Real estate - WeAreLaw

The Closing Costs Most Overlooked by Home Buyers

By Zoocasa

When it comes to material possessions, nothing will be more important than your very own home. The price tag on the house you can afford, however, is only the start of costs you’ll be expected to roll out.

To start with the bottom line first, most financial institutions recommend setting aside roughly 1.5 to 2.5 per cent of your purchase price to cover closing costs, such as $6,000 on a $400,000 purchase. While that percentage might give home-seekers momentary pause to which they’ll likely find a solution, the double-digit accrual on a house priced over a million dollars could potentially throw one’s purchasing power out the window. Total closing costs will depend on where you live (in the burbs or rural setting as opposed to the City of Toronto, for example), the type of home you’re buying, and whether the home is a resale or a new construction.

Be prepared:

Closing costs, to be clear, are not ‘hidden’ costs; instead, they are costs for which home-seekers need to prepare. To avoid unpleasant surprises, therefore, put all charges, especially those that are wince-worthy, into a spreadsheet, and either budget accordingly for them or set your sights on a home you can truly afford. This will help you prepare to meet all expenditures means home-ownership success.

Closing costs:

So what are the closing costs? Basically, they include legal and administration fees, home inspection costs, land transfer and property taxes, property/title insurance, moving costs and utility hookups.

Prospective home buyers should also expect to add maintenance and utilities, as well as one-time fees associated with buying a home, such as inspection fees and land transfer costs, to their savings plans. According to a recent TD homeowners’ survey, many former first-time buyers admitted that they hadn’t budgeted beyond the down payment and monthly mortgage payment; if they had, they would have avoided much needless stress and disappointment.

Major closing costs overlooked:

Many sources, including the TD survey, agreed that the most overlooked costs for first-time buyers are:

land transfer taxes
general closing expenses
legal fees

After the mortgage, this taunting trio of expenses is the costliest, and, because it’s often not factored into the budget, causes buyers to scramble for extra cash to close the deal.

Take note that if you’re buying into a new construction, GST/HST/QST applies. A GST rebate might be available, however, for first-time buyers. Ask your lending institution or real estate lawyer for details.

Land transfer taxes will no doubt be the largest upfront expense for homebuyers, which are charged in most jurisdictions across Canada whenever a property is transferred to another owner. In most cases the tax is tiered. One source notes that in Manitoba, for example, you pay zero per cent on the first $30,000; 0.5 per cent on the next $60,000; 1.0 per cent on the next $60,000; 1.5 per cent on the subsequent $50,000; and 2.0 per cent on the remaining value in excess of $200,000. To take the guesswork out of how big a hit you can expect from taxes, depend on handy online calculators to tally your total, depending on your province.

First-time buyers should know that provinces and some municipalities offer rebates that can greatly reduce the amount of land transfer tax you owe. Additionally, an income tax credit is available for qualifying first-time homebuyers in Canada, which can be worth up to $750 in tax relief.

If homeownership is within your grasp, ensure your research is thorough and make sure you know as much as you can about the process and ongoing commitment by adhering to these top three recommendations to aid you in your house-hunting:

Be more thorough when budgeting and accounting for all of costs of home ownership
Make a bigger down payment than 20 per cent if you can
Buy a home sooner, rather than later

Zoocasa.com is a leading real estate resource that combines online search tools and a full-service brokerage to empower Canadians to buy or sell their homes faster, easier and more successfully. Home buyers can browse Toronto real estate listings, to find the perfect Toronto townhouse, condo, or detached home.

How Condo Fees Affect a Condo Purchase

Deciding to buy your own home is an exciting milestone for many, and choosing a condo over a detached home definitely has its perks. The indoor amenities and services, not to mention the outdoor maintenance tasks you’ll never have to do are all wonderful features, perfect for busy singles, couples and seniors.

Although you’re spared a constant outlay of cash towards the upkeep and repair of a detached dwelling, first-time condo buyers sometimes overlook occupancy fees, development charges and closing costs. Without foresight of these expenses, the unwary purchaser could find themselves in a sinking financial boat.
So, besides your hard-earned down payment on the condo of your dreams, ensure you have knowledge of all the costs a condo will entail before deciding you’re ready to sign on the dotted line. Then, go back to the drawing board and ask yourself if you’re truly prepared for the financial impact of all condo fees on your budget.

What are occupancy fees?

