Here are 10 closing costs to remember when you purchase:
1. Property Transfer Tax
The property transfer tax is payable on the purchase of all real property in B.C. It is calculated based on 1% of the purchase price up to $200,000 and 2% of any amount above $200.000 up to $2,000,000. As of 2016, the property transfer tax will be 3% on the portion of the price over $2,000,000. Where GST is applicable to the purchase price, Property Transfer Tax is not calculated on the GST portion.
As a first time home buyer, you are eligible for full exemption of Property Transfer Tax provided your purchase price is $475,000 or less. With a purchase price of $475,000 to $500,000 the Property Transfer Tax is applied according to a sliding scale. These exemptions exist under the following conditions:
- You have never owned a primary residence anywhere in the world
- You are a Canadian citizen or permanent resident, and been in BC for a minimum of 12 months prior to completion.
- You must reside in the home for a minimum of 1 year following completion
- If 2 people purchase the home, but only one is eligible for exemption. The Property Transfer Tax payable will be based on the portion of ownership for the uneligible person.
Purchasing a Newly built home with a purchase price of $750,000 or less will pay no Property Transfer Tax. With a purchase price of $750,000 to $800,000 the Property Transfer Tax is applied according to a sliding scale. Purchasers are not requred to be 1s time Home Buyers, but must live in the home for 1 year after completion.
Example: Property Purchase Price $500,000
1% of the 1st $200,000 = $2,000
2% of the balance of $300,000 = $6,000
Total Property Transfer Tax = $8,000 owing upon completion
The Property Transfer Tax cannot be included in your mortgage. This must be paid upon completion.
2. Legal Fees
Legal representation by a lawyer or notary will cost you approximately $750-$1000 for a purchase and a mortgage, and add another approximately $450-$600 if you are selling a property at the same time. The legal fees to only register a mortgage will be approximately $350-$700. In the past notaries were thought to be an inexpensive way to go, but many times they can be just as costly as a lawyer. It is always best to do your research before deciding on who will be taking care of one of your largest assests.
3. Interest Adjustment
This is the interest you will pay for receiving your mortgage money before the official start of your mortgage (i.e. if your “completion” were on the 23rd of a 30 day month, your interest adjustment would be 8 days interest).
4. Property Tax Adjustment
Generally property taxes for the calendar year are paid at the beginning of July. If you purchase a property before July 1st, the seller will be paying you for the days they owned the home after January 1st. If you purchase a property after July 1st, you will pay the seller for the days you own the property before December 31st. (one day’s taxes on owner occupied properties are – annual taxes divided by 365).
5. Strata Cost Adjustments And Form A Certificate
For strata properties only, the adjustment works similar to the property tax adjustment previously explained. The difference is that strata fees are paid monthly not annually, therefore the adjustment will be based on the number of days in your completion month. A Form A Certificate is required only when a strata property is purchased. The certificate is issued in order to confirm that the previous owner does not owe the strata corporation any money. This certificate will range in price up to approximately $50.
6. CMHC Application Fee
This is a $75 underwriting fee paid to CMHC (Canada Mortgage and Housing Corporation) for processing a hi-ratio mortgage application and initiating the mortgage loan insurance. This fee is usually deducted from the mortgage proceeds.
The downpayment required to purchase a home in the current market is a minimum of 5% of the purchase price. Any amount of down payment less than 20% will require approval from CMHC or Genworth to be insured. Insuring a mortgage will cost you an insurance premium which will be added to your mortgage.
If you have a down payment of 20% or more, this is considered Convential Financing and only requires lender approval. Conventional mortgages do not need to have the mortgage insured.
7. Property Appraisal
The property is evaluated by a professional appraiser to determine the market value of the property. This is done to ensure that:
- the lending institution is not over advancing on the property
- to protect the borrower from over paying. Appraisals usually cost approximately $200-300.
8. Survey Certificate
Generally, a bank will require a survey to confirm that the house does not encroach or cross over the property line. The seller will often already have a survey, especially if the seller also had a mortgage on the property. Otherwise, a new survey on a house will cost approximately $300.00. CMHC requires a survey on all hi-ratio insured mortgages. Keep in mind, however, that surveys can be replaced by title insurance and that new surveys are not necessary if the purchaser is buying a strata property.
9. Insurance Binder
This is a requirement by the bank to ensure that the purchaser has arranged fire insurance on the new home. Proof of coverage by way of an insurance binder is necessary and usually costs about $35.00. (This is not applicable for a strata property.
An inspection is a thorough evaluation of the structure, systems and components of a home. The inspection report is usually multi-paged and comments on the condition of, but not limited to: foundations, electrical, plumbing, heating, water heaters, appliances, fireplaces, drainage, roof, walls, floors, attic, crawl spaces, patios...etc. The cost runs from $350-$600 depending on the property to be inspected and company providing the inspection.
11. GST/HST for New Developments
There is a lot of confusion out there regarding GST/HST when purchasing a home in a New Development. We came across a great link put out by a local Law Office:
You will be able to enter the cost of the home you are considering whether it has tax included or not and the amount of tax payable will be calculated for you, as well as how much the rebate should be. The New Housing rebate is only offered to people purchasing the home as their primary residence. If you are an investor you will not be eligible for the rebate.
This information is being provided to assist in the planning of a home purchase. It is not intended to be legal advice and the information set out may not be applicable in all cases. In some situations, a purchaser may be required to pay for other additional expenses such as a second mortgage, an assignment of rents, power of attorney, or independent legal advice.