What happens on closing day?

Imagine: after months of searching for the right property in the right neighbourhood, or attending auction after auction, you’ve finally found yourself your dream property. You’re just one step away from getting the keys to your dream home. On closing day, you sign your mortgage contract and pay the funds. But, are you really prepared for everything closing day entails?

Some of the things that need to be done on this day, according to the Canada Mortgage and Housing Corporation, are:

  • Your lender will provide the mortgage money to your lawyer or notary.
  • You must provide the rest of the purchase price to your lawyer or notary as well as the closing costs.
  • Your lawyer or notary pays the person who is selling the house, registers the home in your name, and then gives you the deed and keys to your new home.

It may sound easy, but there are many issues that could occur if you do not prepare for this much-awaited milestone.

To avoid any pitfalls that may happen during this supposedly life-changing day, consider doing the following tips:

  • Double-check your documents. Meticulously review your documents to make sure they are error-free and complete. Review your loan documents, disclosure forms, and other paperwork. If you feel like some of the documents are unclear to you, ask questions to better understand what you’re signing up for.
  • Inspect the property. Before signing the contract, you have to be certain that the property is what you really want. You also have to know whether there are any issues to fix. Have a professional inspection done before you close the deal, so there will be no surprises once you move in.

An inspection may also help you decide whether the property may be worth it for you. If there are last-minute issues that you discovered, you may ask the seller to fix the problems or negotiate on closing fees to cover the cost of fixing the issues.

  • Ready your pockets. There are many fees that you have to pay during closing day some of these are your deposit, CMHC insurance, land transfer tax, and legal fees. Make sure you have enough to cover all of these—even before you apply for a home loan.

The costs
As mentioned, there are many fees you may incur and have to pay on closing day. In this section, we lay out some of the fees you have to get your pocket ready for.

  • Deposit. The deposit is a portion of the total home purchase price that has to come out of your pocket. Typically, the down payment has to be 5-20% of the total purchase price.

In general, you need the following amount for a deposit:

- If your desired house costs up to $500,000, the minimum down payment is 5%
- If you want a house amounting to more than $500,000 but less than $1 million, the minimum down payment is 5% of the first $500,000 plus 10% of the remaining balance
- If you want a home that costs $1 million and above, the minimum down payment is 20%

  • CMHC insurance. If you have less than 20% as a deposit, you have to pay for CMHC insurance. This is an insurance policy that protects lenders should a borrower default on their repayments.
  • Land transfer tax (LTT). This is calculated as a percentage of the purchase price of your home. It may be payable during the closing day, but it varies from province to province. In Toronto, you also have to pay for a municipal LTT.
  • Title insurance. This protects against losses should there be a dispute regarding property ownership. This may be obtained through a lawyer or notary.
  • Property insurance. Property insurance covers the fees of replacing your home and its content. It should be put into place on your closing day. You may be able to pay this off monthly or annually.
  • Property taxes. You are required to pay for property taxes. The amount is a percentage of your home value and it varies from municipality to municipality. This tax must also be paid each year.
  • Appraisal fees. You may be required to pay for the appraisal of the property. The approximate cost may also vary. Ask your agent for more information about appraisal and its costs to get a better idea of how much you have to shell out.
  • Inspection fees. A professional inspection may help you uncover issues that you didn’t see during your personal inspection. A professional inspector will create a report detailing the condition of the home and its issues (if any). The price depends on how complex the inspection is.

Moving day
Closing day and moving day are not the same. The closing day is when you settle all your fees and documents for your new home. Meanwhile, moving day—is just that, the day you get to move to your new humble abode.

Some of the things that need to be done during moving day are:

  • If you have hired a moving company, go through the house with the supervisor and provide any special moving instructions.
  • Ensure the condition of your belongings is noted on an inventory list, and that the list is complete and accurate. Mark off items on the mover’s list as soon as they are unloaded at your new home.

It’s an exciting day that may be filled with emotions as you move in to a place you can call home. However, don’t let the emotions overwhelm you, keep a straight head and prepare for your big move!

More Mortgage Guide