They include three fees, identified as:

maintenance fees
property taxes
interest on balance owed (typically 80 per cent, but can vary depending on your deposit structure)

The amount of occupancy fees is roughly equal to the interest on the amount outstanding on the purchase price. For example, a $500,000 condo with 25 per cent down means you must pay monthly occupancy fees roughly equal to interest payments on $375,000.

Put another way, typical condo fees can range anywhere from 60 to 70 cents per square foot, or $485 to $566 per month. The charge goes towards cost of repairs and upkeep of common spaces, amenities and hydro. As the building ages and repairs are required, expect fees to rise.

Condos under construction = development charges

Are you investing in a condo not yet built? Prepare yourself not only for a substantial outlay of closing costs (estimate an additional two to seven per cent of the condo’s purchase price), but also hefty development charges that include:

general levies
education levies,
Section 37 levies
Green Standard levies

Each City issues development charges to a builder when the developer receives their building permit. The developer pays these charges that fund infrastructure, such as roads, libraries, schools, hospitals, parks, transportation amenities, and more. These amenities aren’t free, any more than the pool, fitness room or services that go into establishing your occupancy fee. The difference, however, is that the development charge is a one-time deal.

The problem with development charges is that they are invoiced by the city upon closing, and if you’re in the situation where you’ve signed your contract on a pre-construction condo that won’t be built for two or more years down the road, who can say what those development charges will be?

Fortunately, one money-saving strategy is open to you: Negotiate for capped fees before you sign a purchase of sale agreement. This action will save you tens of thousands of dollars. If a developer is not willing to negotiate, you are advised not to buy.

Additionally, purchasers of units in larger projects might find themselves in an interim occupancy situation (aka phantom rent) for a full year or two—which means paying rent to stay in your unit until developers are ready to register the build. This occupancy fee is estimated between $10,000 and $12,000 before ownership title is obtained and mortgage payments can begin.

While projects are being constructed to minimize capital costs to stay competitive on selling prices, the projected outlook is that building systems will likely require maintenance, repair and replacement earlier than in the past. The heads-up is that condo fees, AFTER the first year of operation, are likely to escalate quickly.

Older condos = higher maintenance fees

You might be dodging the one-time development charge by opting to buy an older condo, but they often have higher fees. The building’s age plays a major financial role in determining the fees residents will pay.

The general rule is this: The older the building, the higher the maintenance fee. One reason is that utilities are normally included in older builds, as opposed to newer condos, in which you’ll pay utilities over and above your occupancy fees. New structures will have 20 to 25 years before an underground parking garage, for instance, needs to be replaced, compared to older buildings in which replacements or repairs may need to be done now, thus raising your fee.

Calculating property tax

One expert notes that calculating the correct amount owing for property tax can be problematical, leading to errors of over-payment or under-payment. This margin of error in calculating the property tax portion of the occupancy fee could cost unsuspecting condo purchasers thousands of extra dollars. Developers are urged, therefore, to calculate the tax in the same way their particular City does, and purchasers are advised to ensure their lawyers are alerted to this problem, when they scrutinize tax calculations used by developers for occupancy fees.

Should buyers be discouraged from buying into the condo market? The consensus is no. Historically, occupancy fees are “normal” and unavoidable. With foresight, however, potential buyers are wise to take the opportunity to learn how deeply they might have to reach into their financial pockets, so they can make informed decisions about whether to buy into the condo market now, or wait until they’re better prepared.

Bio: Zoocasa is a real estate website with Toronto townhouse, Toronto condoand Toronto house listings and provides advanced search features such as property types and school boundaries.

New Build Condominium – Do You Get Interest On Your Deposits?

The short answer is ‘Yes … but’. Section 82 of the Condominium Act (“Act”) legislates that the builder (also called the declarant) must pay you interest on any funds you have paid as a deposit towards your purchase. This is great news for purchasers as we see more and more delays in the completion of new Toronto condominium projects and, as a result, builders holding purchaser deposits in trust for 3, 4, or 5 years and sometimes longer.

Sections 82(1) and (3) of the Act state the following:

    Interest

        82. (1) The declarant shall pay interest at the prescribed rate to the purchaser on all money that a person pays on account of the purchase price of a proposed unit or that the declarant credits to the purchase price of a proposed unit.

    Calculation

       (3) The interest shall be calculated from the day the person pays the money received until the day the proposed unit is available for possession or occupancy in accordance with the purchaser’s agreement of purchase and sale with the declarant.

