What Closing Costs Should I Expect?
VANCOUVER BUYERS GUIDE
Firstly, you need to come up with your down payment. If you have less than a 20% down payment (a high- ratio mortgage) you are required to pay a mortgage insurance premium to have your mortgage insured against default.
For an owner-occupied purchase that is under $1M, the minimum down payment is 5% on the portion $500K and under, and 10% on the portion above $500K. For any property valued at $1M or higher, the minimum down payment is 20%. For high value homes, lenders will apply a sliding scale to determine how much they will lend on that home.
Rules have changed for investors, and the minimum you must put down when purchasing a rental property is now 20% to avoid an insurance premium. If you are purchasing a 2nd home, or a property for a family member (i.e. purchasing a condo for your children, or a property for a parent), this is considered a 2nd home and the owner occupied down payment rules apply.
In addition to the purchase price, be prepared for additional ‘closing costs’ associated with your home purchase. Depending on the size and value of your home and your residency status, your combined closing costs can vary greatly. The general rule of thumb for a Canadian Resident and what lenders ask to see in your account is 1.50% of the purchase price. Your Real Estate Agent, Lawyer or Mortgage Broker can help you estimate these costs.
The following will assist you in calculating your true costs in purchasing your new home:
Property Transfer Tax
This is a tax charged whenever a pre‐owned property is purchased, and cannot be included in the mortgage – you must show you have enough savings to pay this tax. The tax is charged at a rate of:
- 1% of the fair market value up to $200,000,
- 2% of the portion of the fair market value greater than $200,000 and up to and including $2,000,000,
- 3% on the portion of the fair market value greater than $2,000,000, and
- If the property is residential, a further 2% on the portion of the fair market value greater than $3,000,000 (effective February 21, 2018). For example, if fair market value of a property is $450,000, the tax payable will be 1% of $200K (=$2,000) plus 2% of $250K (=$5,000) for a total tax payable of $5,000.
- If the property is classified as residential and farm, or is residential mixed class, you pay the further 2% tax only on the residential portion of the property.
First time homebuyers are fully exempt from this tax if their purchase price is below $500,000. The below link will lead you to the specific exemption table and the sliding scale up to $525K.
If you are purchasing a newly built home, you are fully exempt from this tax if the purchase price is below $750,000, will only be used as yourself (not a rental property), and is 1.24 acres or smaller.
If you’re a foreign national or foreign corporation and the residential property is located in the Greater Vancouver Regional District, you also pay a 20% additional property transfer tax.
Costs for Newly Constructed Homes
If purchasing a brand new home, be prepared to pay G.S.T. in B.C. and settle any items not quoted in the original price, including any upgrades, landscaping or paving costs. For more information on G.S.T. and potential rebates, please click here.
If you have less than 20% down, your lender will require that you obtain mortgage default insurance. This is rolled into your mortgage and not required out of pocket at time of closing.
Your lender may require a home appraisal to confirm its market value, and will always require this for any home over $1M and any time you refinance your mortgage. Fees vary but are typically around $400.
A lawyer or notary fee will usually start at $1200. If you are switching your mortgage to a new lender and not changing the amortization or mortgage amount, this fee is paid by the new lender on your behalf.
An inspection is scheduled through your realtor and usually range from $350-$400.
This insurance is required for all mortgage lenders and varies depending on your chosen coverage, but budget for at least $500/ year.
If purchasing a pre-owned home, you will need to reimburse the seller for any pre-paid bills and property taxes - your lawyer or notary will calculate these on your Statement of Adjustments.
Buying a home is one of the biggest financial decisions you will make. It’s important that you are making an educated decision with someone looking out for your best interest.
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