If you’re thinking about closing costs that means it’s nearly time to celebrate your ownership of your new pre-construction condo. But the last thing you want to happen in your pre-construction condo purchase is to be caught off guard by closing costs. You need to ensure that you do your homework – you don’t want to be surprised when on closing, you have to pay the closing costs, or they are higher than expected due to some fees that you didn’t budget for.
Closing costs can almost always be accounted for before you actually have to pay them. It’s best to work with an experienced Broker and Lawyer who can help you navigate through what you’ll be expected to pay at closing, what these fees cover, and when they’ll be due.
Pre-Construction Closing Costs: Your Deposit
The deposit is the first payment you’ll make towards your new pre-construction condo so that shouldn’t come as any surprise. When you signed for your purchase you would have received your deposit payment schedule with all of the key dates and amounts due for each payment.
One of the biggest advantages to buying a pre-construction condo is that developers break up the deposit structure into smaller amounts. That way, you don’t have to pay the deposit all at once. You can space out three or four smaller installments that you pay for over a few months to a few years.
A 20% down payment can be intimidating, but many pre-construction developers accept four 5% payments over the course of the building process which is much more manageable.
Pre-Construction Condo Closing Costs: Land Transfer Tax
Land transfer taxes can add a surprising amount to your purchase price. This is especially true for real estate in the city of Toronto where you will not only have to pay the Ontario Land Transfer Tax but also the Toronto Land Transfer Tax. When you buy a property, tax is paid by the buyer on the total value of the property being exchanged.
Here’s what you’ll pay under the Ontario Land Transfer Tax:
- 0.5% on the first $55,000
- 1.0% on the amount between $55,000 and $250,000
- 1.5% – on anything between $250,000 and $400,000
- 2.0% – on anything between $400,000 and $2,000,000
There is some relief for first-time buyers, as they may qualify and receive a credit of up to $2000.
The Toronto Land Transfer Tax has a similar structure to the provincial transfer tax:
- 0.5% – on the first $55,000
- 1.0% – on the amount between $55,000 – $400,000
- 2.0% – on the amount between $400,000 – $2,000,000
- 2.5 % – on anything above $2,000,000
Once again, first-time buyers in the city have a bit of relief. They’re exempt from paying on the first $400,000.
If you were going by the benchmark purchase price of a condo in Toronto ($600,000), you’d pay $$8,475 for the Ontario Land Transfer Tax and $$8,475 for the Toronto Land Transfer Tax.
That means you’ll pay $16,950.00 total, or almost 2.825% of the purchase price, in Land Transfer Taxes alone.
What is the Tarion Warranty Fee?
Tarion is a not-for-profit consumer protection organization established by the Ontario government to administer the province’s new home warranty program. For over 40 years, Tarion has served new home buyers and new homeowners by ensuring that one of their life’s biggest investments is protected.
And while a very valuable partner for the protection of your condo, their services come with a fee. On new-build condos, there is an enrollment fee. The fee depends on how much the purchase price of your condo is. The Tarion enrollment fee is would be $1,316.45 for the $600,000 condo example we’ve used above.
While some may question if this fee is actually necessary, it really is worth it to have. If any problems arise resulting from shoddy workmanship, they can cost a lot more than $X for the home buyer. It is possible that the builder has already factored the Tarion fee into the purchase price of your property, so you might be covered. Your best bet would be to confirm with your Broker, your lawyer, and/or the Developer.
Pre-Construction Condo Closing Costs: CMHC Insurance Premium
If you plan on putting less than 20% down on your condo, then insurance premiums on your mortgage are another fee you need to account for. The Canadian Mortgage and Housing Corporation (CMHC) usually require the lender to pay insurance on any mortgage with less than 20% down, and these premiums are passed on to the property buyer. This is done to protect the lender from default on these comparatively riskier mortgage loans, while also allowing buyers access to more options in their property choice.
The rate varies from province to province, but your mortgage insurance will typically be between 0.5% and 2.5% of the principal of the mortgage. Often, this fee can be factored into your mortgage, so you won’t pay it immediately. Most real estate investments require a minimum of 20%, so you likely won’t need to consider the CMHC fee.
Pre-Construction Condo Closing Costs: Legal Fees
Legal fees are another standard closing cost to consider when buying a condo. Unless you are a lawyer or do all the legal legwork on your own (something we would not recommend) you will likely be paying a lawyer for their services. Depending on the lawyer you work with, you’ll pay between $1,000 and $2,500 in legal fees.
It’s important to choose an experienced lawyer. Don’t think you can save on subpar legal counsel – this can cost you much more in the end if something goes wrong. Condos are a big purchase, and a lawyer is the best person to protect you from major issues.
Other Fees
A savvy investor knows how to ask the right questions when buying a property. The first step is to work with a broker that is experienced in pre-construction condos. There are some important caps and conditions that should be requested and only a Broker who has done many of these transactions will know what they are.
Other fees you need to consider when buying a pre-construction condo, but may not be necessary depending on your situation are:
- Property appraisal
- HST, where applicable
- Title insurance, and Utility service deposits
- Builder and Educational levies
Generally speaking, closing costs usually add up to 1-4% of the purchase price. Although a 1% difference in closing cost may seem small, it could end up being thousands of dollars.
The more homework you do for your pre-construction condo closing costs, the better prepared you’ll be. And the less likely fees will surprise you.
If you’d like TRB to assist you with your pre-construction search, get in touch with us today by completing our form. We have the tools and the experience necessary to ensure you are protected at every point of your investment journey.
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