When buying a home, you will need to bring money to your lawyer before the possession date to close the deal. This money is commonly called “closing costs.” The funds will need to be provided to your lawyer by certified cheque or bank draft.
Your lawyer will send you a detailed Estimate of Closing Costs after they receive mortgage instructions from your bank or credit union. However, understanding closing costs in advance will help avoid last-minute surprises.
Closing costs are made up of 3 parts, the balance of the purchase price, legal fees, and disbursements.
- Balance of Purchase Price
The balance of the purchase price is calculated using the following formula.
Purchase Price MINUS Initial Deposit on House MINUS Mortgage Funds being provided by the bank or credit union PLUS OR MINUS Adjustments
Purchase Price: $250,000.00
MINUS Initial Deposit: $10,000.00
MINUS Mortgage Funds: $200,000.00
PLUS Adjustments – Annual Property Taxes ($3,650.00) paid in full for year and prorated to possession date of September 22 (100 days): $1,000.00
Balance of purchase price: $41,000.00
Mortgage Funds – If there are additional fees (for example: mortgage insurance premiums such as CMHC, appraisal fees, or servicing fees), these fees will be taken off at the bank or credit union, before your lawyer receives the funds.
Adjustments – No matter what date taxes are due, they are adjusted for the entire calendar year, as of the possession date. Depending on whether the vendor has paid the taxes, you will either give or receive a credit. Additional adjustments beyond taxes may apply if you are purchasing a condo, rental property, or new build home.
- Legal Fees
Fees represent the amount charged for legal work and they will vary based on the particulars of your transaction.
Disbursements are out-of-pocket costs that your lawyer will pay as part of the transaction.
- Land Transfer Tax is paid to the Government of Manitoba and is based on the Fair Market Value of the property. It can be calculated here:
- For example, on a $250,000.00 purchase, the land transfer tax would be $2,650.00
- Registration Costs are paid to the Government of Manitoba. As of 2021, it costs $109 to register the Transfer and $109 to register the Mortgage.
- Title Insurance protects both you and your mortgage lender. It is usually required by the bank or credit union when you are getting a mortgage. The cost is mostly determined by the purchase price of your home and the amount of your mortgage.
- Searches are required to investigate the title at Land Titles and the tax account. You are only charged for the actual number of searches conducted.
- Couriers are used to deliver documents and cheques. Again, you are only charged for the actual number of courier deliveries called.
- Administrative costs such as photocopying, software transaction charges, file storage, and postage are charged differently by each firm. When choosing a lawyer, be sure to inquire about these types of costs, as they can quickly add up.
Taxes are applicable to fees and some disbursements.
Being well-prepared and well-informed on all aspects of your purchase is key. Make sure you have a trusted team of professionals to guide you through the process.
If you have any questions, or wish to inquire about our real estate services, please do not hesitate to contact our office at 204-977-1706 ext. 8, and we would be more than happy to help you.
Davis Johnson is a legal assistant at Wolseley Law LLP who works primarily in the area of real estate.