a person calculating costs using a laptop and a calculator

What Are Pre-Construction Closing Costs in Canada? 

Pre-construction real estate transactions work a lot differently than resale transactions. Buyers don’t take these costs into account and are met with unmatched expectations when it’s time to take possession. From interim occupancy fees to final closing costs like land transfer tax, development charges, and legal fees, these costs are paid 2-3 months before getting the keys to your brand new home. Let’s break down these costs and help you make an informed buying decision. 

11 costs to expect when closing your pre-construction home in Canada: 

1. Final Deposit 

When you purchase a pre-construction property, the payment structure is typically divided into several installments. They are part of the overall down payment, which generally amounts to 20% of the purchase price. The final deposit is the last installment, paid at the time of interim occupancy or final closing, depending on the terms outlined in the Agreement of Purchase and Sale.

The final deposit serves as a checkpoint to ensure that you are financially prepared to take ownership of the property. The size and timing of your final deposit can influence your mortgage approval process. Lenders want to see that you have the necessary funds available to cover all required payments, including the final deposit.

Work with a mortgage advisor to understand how the final deposit fits into your overall mortgage plan. They are the best at helping you manage finances and ensure you have sufficient funds available.

2. Land Transfer Tax

This cost varies by province and municipality. For example, in Ontario, the LTT for a $600,000 property would be approximately $8,475. Toronto has an additional municipal LTT, doubling this amount. Here’s a rough calculation for Ontario:

  • 0.5% on the first $55,000
  • 1% on the portion between $55,000 and $250,000
  • 1.5% on the portion between $250,000 and $400,000
  • 2% on the portion between $400,000 and $2,000,000

First-time homebuyers may be eligible for rebates. In Ontario, first-time buyers can receive a rebate of up to $4,000. 

3. Development Charges and Levies

Government incurs these to cover the cost of infrastructure and services needed to support new developments. It can include but isn’t limited to water management, sewers, roads, parks, and community centers. These charges are usually included in the purchase agreement and are payable at the final closing​. 

4. Tarion Warranty Fees

Established in 1976, Tarion is a not-for-profit corporation by the Ontario government that protects new home buyers from construction defects and other issues that may arise with their newly built homes. Most pre-construction projects need you to purchase the 7-year warranty, which covers major structural defects, workmanship defects, or any defect that adversely affects the use of the building as a home. 

Tarion Warranty starts at $661.05 for a unit under $300,000 and caps at $6,780.00 for properties $4 Million and above. Most buyers pay around $1,110 to $2,000 in fees. 

judge's gavel and scales of justice on a desk

5. Legal Fees and Disbursements

Legal fees are paid to your real estate lawyer for handling title searches, registering the property, and preparing the closing documents. You can expect to spend between $1,500 – $2,500 including any out of pocket expenses made by your lawyer. Only pick a lawyer that exclusively works in pre-construction real estate, so the closing process is smooth and stress-free. 

6. Title Insurance

Title insurance protects you and your lender against potential issues with the property title, such as fraud, errors in public records, and other title-related problems. While the chance of fraud happening is lower compared to resale real estate, it is a small cost to secure yourself. Expect to spend $250 to $500 depending on the type of property. 

7. HST 

HST makes the biggest chunk of your closing costs. If you plan to stay in your newly bought unit, you will get a portion or full amount back as tax rebates. In Ontario, the HST rate is 13%, which includes 5% federal GST and 8% provincial PST. Builders typically include HST in the purchase price to make transactions less complex. 

For a pre-construction condo priced at $600,000:

  • HST (13%) = $600,000 x 0.13 = $78,000
  • Total Cost with HST = $600,000 + $78,000 = $678,000

As a new homebuyer, you are eligible to receive up to 36% of the GST portion and 75% of the provincial portion (only up to $24,000) as tax rebates. The only eligibility requirement is that they must use the property as their primary residence for a minimum of 1 year after closing. If you’re an investor and plan to lease the unit right away, you won’t be eligible for rebate. 

The rebate is applied by the builder on your behalf as they need to submit documents to CRA. They will send you a draft of the application beforehand. Make sure to consult your real estate lawyer on the accuracy of information as it can’t be amended afterwards. 

Other Costs To Remember 

8. Utility Hook-Up Fees

Utility hook-up fees are one-time charges for connecting essential services such as electricity, water, and gas to your new home. Depending on the provider and location, expect to spend $500 to $1,500 for all utilities combined. The builder will make these expenses on your behalf, which are paid at final closing. Once you move in, you’ll be billed monthly. 

stacks of coins and wooden blocks spelling property tax on grey background

9. Property Tax Adjustments

Property tax adjustments are payments you may need to make to reimburse the developer for any property taxes they have paid from the date of occupancy until the final closing date. For example, if your yearly property tax costs $4,500 and your builder has paid $1,000, you are responsible to pay the remaining $3,500. 

10. Condo Fees

Condo fees or maintenance fees are due monthly and cost around $0.50 to $1.00 per square foot. They cover expenses such as staff payment, reserve fund for major repairs and renovations, and amenity maintenance. 

11. Mortgage Insurance 

Mortgage insurance, also known as mortgage default insurance, is required if your down payment is less than 20% of the purchase price. It protects the lender if you default on your loan.  It is typically between 2.8% and 4% of the mortgage amount. For a $600,000 home with a 10% down payment, the insurance premium could be around $16,200, which can be added to your mortgage principal. You pay the insurance as part of your monthly mortgage payments. 

Budget for all these expenses because they add up quickly. Only make a real estate purchase if you are ready for the financial commitments of homeownership.

Check out the latest pre-construction projects in Ontario here on our website!

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