BUYING A HOME
Buying a home is a very exciting but sometimes stressful process. For most people it is their largest single investment. We want to make the process as stress-free as possible by helping home buyers understand some of the costs involved in buying a home as well as the process to go from having an accepted contract of purchase and sale and an approved mortgage to becoming the property’s owner and receiving the keys to their new home.
On this page you’ll learn about:
- Closing Costs and Adjustments
- Special Considerations for Non-Resident Buyers
- Purchase Closing Process
CLOSING COSTS AND ADJUSTMENTS
Legal costs for a purchase with a mortgage usually range from $1,100 – $1,400 regardless of whether the buyer retains the services of a lawyer or notary public. It is important for the buyer to understand what is or is not included in a quote and what might be added as additional charges. Costs that are usually included in a quote are professional fees, land title search and registration fees and miscellaneous office disbursements. PST and GST are added to our fees and disbursements as with other services and products.
Third Party Closing Costs
These costs are usually quoted separately from legal costs as they vary from one transaction to another. For example, the lawyer or notary will need to obtain a municipal tax certificate, the cost of which varies from $25 to $50 depending on the municipality. Similarly the lawyer or notary will obtain an insurance binder showing loss payable to a buyer’s lender (if any), the cost of which varies but usually ranges from $25 to $40. Finally, for strata title property, the lawyer or notary will require a strata Form F stating there are no arrears in maintenance fees, the cost of which varies but usually ranges from $25 to $35. The strata corporation may also charge a “move-in” fee which usually ranges from $50 to $200.
Many lenders will require the lawyer or notary to obtain on behalf of the buyer a Survey Certificate, Title Insurance or Western Law Societies Conveyancing Protocol. A Survey Certificate is used by the lender to ensure that the buildings on the property do not encroach on adjoining property or into “set backs”. If a Survey Certificate is not available lenders may accept Title Insurance or the Western Law Societies Conveyancing Protocol. Title Insurance and Western Law Societies Conveyancing Protocol provide insurance to protect the lender from any encroachments that would have been identified by a survey certificate. Title Insurance has some additional coverage that may be important to a buyer. The cost for a new Survey Certificate or Title Insurance for mortgages less than $500,000 usually ranges from $200 to $250. In the event of a subsequent refinancing an owner may need to buy a new Title Insurance policy. Most law firms will charge only a nominal fee for the Western Law Societies Conveyancing Protocol. It is important to review with your lawyer or notary the appropriateness of each product to your situation.
Property Transfer Tax (“PTT”)
PTT is a provincial tax applied to real estate purchased in B.C. The rate is 1% on the first $200,000 of the property’s fair market value, 2% on the portion greater than $200,000 up to and including $2,000,000, 3% on any portion 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. The tax is submitted at the time the Buyer is registered as the new owner in the Land Title and Survey Authority, and the amount required must be provided to the lawyer or notary for submission to the government concurrently with the registration.
Goods and Services Tax (“GST”)
GST is the Canadian federal tax payable by the first occupiers of new or substantially renovated properties. GST is charged at the rate of 5% of the purchase price and may be included in the total purchase price or added to it, depending on the language of the contract. Buyers should review the language carefully with their realtor and lawyer as GST is a significant cost.
Rebates are available for up to 36% of the GST if the Buyer is going to use the property as a principal residence. The full 36% rebate of the GST is available for homes priced $350,000 or less. For homes with a purchase price of more than $350,000, the rebate is phased out so that no rebate is available for homes valued at more than $450,000. If you’re planning to rent the property out, you can still qualify for the rebate as long as you enter into a long-term lease with your tenant. Understand, however, that in that circumstance you will need to pay all of the GST when the sale completes, then claim it back from the Federal government afterwards.
1st Time Home Buyers
Our number one recommendation to first time home buyers is to make sure you create a knowledgeable team of professional advisors including your realtor, mortgage broker, lender, insurance broker and lawyer or notary.
Property Transfer Tax Exemption: There is a full or partial exemption for “first time home buyers”. There are number of criteria to qualify for the exemption and the purchase price determines whether or not it is a full or partial exemption. The main criteria are that buyers must be Canadian citizens or permanent residents of Canada; have resided in B.C. for a least 12 months or filed income tax returns as a resident of B.C. for 2 of the 6 taxation years immediately prior to registration of the transfer; and never previously owned a principal residence anywhere in the world.
The full exemption is available for properties with a purchase price of $500,000 or less and a partial exemption is available for properties with a purchase price above $500,000 and less than $525,000. There is no exemption on properties with a purchase price equal to or greater than $525,000.
Home Buyers’ Plan: The Home Buyers’ Plan is available to first time home buyers. The Home Buyer’s Program allows a first time home buyer to withdraw up to $25,000 from their RRSP without paying tax on the withdrawn amount. The home being purchased must be a principal residence, can be existing or new construction, and the RRSP must be repaid within 15 years with minimum payments of 1/15th of the withdraw amount. Unlike the Property Transfer Tax Exemption, you can qualify as a “first time home buyer” more than once if you did not live in a home that you or your current spouse or common-law partner owned for the four year period before the funds are withdrawn.
