There are many important steps involved in purchasing preconstruction. In our previous articles, we talked about the things to expect when buying preconstruction and also details about interim occupancy. In this article, we will help you through the last and critical step in the buying process which is what we call the Final Closing.
What is the Final Closing and what happens during this time?
Final closing is the closing of the transaction to purchase condo unit. Closing date is communicated by the builder well ahead of time. Condo ownership passes from builder to individual purchasers. Interim occupancy ends at this point and buyers have full ownership of the property. Buyers have to arrange finances to close the unit ahead of closing date.
When does it happen?
Final closing is the last step in condo buying process. Once the building is completed and officially registered, builder will notify you of your final closing date.
How does buyer arrange finances?
As soon as you are informed of your final closing date, arrange the needed amount for the remaining balance of the purchase price. If your financing is through obtaining a mortgage loan like most buyers, contact your lender or mortgage broker to start approval process and get the mortgage commitment much before closing date. Alternatively, you can use your personal finances.
What are the expected costs?
Here are some other major costs you can expect in the final closing.
Development charges
When there is a new condo building, there will be a need for new infrastructures to provide services such as roads, transit, water and sewer services, fire and police facilities etc. In the recent years, the city has been increasing the development charges which now typically goes above $5,000.
Land Transfer Tax
This tax is based on the purchase price. For buyers purchasing in Toronto, they have additional city land transfer tax. Here is an example for a purchase price of $400,000 if the property is outside Toronto.
| Purchase Price of Home | Marginal Tax Rate | Calculation |
| First $55,000 | 0.5% | (55,000 × 0.005) = $275 |
| $55,000.01 to $250,000.00 | 1.0% | (195,000 × 0.01) = $1,950 |
| $250,000.01 to $400,000.00 | 1.5% | (150,000 × 0.015) = $2,250 |
| |
Total land transfer tax payable $ 275 + $ 1,950 + $ 2,250 = $4,475 |
|
Reserve Fund
When you buy pre-construction, you will need to contribute 2 months’ worth of condo fees to the reserve/emergency fund. This usually happens at the time of closing. This reserve fund is intended to make sure that condo corporation will have enough money to pay for future repairs or major renovations.
Legal Fees
When buying pre-construction, you will need an experienced lawyer to handle the purchasing process. The legal fees you will pay might range from $1,500 to $2,500 depending on your lawyer and what services are included in the fees.
HST
Unlike resale condos, new condos are subject to HST (Harmonized Sales Tax). However, the purchase price already includes HST assuming the buyer is moving into the unit. To give you an idea, a purchase price of $400,000 will have a total HST of $27,216 payable on closing date. You are eligible for HST rebate if you are going to live in the condo unit. If you are an investor you must pay HST up to $24,000 at the closing. If you lease your unit for a one-year term, you will be eligible to apply for refund of HST.
For an accurate information about how HST applies in your case, consult with a professional knowledgeable in these matters.
Other fees
This includes Tarion New Home Warranty that typically costs up to $1k, utility hook-ups for gas, water and hydro, and other miscellaneous fees such as status certificate fees, deposit cheque administration fees etc.
I hope this information helped you understand the last step in pre-construction condo purchase.
For more information, you can contact me at (647) 834-9928 or send me an email to [email protected].