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Buying a home is an exciting journey, but many buyers overlook one important step: understanding the Homebuyer Closing Costs.
These are the additional expenses required to finalize your purchase, and they can catch you off guard if you’re not prepared.
In this guide, I’ll break down everything you need to know about closing costs, how to budget for them, and other key considerations, like property taxes and BC’s Speculation and Vacancy Tax.
Understanding Homebuyer Closing Costs – What are they?
Closing costs are fees and expenses paid at the end of a real estate transaction. They cover services like legal work, appraisals, and taxes. In Kelowna, closing costs typically range from 2% to 5% of the home’s purchase price.
Typical Homebuyer Closing Costs in Kelowna and BC
1. Legal Fees
You’ll need a Lawyer or Notary to transfer the property title, review contracts, and register your home with the land title office. For Legal Fees expect to pay between $1,000 and $2,000.
2. Appraisal Fees
Lenders often require an independent appraisal to confirm the home’s value. This usually costs between $300 and $500. Check whether your Lender will be paying this or whether it is a cost to you.
3. Property Transfer Tax (PTT)
The PTT is a provincial tax based on your home’s purchase price. The calculation is:
- 1% on the first $200,000
- 2% on the portion between $200,001 and $2,000,000
- 3% on amounts over $2,000,000
Tip: First-time homebuyers and newly built homes may qualify for exemptions
4. Home Inspection Fees
Before finalizing your purchase, it’s wise to have the home inspected. The average cost in Kelowna ranges from $400 to $700, depending on the property size.
RESOURCE: Consumer Protection BC info on Home Inspections
5. Property Insurance
Your lender requires proof of property insurance before closing. This protects your investment against risks like fire or flooding. According to Ratehub the average cost of home insurance in BC for 2024 is $2,709.
6. Strata Fee Adjustments
If you’re purchasing a condo or townhouse, you may need to pay a prorated share of monthly strata fees for the closing month. (We will see how this is apportioned in the Statement of Adjustments below.)
7. Moving Costs
While not part of the formal closing costs, don’t forget to budget for moving expenses. Hiring professional movers in BC varies but according to Trans-Canada Movers
They break-down:
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Local moves
Local moves under 100 kilometers typically cost between $130–$200 per hour for two movers, or $160–$250 per hour for three movers. The average cost of a local move is between $650–$1,500.
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Long-distance moves
Long-distance moves, which are more than 100 kilometers, can cost between $2,000–$5,000. Long-distance moves are calculated by distance, not time, and other factors to consider include the weight of the shipment and any additional services.
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Shipping vehicles
Shipping a vehicle can add to the cost of a move, with the cost depending on the distance and size of the vehicle.
- Storage: If your new home isn’t ready when your belongings arrive, you may need to store your items with the moving company.
- Insurance: Most moving companies offer different levels of protection, but you may want to purchase additional insurance from a third party for expensive or unique items.
Understanding Homebuyer Closing Costs: The Lawyer’s Statement of Adjustments
The Lawyer’s Statement of Adjustments is a document that details the exact financial breakdown of your transaction. It ensures that all fees, taxes, and adjustments are accurately accounted for between you and the seller.
What’s Included in the Statement?
- Purchase Price: The agreed-upon price for the home.
- Deposit: The amount you’ve already paid, subtracted from the total purchase price.
- Property Taxes: Adjusted based on the time of year.
- Strata Fees: A prorated amount if applicable.
- Utilities: Payments for pre-paid or outstanding utility bills.
Sample Statement of Adjustments
Here’s a more detailed example of a Statement of Adjustments, which incorporates strata fee proration, a buyer’s deposit, mortgage details, and city property tax adjustments based on a mid-month closing date.
Sample Statement of Adjustments
Property Address: 123 Example Lane, Kelowna, BC
Purchase Price: $800,000
Closing Date: May 15, 2024
Statement of Adjustments
| Description | Debit (Buyer Owes) | Credit (Buyer Receives) |
|---|---|---|
| Purchase Price | $800,000.00 | |
| Deposit (paid by Buyer) | $20,000.00 | |
| Mortgage Proceeds | $640,000.00 | |
| City Taxes (Prorated) | $1,075.34 | |
| Annual Taxes: $3,000 | Paid in Full by Seller for 2024 (Jan 1 – Dec 31)* | Buyer’s share: May 15 – Dec 31 = 231 days |
| Strata Fees (Prorated) | $206.45 | |
| Monthly Strata Fee: $400 | Proration: May 15 – May 31 = 16 days (16/31 x $400) | |
| Title Insurance Fee | $250.00 | |
| Legal Fees (Estimated) | $1,500.00 | |
| Total Adjustments | $803,031.79 | $660,000.00 |
Amount Owed by Buyer on Completion: $143,031.79
Breakdown of the Key Costs Pro-Rated
City Property Taxes:
- Total annual taxes: $3,000
- Seller’s portion: January 1 to May 14 (134 days) = $1,924.66
- Buyer’s portion: May 15 to December 31 (231 days) = $1,075.34
Strata Fees:
- Total monthly strata fee: $400
- Buyer’s portion: May 15 to May 31 (16 days) = 16/31 x $400 = $206.45
How It Works
- The buyer reimburses the seller for city taxes from May 15 onward, as the seller prepaid the full year.
- The buyer pays the prorated strata fee for the closing month directly to the seller to ensure a fair division of costs.
- Deposit and mortgage amounts are applied as credits, reducing the total amount payable at closing.
This detailed example ensures transparency and accuracy, making the financial breakdown clear for all parties involved.
Your lawyer will review this with you before closing so you fully understand what you owe.
Property Taxes in Kelowna
Annual Payment Timing
Property taxes in British Columbia are due annually on July 1st. Depending on when you close, this affects how taxes are handled:
- Before July 1st Closing: The seller usually pays the full year’s taxes upfront, and you’ll reimburse them for your share from the closing date to December 31st.
- After July 1st Closing: If the seller has already paid, you’ll reimburse them for the remaining months. If unpaid, you’ll cover the full amount.
Speculation and Vacancy Tax in BC
The Speculation and Vacancy Tax (SVT) applies to properties in urban areas, including Kelowna. It’s designed to discourage vacant homes and housing speculation.
Tax Rates
- BC Residents: 0.5% of the property’s assessed value.
- Non-Residents and Foreign Owners: 2% of the property’s assessed value.
Key Considerations
If the seller isn’t eligible for Speculation Tax relief, they’re responsible for any unpaid taxes before closing. Ensure your lawyer confirms this, so the property’s title is clear. As the buyer, you’ll need to file an annual declaration to confirm your exemption status.
Homebuyer Closing Costs: Budgeting Tips for Closing Costs
- Start Saving Early: Set aside 3-5% of the purchase price to cover closing costs.
- Know Your Numbers: Work closely with your lender to understand which costs they include or exclude in your mortgage.
- Ask About Exemptions: Programs for first-time buyers or newly built homes can save you thousands.
- Plan for Extras: Include unexpected costs like moving expenses or additional legal fees in your budget.
Homebuyer Closing Costs: Final Thoughts
Understanding closing costs is an essential part of the home-buying process. From legal fees to property taxes, each expense plays a role in completing your purchase. By planning ahead and working with a trusted real estate professional, you can avoid surprises and feel confident throughout your journey.
If you have any questions or need personalized advice, contact me at 250-864-1707 or visit www.TrishCenci.com. Let’s make your homeownership dreams in Kelowna a reality!
