Buying a home is a rewarding and exciting experience but also fast-paced and emotional. As a result, it’s easy to get caught up in the moment once you’ve found your dream home and eagerly submit your offer.
It’s important to understand the additional closing costs when purchasing a home in BC so that you’re aware of your financial situation and you can make a more informed decision!
Closing costs are transactional fees that are associated with a home purchase. Below are common closing costs that you should keep in the back of your mind when starting your homebuying process. I’ve broken it down into initial estimated closing costs and recurring homeownership costs for home buyers.
Your mortgage broker will gather all of the necessary documents to prepare your loan application. Ideally, you should aim to have as small of a mortgage as possible, so you should set aside a more substantial amount for your down payment.
You will need to have the actual cash for your down payment amount available by the closing date. It’s essential to speak with a mortgage broker early on in your home search to determine how much you can afford and the total amount of money that you should have for your downpayment, depending on your financial situation.
Your mortgage broker may pull your credit report to obtain your loan estimate after the mortgage lender has looked at your mortgage application.
If you have a down payment that is less than 20% of the home’s purchase price, you will be required to have mortgage title insurance, which protects the lender if you default on your mortgage payments. Mortgage insurance is a percentage of the total loan amount, which is added to your mortgage loan.
Mortgage insurance can be a substantial amount so it’s good to be aware of the fees beforehand. The mortgage insurance fee increases or decreases based on the percentage of your down payment and loan amount.
When securing your mortgage loan, extra costs include property appraisal fees (approximately $300), a property survey certificate if required by your lender, and mortgage insurance. In addition, your initial Deposit, as written in the contract of purchase and sale, will form part of your down payment.
Lawyer fees are usually about $1,200 but can vary in price depending on the complexity of your real estate transaction. Lawyers and notaries are responsible for searching title, Land Title registration, drafting documents, preparing the statement of adjustments, and ensuring that all terms set out in the contract of purchase and sale have been fulfilled.
Notaries are a popular choice as they may have lower fees compared to lawyers. However, notaries cannot provide legal advice. Lawyer and notary fees may vary based on firm size, level of experience, and complexity of the real estate transaction.
The buyer and seller should retain a lawyer or notary once all of the conditions have been removed in the contract of purchase and sale. Unless, of course, there is a “subject to” condition requiring lawyer review and approval. Lawyers and notaries are an essential part of the real estate transaction.
Home inspections usually start around $500 but can increase in price depending on the size of your property. Your REALTOR® can suggest a few home inspection companies. Once you’ve selected one, the home inspection company will ask you a few preliminary questions before the inspection date.
Such as the property type, finished square footage of the home, and year built to get an idea of the cost and length of time required to complete the inspection.
It’s highly recommended to choose a qualified professional inspector who is a member of the Canadian Association of Home & Property Inspectors (CAHPI). Other inspections a buyer may want to have done before purchasing a home may include a perimeter drain inspection, pest inspection, or oil tank inspection.
Are you purchasing a strata property such as a condo or townhome? There are home inspection companies that will look at the building depreciation reports, strata minutes, and strata bylaws in addition to inspecting your unit. It’s always a good idea to have a second pair of eyes!
Property transfer tax is often the most expensive closing cost. Your lawyer or notary will account for the amount of property transfer due when they prepare your statement of adjustments. Property transfer tax is an additional cost on top of the home’s purchase price that is due by the completion date.
In BC, you have to pay the property transfer tax when you purchase or gain an interest in land registered at the Land Title Office. As written in the contract of purchase and sale, the amount of property transfer tax due is calculated on a sliding scale.
The provincial property transfer tax is 1% on the first $200,000, 2% on the portion of the fair market value greater than $200,000 and up to and including $2,000,000, and 3% on the portion of the fair market value greater than $2,000,000. If the property is residential, a further 2% is due on the portion of the fair market value greater than $3,000,000. The amount of property transfer tax due is based on the fair market value of the property. Property transfer tax is payable by the buyer only.
It’s important to note that a buyer may qualify for a property transfer tax exemption. There are a few common exemptions: the First Time Home Buyers’ Program, Newly Built Home Exemption, and Family Exemptions.
If you’re in the market for a new home, it’s worth spending some time on the BC Government website to see if you can qualify for any of the Provincial Property Transfer Tax Exemptions.
Goods and Services Tax (GST) is a 5% Federal tax. It applies to newly built homes or substantially renovated properties. GST is an additional amount of money on top of the purchase price but unlike Property Transfer Tax, you are able to include GST as part of your home loan.
You should discuss GST with your mortgage broker so that you are aware of all your options since it may factor into your decision-making.
It is up to the buyer and seller to satisfy themselves concerning GST since GST may be included or not included in the purchase price. A resale residential home is usually exempt from GST, as the previous owner would have already paid the GST.
