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The most significant financial commitment most BC residents ever make is the buying a home in British Columbia.
The purchase offers so much potential for future happiness, yet can lead to unhappiness, even misery if you are not careful. Few things in life will impact your finances and the overall quality of your life for decades like this one decision. Yet many people move through the process without ever really considering their options before signing on the dotted line. And many are just unprepared for what lies ahead.
One of the most prevalent considerations often overlooked by those buying a home in British Columbia is that of closing costs. They range from title insurance to recording fees and can add up to several thousand dollars. Ask any homebuyer and they will most likely tell you, there’s not much that could have prepared them for the shocking reality of closing costs.
Budgeting appropriately for a property and therefore guaranteeing it to be a profitable endeavour necessitates the consideration of these and other associated fees with buying a home. Here, we’ll review some of the most pertinent costs to remember when looking to acquire a property, and how they can affect your budget.
Understanding Closing Costs
When you buy a home in British Columbia, closing costs are unavoidable. The amount will differ, but generally speaking, expect to spend at least 2-4% of the ultimate sale price.
Closing costs are the fees and expenses that come with the purchase or sale of a property. These costs can add up to a substantial amount, so it’s important to be aware of them and plan for them in advance.
Some costs are one-time expenses that must be paid before you even move in or just when you complete the purchase transaction. They include things like local area transfer taxes and fees to have your name removed from prior utilities. Others are ongoing expenses, like taxes and insurance costs.
The best way to plan for closing costs is to factor them into your budget from the start. Determine how much you are willing and able to spend on a property and then add an additional percentage for the unknowns. This will give you a cushion to cover any unexpected fees that may come up.
The statement of changes will describe any prepaid expenditures made by the seller which the buyer will reimburse, such as utilities or property tax for the year. For example, if the seller pays property taxes for the next year and the buyer takes possession three months later, the buyer would reimburse the seller for nine months of property taxes. The cost varies, but plan to set aside around $500.
Lawyers and notaries charge fees for their services, which can vary. These professionals are quite essential for the correct application of procedures, such as applying for necessary registrations, and making sure that the title is correctly transferred. Be sure to understand exactly what services your lawyer offers and how the legal charges are broken down prior to making any final decisions in order to factor it into final costs.
Generally, expect this to cost around $1,000-$1,500. This price varies on the complexity of the purchase and exact nature of services.
These costs include things like mailing expenses, bank fees, photocopies, and land transfer fees that are paid to your lawyer for other miscellaneous expenses. Again, this expense can vary, however it is usually around $100.
Before purchasing, many buyers have the property inspected by a professional to ensure they know what it’s really like and whether or not they can afford any necessary upkeep or repairs. It’s important to note that home inspections are not mandatory but are strongly recommended. Costs for this can range and are often dependent on the scale and nature of the project. It is usually within the area of $350 to $750.
This insurance provides you with comprehensive coverage for your property, including any losses or damages. It is required by most mortgage lenders.
Your home insurance will cover the damage caused to your home by any hazards addressed in your policy, allowing you to return to normal as quickly as possible. Fire, water damage, wind, theft, and vandalism are just a few of the hazards addressed in a policy.
Premium costs vary by a number of factors, including the type of house, the materials it was constructed of, and the neighbourhood crime rate. Expect this to cost around $800 to $1,200 annually.
Mortgage Default Insurance
This covers the cost of the home in the event you default on payments. It is mandatory for purchases where the down payment is less than 20%. The premiums for this insurance are based on the size of the mortgage, the down payment and the length of the mortgage. The premium can also be paid in advance or over the life of the mortgage.
One of the ongoing costs of homeownership is property taxes. The amount you will pay each year depends on a number of factors, including the value of your home and where it is located. In most cases, you will receive a property tax bill every year from the municipality in which your property is located.
Land Survey And Building Location Certificate (BLC)
The survey is the property’s examination and measurement, whereas the certificate is the official document that certifies the property’s boundaries, buildings, and structures. This is something your mortgage lender will likely require. In some cases, the seller of the property may already have a recent certificate and can provide it to you. Otherwise, it may need to be out of pocket. The cost varies according to the inspection’s degree of complexity.
Through title insurance, the lender is protected against title flaws, such as missed back taxes, conflicting wills, and current liens from other mortgages or home equity lines of credit. It is not necessary in most cases, but it may be required by your lender. Because this insurance is highly intricate, carefully research what it covers and seek guidance if necessary. This will generally cost around $300.
