Are you considering buying a home in the Greater Toronto Area (GTA)? If so, it’s essential to do your homework on the often-overlooked pre-construction closing costs. These expenses can quickly accumulate and potentially strain your budget, putting your dream home and down payment at risk. To help you steer clear of unpleasant surprises, it’s crucial to be well-informed about these hidden costs. In this blog post, we will provide you with a comprehensive guide to understanding and managing preconstruction closing costs when buying a house in Canada.
What are Pre-construction Closing Costs?
Pre-construction closing costs are the final payments you need to make before your new home becomes officially yours. While most people might think that the final deposit payment is the end of their financial commitments, the reality is more complex. Pre-construction closing costs can account for a significant portion of your overall budget, often ranging from 8% to 10% of the purchase price.
Pre-construction Closing Costs
Land Transfer Taxes
In Canada, buyers are responsible for paying land transfer taxes when the property’s deed is transferred to their name. This tax is typically calculated as a percentage of the purchase price. In Ontario, you’ll also encounter the Toronto Land Transfer Tax, which applies in addition to the provincial tax. It’s worth noting that first-time homebuyers may be eligible for tax credits and rebates.
Electronic Registration Fee
The electronic registration fee, covering the cost of electronically registering the property transfer, is usually paid by the builder on behalf of the buyer.
Development Charges and Educational Levy
Municipalities often impose development charges on new construction projects to fund infrastructure and services necessitated by growth. These charges are typically passed on to the homebuyer. Ensure that you understand these costs and that they are capped, if possible.
Tarion Warranty
The Tarion Warranty offers protection to buyers in case of construction defects or delays. Some builders include this fee in the purchase price, while others may require buyers to pay it separately. Clarify this with your builder.
Extension of Closing Date Fee
Should your mortgage approval be delayed or your existing home not yet sold, you may need to request an extension of the closing date from the builder. However, this extension comes with a fee, so it’s essential to understand the terms beforehand.
POTL Expenses
For townhouses and condos, these expenses cover various costs such as condo fees, maintenance fees, and contributions to a condo reserve fund. These costs encompass services like garbage collection, snow removal, and parking levies.
Builders Adjustment Fees
These fees encompass adjustments for property taxes, additional construction costs for changes or upgrades, and condominium fees that need to be settled at closing.
To prevent any unexpected closing costs carefully review the purchase agreement, and consider seeking legal advice if necessary.Engage an experienced real estate lawyer who can provide guidance and ensure all legal aspects are in order.Ensure that all potential costs are disclosed and, if possible, capped in the purchase agreement.Conduct a pre-delivery inspection to identify any issues or discrepancies with the property before taking possession. By being well-informed and working with experienced professionals at SG Homes, you can navigate the pre-construction process more smoothly and minimize the risk of unexpected closing costs. Don’t let hidden expenses stand in the way of your dream home; be prepared and informed every step of the way with SG Homes.
