January 19 2016 Posted by Siemens Group
The following is a guide to assist you in calculating the total expenditures that may arise during the purchase of a home. These are some potential costs a purchaser should be aware of:
Property Transfer Tax
The property transfer tax is payable on any purchase of real estate property in British Columbia. It is calculated based upon 1% of the first $200,000 of the purchase price and 2% of the balance. (The remaining balance of price amount above $200,000). There is an exemption available for first time buyers within a certain threshold. Click here to learn more about the first time buyer expemption.
GST of 5% is payable on the purchase of any new home or any home that has been substantially renovated. In most cases the purchaser is entitled to a rebate that is equal to 7% of the purchase price (up to a maximum of $42,500, which works out to a purchase price of $850,000). The rebate can be arranged one of two ways, at the builder's discretion:
1. Pay the GST @ 5% up front at the time of closing and apply for the rebate at the lawyers (rebate can take several weeks to arrive); or
2. Have the GST net of the rebate added to the purchase price, and the developer collects the GST rebate.
Your lawyer or notary will charge you a fee for drawing up and registering the mortgage. The amount of these fees varies depending on whom you use as a lawyer. It is advisable to call a couple of lawyers and ask for a written quote. When doing so ask for a quote for 'mortgage (drawing up of mortgage documents), conveyance (transferring the title between seller to purchaser) and disbursements (land title searches, tax searches, courier costs, photocopies, postage, filing agent fees, long distance telephone calls, etc.)
Survey Certificate or Title Insurance
Many lenders require a survey certificate to confirm that the property being purchased is in fact on the correct lot and isn't partially on that of their neighbors (encroaching). Often the vendor will already have a survey, and in most cases the lender will accept a photocopy of the vendor's copy. Otherwise a new survey will need to be ordered at a cost of approximately $300.00. Surveys are not necessary if the purchaser is buying a strata title property or a condominium. Increasingly lenders are moving toward requiring that the borrower purchase a title insurance policy (a policy that protects the lender in case of a defect in title or fraud) in lieu of a survey certificate.
These are prepaid expenses, which will need to be prorated between the vendor and the purchaser. For instance, a typical adjustment deals with the property taxes paid to the city or municipality. The amount paid will be adjusted as of the adjustment date and one party will be required to reimburse the other. Other typical adjustments include strata maintenance fees and utility expenses. If your completion date is April 30 and the property taxes have not yet been paid to the municipality. The vendor will have to pay you 4/12's of the property taxes due. A credit will be made to your account at the lawyers. If your completion date was August 1, chances are the vendor has paid the property taxes for the full year. In this case the purchaser would credit the vendor 5/12's of the taxes. An interest adjustment will also be made at the lawyer's office. Generally speaking they will collect interest that will accrue between the closing date and the last day of that month. If your closing date is on the 17th of the month the lender will collect the interest owing for the period of 17-30th of that month. If the monthly payment were $1000.00/month the interest adjustment would be $433.34.
This information is being provided to assist in the planning of a home purchase. It is not intended to be legal advice and the information set out may not be applicable in all cases. In some situations, a purchaser may be required to pay for all additional expenses such as second mortgage, assignment of rents, power of attorney, or independent legal advice for one of the parties involved. Each transaction will be different and it is recommended that the purchaser consult with their lawyer as early as possible to confirm the actual cash required to complete the transaction.