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.
CLOSING COSTS AND ADJUSTMENTS
Legal costs for a purchase with a mortgage usually range from $1,800 – $2,500 regardless of whether the buyer retains the services of a lawyer or notary public. Costs that are usually included in a quote are the professional fee, land title search and registration fees. The professional fee will range from $1,200 to $1,600. Aside from the items listed below, disbursements are usually $450 to $550.
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, which costs from $45 to $80 depending on the municipality. Similarly, the lawyer or notary will need to obtain an insurance binder showing loss payable to the lender, which costs from $30 to 80. For strata title property, a Form F stating there are no arrears in maintenance fees is required, which costs from $50 to $150. A lender also requires a strata Form B which cost $50 to $150. Finally, a Strata Corporation may also charge a “Move-In” fee which usually ranges from $50 to $250. Your lender may require a survey certificate, Western Law Societies Conveyancing Protocol or Title Insurance. The costs and benefits of each of these products vary and should be reviewed with your lawyer or notary.
Property Transfer Tax (“PTT”)
Property Transfer Tax (“PTT”) is a provincial tax applied to real estate purchased in the province. The rate is 1% on the first $200,000 of the property’s fair market value, 2% on all value over $200,000 up to and including $2M, 3% on all value over $2M up to and including $3M, and 5% on all value in excess of $3M. Foreign nationals and foreign corporations pay an additional 20% on the entire fair market value. If you are not a Canadian citizen or permanent resident, or your company is not controlled by one, the 20% tax likely applies. The tax is submitted at the time the buyer is registered as the new owner in the land title office, and the amount required must be provided to your lawyer for submission to the government.
1st Time Home Buyers
There is a full or partial exemption to PTT for First Time Buyers. The main criteria to qualify for the exemption are that the buyer: (1) is a Canadian citizen or permanent resident; (2) has resided in B.C. for at least 12 months or filed income tax returns as a B.C. resident for 2 of the last 6 taxation years; and (3) has never previously owned a principal residence anywhere in the world. There is a full exemption available for properties purchased for $500,000 or less, and a proportionate exemption for properties purchased for less than $525,000 but more than $500,000. There is no exemption on properties purchased for $525,000 or more.
Buyers of New Residential Construction
There is also a full exemption to PTT for buyers purchasing New Residential Construction valued $750,000 or less. The exemption is proportional for properties in excess of $750,000 and up to $800,000. Your lawyer will discuss with you whether you qualify for the exemption.
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 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 costing 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 you will need to pay all of the GST when the sale completes, then claim it back from the Federal
When a property is sold, there are often certain items relating to the property which have been prepaid beyond the completion date by the seller and which benefit the buyer thereafter. In other circumstances, the seller owes money for certain items for which payment is not due until after the completion date; therefore, it falls to the buyer to pay for the entire amount due. Closing adjustments are the calculations that pro-rate the prepaid or post-paid items and either credit or debit them against the purchase price.
Closing adjustments cover a number of items including municipal taxes, municipal water and sewer fees, strata maintenance fees, rent, and security fees.
Strata fees are paid monthly on the first day of each month. The buyer will reimburse 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.
Property taxes are based on a calendar year. Some municipalities such as Vancouver provide for an advance payment in February with the balance due at the beginning of July. The tax adjustment between the buyer and seller will vary depending on the time of year when the purchase will complete and which municipality is involved. Tax adjustments are one of the more complicated adjustments to understand but it is based on the buyer and seller being responsible for the taxes only for the period of time in which they are in possession of
Closing adjustments are set out in a document referred to as the Statement of Adjustments which sets out the buyer’s total costs and identifies the sources of funds to pay these costs. Funding sources include the initial deposit, the Mortgage proceeds, and any credit for taxes, utilities, or other adjustments. The final line item on the Statement of Adjustments will identify the amount of funds needed to complete the transaction. These funds will need to be delivered by certified cheque or bank draft payable to the law firm or notary.
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!