Buyers of New Residential Construction
Property Transfer Tax Exemption:There is a full or partial exemption from property transfer tax for buyers of newly-constructed homes (including condos). Buyers of these properties are not required to pay property transfer tax if the fair market value of the property is below $750,000. There is a partial exemption for newly constructed homes under $800,000.
This program is available to most purchasers, including new residents of BC, first-time home buyers and previous property owners. To qualify for the exemption, the property must be 1.24 acres or smaller, you must be a Canadian citizen or permanent resident, you must move into the home within 92 days following registration at the Land Title Office, and you must continue to occupy the property as your principal residence for the remainder of the first year.
When you hear lawyers talking about the closing adjustments, what we’re referring to is the accounting process by which a buyer reimburses a seller for any prepaid expenses relating to the property from which the buyer will ultimately benefit, and a seller reimburses a buyer for any post-paid expenses relating to the property from which the seller ultimately has benefited. Closing adjustments cover a number of items including municipal taxes, municipal water and sewer fees, strata maintenance fees, rent and security deposits.
Strata fees are charged and paid monthly on the first day of each month. The monthly strata fees will be pro rated between the buyer and the seller, with the buyer reimbursing the seller based on the number of days between the date of adjustments agreed to in the Contract of Purchase and Sale and the last day of the month.
Rent paid by a tenant in the subject property is adjusted on a similar basis with the buyer receiving a credit for a portion of the rent. In the case of a continuing tenancy, the buyer will receive a credit for the security deposit with accrued statutory interest as the buyer will be responsible for returning the correct deposit amount to the tenant when the tenancy eventually ends.
Municipal property taxes are paid on the basis of a calendar year and often include the municipality’s utilities, such as sewer, water, and garbage disposal. Some municipalities such as Vancouver provide for an advance payment in February with the balance due and owing usually at the beginning of July. Other municipalities do not have an advance tax payment but the full year’s taxes are usually payable at the beginning of July. The adjustment between buyer and seller will therefore vary depending on the time of year the buyer becomes the property’s owner and the municipality in which the property is located. The tax adjustment is one of the more complicated adjustments to understand but it is based on the parties being responsible for any property tax costs associated with the property only for the period of time in which they are in possession.
All of the relevant adjustments are set out in a document normally referred to as the Statement of Adjustments. The Statement of Adjustments shows the buyer’s total costs and identifies the sources of funds to pay those costs. The sources of funds will include the initial deposit, any mortgage proceeds, and any credits received from the seller in terms of property tax, strata fees, utilities, tenant rent, or other adjustments. The final line item on the Statement of Adjustments will identify the amount of money required to complete the transaction. The balance required to complete will need to be delivered by certified cheque or bank draft payable in trust to the lawyer or notary firm.
SPECIAL CONSIDERATIONS FOR NON-RESIDENTS
Non-residents of Canada can own property in British Columbia but there are some important considerations.
Mortgage qualifications in Canada are different for non-resident buyers than for resident buyers. If you’re a non-resident buyer you should consult with a lender or mortgage broker to understand how to qualify for a mortgage. You will also need to open a Canadian bank account, in-person with identification acceptable to the lender.
Bell Alliance uses technology to streamline the closing process for non-resident buyers who can’t be present at our firm to sign purchase documents. Documents can be forwarded electronically and signed in front of a lawyer or notary in most foreign jurisdictions. These documents can be returned to us electronically, with originals to follow by mail after the purchase completes. It is also important to make arrangements for the transfer of funds into well in advance of closing.
Non-resident buyers should also consult with a Canadian tax professional to discuss tax treatment both during the period of property ownership and on disposition. A non-resident owner of rental property will be subject to a 25% withholding of taxes on the gross rental income. Administrative rules require that the owner or agent remit these amounts to the Canada Revenue Agency. A non-resident owner sometimes can file a special form to have the withholding taxes reduced, which essentially lets the non-resident be treated as a resident with respect to rental income. This form needs to be filed before January 1st of each year. For further information please contact a Canadian tax accountant.
RESIDENTIAL PURCHASE CLOSING PROCESS
Step 1 – Retain the services of a lawyer or notary. You should contact your lawyer or notary as early as possible in the process.
Step 2 – Your lawyer or notary will need to gather information from you including how you wish to hold title to the property if you are buying with your spouse or partner. Most couples hold title as “joint tenants” which means that the couple jointly owns 100% of the property, as opposed to “tenant-in-common”, which means each owner owns a fixed percentage.
Step 3 – Your lawyer or notary conducts a title search, obtains municipal tax information and any additional information necessary to prepare the Statement of Adjustments. The Statement of Adjustments is a balance sheet of the transaction showing the total funds required to complete the purchase after accounting for the deposit and mortgage proceeds.
Step 4 – Your lawyer or notary prepares closing documents including title transfer, mortgage, property transfer tax forms and Statement of Adjustments. Your lawyer or notary will forward the seller’s closing documents to the seller’s lawyer or notary for execution.
Step 5 – 1 to 3 days before closing is when you usually meet with your lawyer or notary to sign documents and deliver the balance of the down payment or equity.
Step 6 – Your lawyer or notary will register the transfer and mortgage documents, arrange for the seller’s lawyer or notary to pick up funds and notify you that the purchase has completed.
Step 7 – Normally you receive the house keys directly from your realtor on the Possession Date as set out in the Contract of Purchase and Sale.
Step 8 – Move in and enjoy your new home!