There are GST rebates available when you purchase a new home or a new residential rental rebate. However, there are restrictions and not every property will qualify. The Government of Canada website will be able to provide you with more information specific to your situation.
GST is also applicable to short-term rental properties that are actively used as a business. Therefore, it’s essential to speak with your accountant before purchasing or selling your home if you have any questions about GST and the best way to determine where GST is applicable.
The 20% foreign buyers tax applies to transfers of residential property located in specific geographic areas within the province. Foreign buyers’ tax is calculated based on the fair market value of the home. This tax is in addition to the provincial property transfer tax. More specifically, foreign buyers’ tax only applies when the purchaser is a foreign national, a foreign corporation or a “taxable trustee.”
A foreign corporation is a corporation not incorporated in Canada, or a corporation incorporated in Canada, but controlled directly or indirectly by foreign entities. The Foreign Buyers’ Tax falls under the Property Transfer Tax Act. The foreign buyers’ tax applies equally to all foreign nationals regardless of citizenship or country of origin.
Unless you have a handful of friends who are willing to help you move (and won’t make excuses on moving day), it’s always a good idea to set some money aside to spend on movers, rental trucks, or storage lockers.
You may also need to factor in transportation and accommodation costs if you are moving out of town or there is a delay between moving from your current place to your new property!
*There may be other upfront costs, in addition to the common fees mentioned above, specific to the property that you are purchasing.
Overall, the initial one-time closing costs may include:
Your mortgage broker will outline your mortgage terms, interest rate, loan type, amortization period, and monthly mortgage payments. Then, depending on your lender, you may be able to make additional lump sum payments without penalty. Depending on your lifestyle and goals, you can also adjust your monthly payment frequency from monthly payments to bi-weekly, accelerated bi-weekly, weekly, and accelerated weekly.
Your utilities may include hydro, gas, cable, telephone, and internet. In addition, if you are purchasing a single-family home, you will likely be responsible for the water, sewer, and garbage disposal costs. These are usually monthly recurring expenses.
Home insurance is required as a condition on your mortgage loan. If you are unable to obtain home insurance, your lender will not provide financing. Not all insurance companies are the same, and your insurance quote will fluctuate based on the property type, use of property, and personal items in your home. You should call a few insurance companies to see who can provide the best coverage and estimates.
Strata building insurance has become an important topic for purchasers buying into strata ownership as insurance premiums rise. Depending on the bylaws, the strata corporation must insure the building to its full replacement cost. However, condo owners are also required to purchase separate home insurance for their units and personal belongings.
Owners should check the strata corporation’s insurance policy to ensure that their policies cover the deductible amounts. Also, strata owners should be aware that the strata’s insurance policy doesn’t cover household contents, including items in vehicles or storage lockers, or improvements within the strata lot.
Home insurance is for a one-year term and can either be paid once a year or monthly.
Your strata fees are due on the first day of each month, and they are calculated based on unit entitlement (using the habitable area of your unit). Following your strata corporation’s financial budgets, a certain percentage of your strata fee will go to the strata corporation’s operating costs and the remainder to the contingency reserve fund.
A few examples of a strata corporation’s operating costs include common area utilities, landscaping, cleaning, minor repairs and maintenance, and building insurance. Operating costs are expenses that occur once a year or more often. In comparison, the contingency reserve fund is for expenses that occur less than once a year or not at all.
It’s a good idea to set some cash aside for home maintenance and landscaping. But, of course, the amount you allocate will differ depending on the type and age of the home you’re purchasing.
You are responsible for paying property taxes when you purchase or gain an interest in property filed at the Land Title Office. Property taxes are due once a year at the beginning of July. However, most mortgage lenders allow you to add the monthly property tax amount to your mortgage payments if you prefer to pay for them that way. Annual property taxes will fluctuate depending on the property’s neighbourhood, schools, lot size, and property type.
Speculation and vacancy tax is calculated based on homeownership as of December 31st each year and is due the following July. The speculation and vacancy rate depends on the owner’s tax rate and whether the owner is a Canadian citizen or a permanent resident of Canada.
There are a few exemptions for homeowners, as 99% of Canadians will not have to pay speculation and vacancy tax. The most common exemptions include principal residence exemption and occupied by a tenant exemption. Here is a list of all speculation and vacancy tax exemptions for individuals.
Overall, the recurring home ownership costs may include:
Congrats, you made it to the end! That was quite a long post today, so thank you for taking the time to read along!
*Disclaimer: The topics of discussion, content and resources on this website are general information that may not be the right solution or advice for you specifically. Not intended to solicit buyers or sellers currently under contract with a brokerage.
*Stock images from Social Squares