Condo Closing Costs: What You Need to Know When Buying a Condo
Unaware buyers stumble into the real estate pricing minefield on a regular basis, being hammered with a list of seemingly ever-growing fees. If you buy a condo or home without sufficient preparation, then as the sale completes, an array of fees can appear out of the blue.
These bills may come as a surprise for a one-time buyer, with so much to handle during a property sale. However, for a professional in the condo renting market, there is no excuse. They should not come as a surprise. A little research will help those new to buying condos learn what all the costs are, and how to pay or minimize them.
This piece covers the notorious closing costs, which can come as a bit of a mystery, but with some planning, you should be able to manage them.
Paying the Deposit, the Biggest Closing Cost
Paying your deposit is one of the givens in real estate transfers. This standard charge is a percentage of the overall condo price, payable on signing, with future payments during the build. Any professional will ensure they have the payment structure in writing up front so there are no surprises.
With new condo projects, the initial deposit may be paid out over a few months or an entire year, helping make the payments smaller and more manageable. So, what may be a 20% deposit can be turned into four payments of 5% to ease you into the buying process.
The deposit is one of the largest fees, but once that has been handled, there are plenty more to consider.
Land Transfer Taxes in Closing Costs
Land transfer taxes are another sizable bill, especially in high-value property areas like Toronto and Vancouver. In Toronto's case, two taxes are applicable, including both provincial and municipal Land Transfer Taxes.
If this is your first condo then there could be some relief from the first-time buyer rebate.
Here are some examples of taxes that are to be paid on purchase of a resale condo:
$100,000 LTT: $725 Rebate: $725
$200,000 LTT: $1,725 Rebate: $1,725
$227,500 LTT: $2,000 Rebate: $2,000
$600,000 LTT: $8,475 Rebate: $4,000
The Toronto Land Transfer Tax (LTT) breaks fees down into bands at fixed percentages.
- 0.5% - on the first $55,000
- 1.0% - between $55,000 - $400,000
- 2.0% - anything over $400,000
First-time buyers here are exempt on the first $400K, but pay 2% on anything over that.
If you were going by an average cost of a condo in Toronto, $352,000, you'd pay $3755 for the Ontario LTT and $3245 for the Toronto LTT. That means you'll pay $7000 total in Land Transfer Taxes alone.
The Tarion Warranty Fee
Tarion, provides new home warranty protection to over two million Ontario owners, adding protection for the condo, at a fee. On new build condos, there is an enrollment fee (full list here), depending on the purchase price. Fees for a condo valued between $300,000 and $350,000 are $802.30, while for a condo that costs between $350,000.01 and $400,000, you would pay $881.40 .
This fee will help protect you from poor workmanship on the building or other issues like code violations, water penetration and so on. Most builders factor the Tarion and LTT into their pricing, so check with them about your situation.
The CMHC Insurance Premium
If you plan to put less than 20% down on your condo then there is a mortgage insurance premium payable to the Canadian Mortgage and Housing Corporation (CMCH).
The tax varies across the provinces, but typically will cost the buyer between 0.5% and 2.5% of the mortgage insurance's principal.
Fortunately, the fee can be added onto most mortgage payments, so might not appear as an up-front cost. Also, since the majority of real estate investments require a minimum of 20% up front, this fee may not apply to your transactions.
The Good Old Legal Fees
All those lawyers working behind the scenes will charge a hefty premium for their services, so add these as another standard cost. They vary from firm to frim, so you could end up paying anywhere between $1,000 and $2,500 in legal fees depending on the circumstances of a property.
Always go with a reputable law firm or a reliable sole practitioner who has the time to work on your cases, Buying a condo is a major purchase that can take a lot of time, and legal issues can tie up developments for months if your lawyer isn't up to the job.
Additional Builders Fees
Experienced investors will know where all the costs of a condo are coming from, but dealing with a new builder can change the landscape. Be prepared to ask them all the pointed questions about potential extra costs, such as additional charges, development fees, caps on closing costs, as well as smaller details like costs for home inspections, title insurance, and utility service deposits.
These and other closing costs can amount to between 1% and 4% of the overall purchase price. While that 1% difference may seem small, it could still end up costing you thousands of dollars. The more research you perform, and financial resources you set aside, the fewer surprises you will find on the way to completion.
We're here to help you break down your condo purchase costings. Please get in touch with us should have more questions!