We know it’s tough enough these days to save up for the minimum 5% downpayment that is required for the purchase of a new home let alone another 1.5% you’ll need to show the lender that you have available for the closing costs. Closing costs are normally the legal fees to register the mortgage and transfer title of the property to your name along with a home inspection (although not a lender requirement, this is highly recommended in the real industry for buyers to do). In addition, if you are not exempt from the Property Transfer Tax here in B.C., you will be required to pay 1% on the first $200,000 of the purchase price and 2% thereafter.
So let’s say the cost of your new home is $400,000. You will need 5% (or $20,000) plus provide evidence of another 1.5% (or $6,000) for a total of $26,000. If you are exempt from paying the Property Transfer Tax, your closing costs will be much lower (perhaps $1,500 to $2,000), but the lender still needs you to show them the 1.5% (or $6,000). What if you are short funds for closing costs? We may have a solution for you.
One of our lenders will provide a cash back (paid on the closing date) which will satisfy both the lender and insurer the requirement of having closing costs available. On a $380,000 mortgage (after 5% downpayment) plus CMHC fees of $11,210, the cash back to you is $6,259.36 which is more than the closing costs required. Better yet, if you are exempt from having to pay the Property Transfer Tax, you will have funds left over for perhaps some new appliances, minor renovations, etc. The interest rate for a 5 year fixed term on this mortgage is slightly higher (3.89% if closed within 30 days and 3.99% if closed within 120 days) when compared to the lowest rates with some other lenders but the others are not providing you the extra funds needed at closing with their mortgage product. This is an option to consider if it fits your needs.
If you would like more information on this cash back option, please give us a call today to discuss further. We’re here to help you every step of the way.