When purchasing a multi-family building as an investment property, closing costs can add up to a large amount and therefore must be calculated carefully as the investor must estimate whether he has sufficient funds for the down payment and closing costs before . to close the deal.
It’s also important to estimate how much cash is needed to save for closing costs before closing, as one of the bank’s conditions when approving a mortgage is to make sure the buyer has sufficient funds for the down payment and closing costs together. .
Appraisal fee: This requirement is helping the bank assess the market value of the property so that it can estimate the LTV (loan to value). If the appraised value is $ 500,000 and the LTV is 80%, then the bank is willing to lend $ 400,000 of the total appraised value. The appraisal fee is usually an obligation with secured mortgages, but in the case of conventional mortgages, it can sometimes be waived at the discretion of the bank providing the mortgage. The appraisal fee depends on the size of the multi-family buildings and other considerations. The appraisal is directly correlated to the size of the building: the larger the building, the higher the appraisal rate.
Phase 1 environmental fee: Environmental analysis of the property and all surrounding uses or conditions to ensure that the property and its surroundings are not contaminated by past use of chemicals, oil tanks, and other hazards. In general, this fee is associated only with secured mortgages and not with conventional ones.
Inspection fee: The inspection fee includes a careful inspection of each unit in the building to make sure there are no structural problems with any of the units and the building as a whole. Inspection should only be done by a professional as problems missed by him can cost you a lot of money later to repair. The more units you inspect, the higher the fee the inspector charges.
Land Transfer Tax (LTT): This rate depends on the province in which the multi-family building is purchased. Specifically, if the property was purchased in Toronto, the land transfer tax must include Ontario LTT and Toronto LTT.
Legal fees and search for titles and disbursements: Each transfer must be legally reviewed by an attorney. An attorney is responsible for completing the transfer of the deed, preparing the mortgage, and conducting various searches, such as searching for the title.
Land inspection fee or title insurance fee: A recent home inspection is usually a requirement of the lender. If it is not available, title insurance can replace it.
Mortgage Application and Processing Fees: This rate depends on whether the mortgage is generally insured or not. If the mortgage is insured, the investor must pay both the insurance company (CMHC or GE) and the lender. CMHC charges the mortgage insurance premium and processing fee based on the amount borrowed and the repayment period. In addition to that, each lender also charges application fees. The lender’s application fee depends on the institution from which the money is being delayed.
Reserve fund: A reserve fund should be added to closing costs to ensure that in the first few years (before any cash flow has accumulated) there is enough money to spend in case “large item tickets” need to be fixed. . replaced, such as leaky roof, oven stopped working, etc.
It is very important that you seek out different professionals before deciding which one to choose. Your considerations when choosing should include price, reputation, and efficiency.
In conclusion, the total amount spent on closing costs can start from 2.5% of the purchase price and go up to a much higher amount depending on several factors, such as the amount deposited in the reserve fund, the province you choose to buy your investment property. in, etc.