Purchasing a condominium is an exciting milestone, but amidst the anticipation, it's crucial to consider the financial responsibilities that accompany this significant investment. One aspect that potential condo buyers in Ontario must be aware of is the concept of closing costs. These expenses, separate from the purchase price, can add up significantly and should be factored into your budget. In this article, we will delve into the details of closing costs associated with buying a pre-construction condo in Ontario, providing you with a comprehensive understanding of what to expect and how to plan accordingly. Whether you're a first-time buyer or have experience in the real estate market, knowing the intricacies of closing costs will empower you to make informed decisions and ensure a smooth transition into your new condo.
Deposit
When purchasing a pre-construction condo, the deposit is typically paid in installments over the course of the construction period. Here's how the deposit structure typically works:
Initial Deposit: Upon signing the purchase agreement, you will be required to provide an initial deposit. The amount can vary but is typically around 5-10% of the purchase price. This deposit is due shortly after signing the agreement and is held in trust until the construction commences.
Interim Deposits: As the construction progresses, the developer will specify specific milestones or stages where additional deposit payments are due. These payments are known as interim deposits. The timing and amount of these deposits are outlined in the purchase agreement.
Final Deposit: The final deposit, also known as the closing deposit, is due upon occupancy or upon the completion of the construction. It typically represents a significant portion of the purchase price, often around 5-10%. At this stage, the condo is ready for occupancy, and the final deposit is required before the buyer can take possession.
It's important to note that the deposit amounts and payment schedule can vary depending on the specific pre-construction project and developer. It's crucial to thoroughly review the purchase agreement and consult with a real estate lawyer or professional to understand the deposit structure and associated obligations. In the event of any issues or cancellations, the buyer may be entitled to a refund of the deposits as per the terms and conditions outlined in the purchase agreement or governed by the Tarion warranty program.
Land Transfer Tax
This tax is payable by the purchaser to the province when you transfer the property’s title into your name. This can add a surprising amount onto your final bill at the end of the day. First time homeowners are eligible for a land transfer tax rebate. Here is what you will pay under the Ontario Land Transfer Tax:
· 0.5% on the first $55,000
· 1.0% on anything between $55,000 and $250,000
· 1.5% on anything between $250,000 and $400,000
· 2.0% on anything over $400,000
Harmonized Sales Tax (HST)
When buying a pre-construction condo, the purchase price typically includes HST. In Ontario, there are HST rebates available for buyers, which intend to offset a portion of the HST paid on the purchase price. However, the rebate is subject to certain conditions and eligibility criteria.
To be eligible for the rebate, the buyer must plan to use the condo as their primary residence and the process includes filing paperwork with the Canada Revenue Agency (CRA) after closing.
Alternatively, adjustments can be made at the time of closing for the HST. This ensures the buyer only pays HST on the portion of the purchase price attributed to the time after the condo is considered substantially complete. The adjustments are typically calculated by the lawyer handling your transaction.
Tarion Warranty Fee
Under the Ontario New Home Warranties Plan Act, builders are required to provide warranty coverage for new homes, including pre-construction condos. This coverage protects buyers against certain defects and ensures the builders meet certain construction standards. The Tarion Warranty Fee is a cost associated with the warranty coverage provided by Tarion. As the purchaser, you are responsible for paying this fee, which is typically included in the closing costs. The fee amount depends on the purchase price of the condo and is specified in the purchase agreement.
Legal Fees
Legal fees are a standard closing cost associated with any real estate transaction. Depending on the lawyer you work with, expect to pay between $1,500 - $2,500 in legal fees.
By working with an experienced lawyer, they can conduct extensive due diligence on the pre-construction project to help uncover any potential issues or risks associated with the development before closing. They can also thoroughly review the purchase agreement, within the allotted review period, to ensure the terms and conditions are fair and reasonable. Here, they can identify any potential risks, hidden clauses, or unfavorable provisions and negotiate on your behalf to ensure a more favorable outcome.
Common Expenses / Corporation Fees
Common expenses are a key component of owning a pre-construction condo in Ontario. These expenses contribute to the maintenance, operation, and administration of the shared or common elements within the condominium. The specific fee structure is determined by the condo corporation’s bylaws and outlined in the purchase agreement, and typically calculated based on the size or square footage of the individual unit. During the pre-construction period the corporation fees may not be collected immediately. However, once the building is complete and units are occupied, the fees will be collected from the unit owners on a regular basis (e.g., monthly, quarterly). It is important to note that condo fees are not fixed and may change over time as needed to cover the operating expenses and ensure the financial stability of the condominium.
It's important to note that the specific costs can vary depending on the purchase price of the condo, location, and individual circumstances. It is essential to carefully review the agreement of purchase and sale to understand the deposit structure, payment schedule, refund policies, corporation fees and other important information you need to know. It is recommended to consult with a real estate professional or lawyer to get an accurate estimate of the closing costs for your specific situation.
Carson Law has practiced Real Estate Law for over 15 years and can help guide you through every step of your pre-construction purchase.
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