However, the great news stops there. The ‘prescribed rate’ referred to in section 82(1) is defined in section 19(3) of Ontario Regulation 48/01 as “2% per annum below the bank rate”. Unfortunately, the current Bank of Canada overnight bank rate is 1%. Thus, if you currently have money on deposit with a builder, then it is not earning any interest. In fact, if you have had money on deposit with a builder going back as far as December 9, 2008, you have earned ZERO interest. That is the date that the bank rate dropped from 2.25% to 1.50%.

Think about the lost opportunities. If you had invested the same money in Apple stock on December 9, 2008, when the price was $100.06, your return to November 1, 2012 was 487%. Even in a conservative investment such asTD Bank stock, your return to November 1, 2012 was 97.6%.

When we meet to sign the closing paperwork and review the Statement of Adjustments, real estate purchasers buying new build condos are always shocked to find out their deposit money earned little to no interest.

Of course, this should not stop you from buying if you have found that perfect condo. However, you should be aware of what your money is doing for you while you wait for your condo to be completed.

What is a First Time Home Buyer?

If you’ve got a ton of questions about buying your first home, you’re not alone. Join @RBC_Canada and a panel of 5 experts (including myself, @DavidLFeld!) for the #FirstHome Twitter chat, on June 26 from 9-10 pm. Get answers to your most complicated questions and a chance to win RBC Visa Gift Cards!

One would think the term “First Time Home Buyer” (FTHB) can be simply defined. Unfortunately, it is not. The FTHB definition differs according to the program, CCRA HBP or Toronto Land Transfer Tax (LTT).

When discussing financing options with their mortgage specialist, buyers may consider withdrawing funds from their RRSP to put toward their down payment. This can be done tax free under the Canada Revenue Agency Home Buyers’ Plan (HBP) so long as certain conditions are met, including the requirement for the buyer to be a FTHB. For the purposes of the HBP, a FTHB is a person who has NOT:

At any time during the period beginning January 1 of the fourth year before the year of the withdrawal and ending 31 days before the date of withdrawal, you or your spouse or common-law partner owned a home that you occupied as your principal place of residence.”

This means for the HBP, one can potentially be considered to be a FTHB every five years. FTHBs under the HBP often take this to mean they are also eligible for the FTHB land transfer tax (LTT) rebates, which gives Toronto FTHBs an instant rebate of up to $5,725 off the LTT(MLTT + Provincial Land Transfer Tax PLTT combined). That is not so. In order to qualify for the LTT rebates, a FTHB is a person:

who has never owned a home ANYWHERE IN THE WORLD; and
whose spouse has not owned a home anywhere in the world while being the spouse of the FTHB

The term “spouse” means married or in a common law relationship (continuously lived together for at least 3 years – or shorter if parents of a child).

See the difference? For LTT rebate purposes, your FTHB status will never reset. Also, for LTT rebate purposes, you will not be considered to be a FTHB if your spouse (married or common law) owned a home while being your spouse.

It is entirely possible for one to be considered a FTHB for the purposes of the HBP, but not a FTHB for the purposes of LTT rebates. Buyers are urged to consult an experienced mortgage specialist and real estate lawyer, lest they be shocked by having to pay more than anticipated.

For more information on the Home Buyers’ Plan, including spousal eligibility, you can visit theCRA website. For more information on LTT, please visit the City of Toronto City of Toronto.

This post content is sponsored by Royal Bank of Canada, however the views and opinions expressed herein represent my own and not those of Royal Bank of Canada or any other party and do not constitute financial, legal or other advice.

When do I get my Keys?

I am lucky because I get to meet a lot of people in a day. A lot. From nervous first time home buyers to ballin’ international investors in Lambos, we always get the same simple question – when do I get my keys?

There are legal answers and practical answers to this question. The practical answer is that for 95% of the time, for resale properties, you can expect to pick up your keys at your lawyer’s office “some time” between 3:30 and 5:00 p.m. ON THE DAY of closing. So make your MOVING PLANS ACCORDINGLY.

Legally, Agreements of Purchase and Sale say that vacant possession must be given to you by 6:00 p.m. This is why we always give both answers. So, the legal answer is that you have until 6:00 p.m. to receive your keys (and your new castle should be vacant at that time), but in reality you usually get them around 3:30 to 5:00 pm and can expect that the seller’s MIGHT still be in the property as you arrive. To avoid the awkward OH SO YOU’RE THE NEW OWNER, OH SO YOU ARE THE GUYS THAT LIVED HERE moment you might want to SHOW UP ON THE LATER SIDE OF 5:00 P.M. AND BOOK MOVERS AND ELEVATORS ACCORDINGLY.