Buying a home, especially for the first time, can be many things – exciting, nerve wracking, the fulfillment of a life long dream.
One of the big questions facing many buyers is the all important “how much can I afford?” Buyers tend to focus on the sticker price of the house and it can be easy to forget the other fees that stack up on top of the original sum. Here’s a simple guide to help you calculate how much you need to set aside for the purchase of your next home.
1.Cost of the Home
This is pretty clear (which is good because it just gets more complicated from here!). If you negotiated to buy a property for $525,000, then that is the price you will have to pay.
2.Property Transfer Tax
Whenever you purchase property in British Columbia you will pay property transfer tax. Fortunately, there are some exceptions from this tax, but they are limited and come with many restrictions so it is important to consult with your lawyer to confirm if you and the property qualify.
Property Transfer Tax is calculated as follows:
1% on the first $200,000;
2% on the value greater than $200,000 but less than $2,000,000; and
3% on the value in excess of $2,000,000.
If the property is residential, an additional 2% on the value in excess of $3,000,000.
So, if your purchase price was $525,000 then your tax would be calculated as follows:
1% on $200,000 = $2,000
2% on $325,000 = $6,500
Total = $8,500
This link will take you to a calculator to help determine the tax you will have to pay for your home.
If you are a foreign national, or foreign corporation and your property is in certain regions of B.C. you will also have to pay an additional 20% in transfer tax on the value of the property.
The rule with GST is that it is payable unless there is an exemption. In many cases, a property will fall under the “used residential housing” exemption so there will be no GST. However, if GST does apply, as in the case of a new home, then you will need to add 5% to your purchase price. Many people forget how quickly GST can add up so be sure to know the GST status of the property you are considering so you can factor that cost into your calculation.
If your down payment is less than 20% of the purchase price, then you will have to pay mortgage default insurance. For example, if you purchase a home for $525,000 and you pay a 10% down payment then you will still have to pay $14,648 in mortgage default insurance.
This link will take you to a calculator to help determine the mortgage insurance you will have to pay.
Throughout the year there are several costs associated with owning a property, some monthly, some annually. Each of those charges needs to be adjusted for on the closing date so everyone pays their fair share.
6. Property Taxes
Property taxes are different from property transfer tax. Property taxes are taxes you pay each year, and property transfer tax is the one time tax paid when your purchase the property. Property taxes are based on the calendar year, but they are paid in July. This means if you buy a property before the property taxes are paid you will receive a credit from the seller for the period of time the seller owned the property, but you will be responsible for paying the bill in full in July. If you buy a property after the taxes have been paid then you will credit the seller with the portion of the year you are responsible for.
To calculate this we take the property tax and divide it by 365 to get a daily rate. We then calculate how many days the buyer and seller were the respective owners of the property and multiple it by that daily rate.
7. Municipal taxes and tolls
Some properties will have quarterly or annual charges for water. These charges also need to be adjusted for, and are adjusted for in the same way as the property taxes so the buyer and seller each pay their fair share of the charge.
If you are buying in a strata there are additional costs that have to be paid.
Strata fees are calculated on the same basis as the adjustments and both the buyer and seller pay their pro-rata share of the month’s strata fees, and then going forward the buyer (as the new owner) will pay for each subsequent month in full.
Another cost you will have to pay is the cost to obtain information from third parties about the strata and the strata unit. We need to obtain this information to ensure there are no fines against the unit you are purchasing, and we need to obtain proof that the strata corporation has insurance. The cost to obtain this information from third parties can range from $60 to $200 depending on the strata manager.
Lastly, your strata may charge you a move-in fee. This depends on the strata but these charges can range from $100-$300.
8. Title Insurance
Title insurance is required by your lender to protect their interest in the property from certain issues that may arise. The insurance is based on the value of the property, but is a minimum of $150 and is payable by the buyer.
9. Legal Fees
Lastly, you will need to pay your lawyer for the conveyance (this is the transfer of title). This is the cost to collect all of the information discussed above, calculate adjustments, coordinate the mortgage with your lender, meet and sign documents with you, register documents at the land title office, ensure the seller’s mortgage is removed from title, etc. At Doak Shirreff Lawyers LLP, we also do a title review for our clients, at no extra cost to ensure there are no charges registered on title to the property which could affect your use. In order to do this we need to receive your contract as soon as possible.
In addition to the lawyer’s fees there are disbursements. Disbursements include the cost to register the Transfer and Mortgage in the Land Title Office.
Buying a home is exciting, but there is a lot that happens in a short period of time, and a significant costs that need to be considered. This article is designed to give you a basic overview as to what goes into the transaction side of buying a home and what the associated costs are. Ultimately, the cost will depend on the home you are buying and there are exemptions you may be eligible for so the best thing to do when you are purchasing a home is work closely with your mortgage broker, realtor, and lawyer. The earlier you involve each of these parties the better they will be able to assist you and guide you through the process. Think of your lawyer, broker, realtor as a team with the goal of getting you into a new home!
If you are considering buying a property and have any questions please contact Alison McLeod, [email protected], 250.979.2561.
This article is for general information only and is not to be relied upon as legal advice. If you have questions or require legal advice please contact Alison McLeod.