A closing cost is always incurred upon purchasing a home. In Canada, this can range from 1.5% to as high as 5% of the total purchase price. These costs are an integral part of the preconstruction process, and will be covered in further detail here. Some key points:
- For preconstruction units, there are two separate occupancy dates-interim and final.
- During the interim period, your lawyer will give you an “Interim Statement of Adjustments” form and you will be allowed to occupy your suite but your mortgage lender will not fund it yet. During this period you will need to pay occupancy fees to the developer. These are separate from closing or mortgage payments, and can typically last between 2-9 months.
Monthly occupancy fees will be the aggregate of the following:
The total of interest calculated on a monthly basis on the unpaid balance of the purchase price at the prescribed rate. The prescribed rate is set by the Bank of Canada. The rate will be equal to what has most recently reported as the chartered bank administered interest rate for a conventional one year mortgage. The rate can change monthly, and is determined by the date at which the purchaser assumes interim occupancy of a proposed unit, or is required to do so under the agreement of purchase and sale. As a result, the prescribed rate of interest is not known until the month of occupancy.
The projected monthly common expenses contribution for the unit.
At the option of the developer, any additional amount that is determined on account of monthly property taxes attributable to the unit.
- Once the final closing date approaches, your lawyer will give you a “Statement of Adjustments” form. This will detail the final closing costs, which include the land transfer tax and the rest of your down payment, as well as several other closing fees.
- Interim occupancy fees are usually paid via post-dated cheque, while final closing costs normally involve a bank draft or a certified cheque.
New condos and homes are subject to HST. In addition to the purchasing price, however, almost all pre construction purchase contracts have this calculation built in to the sale price. This is done for ease of financing of the HST component of the property.
For more information on this topic, be sure to check out this detailed report on the topic from the CRA.