.00 for a tax certificate.
There is a fee charged each time a title is searched or copies of encumbrances registered against the title are ordered. The cost for each search varies but may range from $10.00 upward depending on the number of searches or number of copies required.
Miscellaneous expenses (disbursements)
Couriers are typically used to send and receive mortgage instructions, transfer documents, monies and keys. The costs range from $50.00 upwards depending on how many deliveries are required. Other costs incurred on behalf of the client include photocopies, postage, fax charges, office supplies and file materials whose costs typically range from $30.00 to $50.00.
Fire insurance, life insurance, home inspection and appraisals were discussed in Part I of my article.
The legal fees charged for a purchase will depend on the law firm used. Some firms charge separately for the purchase and the preparation of the mortgage. Others will charge one fee for the preparation of both. Ask your lawyer for his or her legal fees before proceeding with the transaction. Please keep in mind that disbursements and GST and PST are charged in addition to the legal fees. Therefore, if a law firm offers a “flat fee” for their services, find out if this already includes the disbursements and taxes or if it’s just the legal fee.
Legal fees & the construction of a new house
Legal fees for the purchase of a house are also different from the legal fees charged for the purchase of a newly constructed house.
For houses that are being built, the legal fee will depend on whether the builder wants to be paid in stages or in full just before possession. If a builder wants to be paid in stages, most law firms either charge on an hourly basis or they charge a fee that is comprised of two parts – a base fee and then a separate legal fee for each stage payment made in accordance with the signed construction agreement between the builder and purchasers. If this is the way your builder wants to be paid, make sure you fully discuss the process with your lawyer and your mortgage broker to avoid any delays.
When building a house, it is always advisable to have your lawyer review the construction agreement before you sign it. However, if you are unable to do so, make sure you include the following clause in the contract: “Subject to lawyer approval.” By adding this clause, you give yourself the opportunity to take the document to your lawyer (after you’ve already signed it) for their review and approval. The construction agreement will not be final until your lawyer gives his or her approval as to form and content.
My three-part article on buying a house has been filled with a lot of information. If there is one thing that you remember from these articles, I hope it’s this: Buying a house is not a simple process. You don’t just find the house of your dreams and then write a cheque. Luckily, there are a lot of professionals whose services are available to assist you throughout the process. Before you commit yourself to the most expensive purchase you will likely ever make in your lifetime, take a moment to breathe and be smart. Don’t rush into anything; take the necessary time to become knowledgeable about the process. Don’t be afraid to ask questions until you fully understand everything because if you don’t and something goes wrong, you have no one else to blame but yourself. The choice is yours.
The content of this article is not intended as legal advice and is for information purposes only. Should you require legal advice on a specific issue relating to the contents of this article, please seek the services of a legal professional.
Alona C. Mercado is a lawyer practicing in Winnipeg with the law firm of MONK GOODWIN LLP. She was called to the Manitoba Bar in 1999 and the Ontario Bar in 2003. Her preferred areas of practice include wills and estates, committees, real estate and immigration law. Alona can be reached at (204) 956-1060 ext. 233 or firstname.lastname@example.org.