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What are closing costs when buying a house or a condo?

“Always pick your yard based on your Summer lifetstyle.”

~ KARL

March 5, 2020 - Karl Yeh

About to finalize buying your home? What are the closing costs you need to be aware of? In this episode we discuss the additional costs you need to be aware of when buying a home, when they occur and where they come from. We also discuss if you can buy a home without any closing costs.

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What we discussed:

Hi everyone, I'm Karl. Welcome to another Homebuyer's School video, a channel where you get the latest strategies, tactics, and tips for your home buying journey.

Now remember, if this is your first time on this channel and you want to get the latest strategies from the experts, hit the subscription button below. Hit the little notification bell so you don't miss anything.

Today I'm joined by local realtor and legend, Brad McCallum with RE/MAX First., and the question we're going to answer today is,

What are closing costs when buying a house or a condo?

Brad McCallum:           

A lot of things that people face when they go out to buy their first home is generally some surprises along the way that there are costs involved in purchasing a home beyond just your initial deposit.

You can actually add onto the conversation a little bit, because when you go out and you find [00:01:00] that perfect home and you negotiate an offer on that place, the very first cost to you is actually what's considered an initial deposit.

That's also known as some good faith money saying, "Hey listen, I'm going to put down, say $5,000 of the $15,000 deposit I'm going to put on this home just to show you that my offer can be taken seriously."

Then you enter what's called a due diligence period, or around here we call it the conditional sale period.

Generally, that means the buyers [00:01:30] have conditions, so it has to meet my conditions of financing, has to meet my conditions of home inspection, and maybe if it's a condo, they want to review the condo documents as well.

That's your first cost, is that initial deposit.

Then generally, the rest of your deposit is not actually due until possession, but it's easy as a buyer to forget that and think, "Well, if I'm taking possession in three months, that's the first time money's going to be involved." But there's a couple of other closing costs to consider [00:02:00] during that conditional sale period upfront.

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Karl Yeh:                      

How long is usually that conditional sale period?

Brad McCallum:           

Let's say you write an offer on a Monday and it gets accepted.

Generally what you're going to want is anything from seven to 10 business days to satisfy your conditions.

Have that conversation with your banker, make sure that everything's cool there. Definitely talk to a mortgage broker.

Then you're also going to have time to book a home inspection.

That's the other time that you're going to have some costs incurred in the whole process of buying and closing [00:02:30] on a property, and like we've talked about before, it's about $450 to $600.

Super valuable, completely worth it. Even if you don't complete the purchase on the home, you'll be so happy you did that.

Then the next closing costs comes actually right near the very end. Right before possession, you're going to be working with lawyers, and those lawyers have to do everything from changing title from the former owner to the new owner, they have to do the disbursements of all the funds, they have to pay the realtors.

Let's don't forget that column.

Karl Yeh:                       [00:03:00] The actual lawyers actually pay you guys?

Brad McCallum:            It's the lawyers that do the disbursements of all the funds, yeah.

Karl Yeh:                       Okay. Got it, got it.

Brad McCallum:           

But that lawyer cost could be anywhere from $850 to 1200 or $1,500, depending on what's involved in that particular close.

Maybe there's another property or something, but those are sort of the main costs that get involved in closing on a home.

Karl Yeh:                      

Could you roll all those closing costs into a mortgage, or probably not because those are all transactions.

Brad McCallum:            That's right.

Karl Yeh:                       They're transactions [00:03:30] to the realtor, transactions to the home inspector.

Brad McCallum:            Yeah.

Karl Yeh:                       You actually touched on the, I think, good faith dollars.

Brad McCallum:            Yes.

Karl Yeh:                       That's not the same as a down payment. That's something completely different.

Brad McCallum:           

It becomes part of your down payment.

Let's say you're going to put 5% down on a $400,000 beautiful townhome.

That 5% down, you've got $20,000 you're going to have to pay.

Now, part of that $20,000 is going to be put up upfront. You might say, "I want to put down $5,000 [00:04:00] with my accepted offer."

Karl Yeh:                       Got it.

Brad McCallum:            \

It becomes part of the $20,000 you put down on the property, but the balance of that deposit isn't due until you close.

Karl Yeh:                       Yeah, yeah. Got it.

Can you buy a home with no closing costs?

Brad McCallum:           

Not really. No.

You're going to want to go start this process knowing that there's going to be legal fees, there's going to be a home inspection, there's going to be that initial deposit, so if you don't have access to funds, or let's say your funds [00:04:30] are all wrapped up, say in an RRSP.

You're going to have some time that's needed to get those funds out, so you might not be in a position right off the bat to write an offer.

You might find that right place and then have to take some steps to get access to that money so you can pay some of those upfront costs.

Karl Yeh:                      

When you go out and actually go buy a house, should you actually have all these costs ready to go, or is it like, "I'll write the agreement, but then I need some time to take all this money out and stuff." Or should I do it before then?

Brad McCallum:           

Yeah, this is a bit of a beef that [00:05:00] I have with the real estate industry as a whole.

It's so important to educate your clients, because a big part of the challenge and the stress that goes along with a real estate transaction is just the unknown, just not knowing what those costs are, so if you've never written a purchase agreement to buy a property, the first time that you see that purchase agreement shouldn't be when you're writing it and signing it.

A good realtor will share that agreement with you early on, so that way [00:05:30] any questions that you might have, you can answer them when they're not related to a tight timeframe, like a negotiation.

Karl Yeh:                      

Yeah, it'd be really strange to see that purchase agreement, and everyone's looking at you and you're like, "I need to read this."

Brad McCallum:           

Yeah, absolutely. It's understandable, and a good agent should be able to walk you through those steps to do it.

Karl Yeh:                      

If you want to know more actually about purchase agreements, I'll leave a video here and a description below to actually help you out.

Karl Yeh:                      

Do you have anything else to add in terms of what additional costs that somebody should be at least aware of before [00:06:00] they actually make that purchase?

Brad McCallum:           

Honestly, anyone who, say, subscribes to this channel, for example, they're doing it because they're trying to make the best decision.

They're trying to build a knowledge base so they can be comfortable and have as stress free of a process as possible.

All I would say is just do your homework, understand the costs that are involved, have access of your deposit before you make your purchase or before you negotiate a price, just so you don't have to add these unneeded stresses [00:06:30] to a stressful process already.

When you're working with a great team, if you've got the knowledge, you're going to find that buying your first home could actually be something that's pretty enjoyable.

Karl Yeh:                      

Perfect.

The question of the day I have for you is,

What were your closing costs? Were you surprised with them?

Let us know in the comment section below.

If you want to know more about costs of buying a home, check out this playlist here, as well as additional home buying videos here. Don't forget to subscribe, and I'll catch you in our next video.

About Brad McCallum:

Brad McCallum is a local Realtor with RE/MAX First in Calgary, Alberta.  He's made his name for himself by incorporating his passion for videography and marketing, along with his wife and family into his real estate business.  This fresh approach to real estate has allowed Brad to stand out in a market of over 5000 realtors.  His knowledge of home design and construction as owner of a renovation firm for 15 years helps him advise his clients on the purchase or sale of their home.

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