To guarantee that your mortgage is reasonable given the property’s worth, your lender may require an appraisal. Your lender will then use that appraisal to determine how much they are willing to loan you for your property. The appraisal fee includes the appraiser’s fees, their travel expenses, and any additional costs they may deem necessary. The cost of this appraisal is usually around $350-$500.
If you’re buying a strata property (e.g., condo), this is almost certainly going to be a mandatory expense. The estoppel certificate is a document that states the financial obligations of all the unit owners in the complex. It also confirms who owns what and lists any restrictions on use.
This is a signed statement from the condo association certifying condo payments or outstanding contributions. They may charge you a fee for providing it to you. Occasionally, the condo’s seller will provide this as part of the sales process. Otherwise, it typically costs around $35.
Mortgage Prepayment Penalty
If you must terminate an existing mortgage, you may be required to pay a penalty fee that might reach thousands of dollars. If you’re near the end of your mortgage term, make sure to check whether it’ll be worth it for you to break your current contract. It really depends on the mortgage’s terms.
This is the total cost of your move, including the expense of any professional moving services you use, truck rental costs, and other moving equipment. It is not mandatory but frequently pursued by individuals moving from one property to another. These costs can also vary.
Switching/Setting Up Utilities
It’s possible that you’ll be charged penalties for changing and setting up your utilities. Gas, electricity, water, Internet, television service, phone service, and security systems might all have their own fees. The need and size of this cost will vary by circumstance.
Goods And Services Tax (GST)
If you’re acquiring a newly built house, you’ll be charged a required Goods And Services Tax. You may, however, be eligible for a partial rebate. The total will be 5% of the purchase price of the property.
What Qualifies For GST?
In British Columbia, the GST is a 5% federal tax that must be paid on the sale of new or substantially renovated property, such as a presale high-rise condominium or a newly constructed house. If at least 90 percent of the interior of a building has been replaced or removed, it is considered substantially renovated and also qualifies. Sometimes, the sale price of a home includes GST, so double-check with the builder prior to including it in your budget.
If you buy a new home for $350,000 or less you may receive a 36% rebate on the 5% GST you pay, for a maximum benefit of $6,300. The rebate is reduced for properties costing between $350,000 and $450,000, and is not applicable to anything above $450,000.
Property Transfer Tax (PTT)
If you’re buying a home, you’ll need to pay the mandatory Property Transfer Tax. The cost varies depending on the property’s value.
The PSTT is the property transfer tax you would pay based on the fair market value of the home you’re buying. On average, buyers in British Columbia pay $16,920 in PTT.
The tax is a graduated scale fee, which means it adjusts according to specific factors. Essentially, you pay a 1% sales tax on the first $200,000 of property value, a 2% tax on the portion between $200,001 and $2 million, and a 3% tax on the portion exceeding $2 million.
Some homebuyers, such as first-time buyers and purchasers of new homes, may qualify for a PTT exemption or a partial exemption. Visit the B.C. government’s website to see if you meet the requirements.
It is close to impossible to know the exact amount that will be incurred in closing costs. Preparation is all about arranging your finances so you are not caught off guard when these inevitable fees come due.
A closing statement will itemise all of the charges associated with buying a home, together with an explanation of what they cover. Most transactions involving residential real estate will have the same costs. The funds are collected by the solicitor or notary, who is responsible for disbursing them to each of the parties involved in the transaction.
Comparing Closing Costs In British Columbia
Because of the greater average house price in British Columbia, closing costs for houses are among the most expensive in the country. In British Columbia, the tax rate on property or land transfers is comparable to that in Ontario, Quebec, and Manitoba.
Aside from provincial rates, it’s also important to consider the financial implications of the region in which a property is. For example, Vancouver is notorious as one of North America’s most expensive cities in which to live, and may have much higher costs compared to those of another British Columbian city. The region which you choose to buy in will greatly affect your budget and the amount of value you get from your payment so it is essential to factor in when beginning to look into the market.
While it’s easy to understand how much money you have available to spend on a new home, it’s paramount to keep in mind that not all of these funds will go to the down payment. Additional costs will be incurred, and it’s important to budget for them. There are last-minute expenses, such as taxes, legal charges, appraisal costs, relocation fees, and home insurance to consider. Before you buy it is the time to think about and budget for those “end” expenses.
It’s a good idea to consult with a real estate professional who can help you understand all of the expenses associated with your purchase and give you a realistic estimate of what you should expect to spend. You can also review the provincial government’s website for more information on property taxes and other relevant costs. The best way to prepare for your new home is by talking with a real estate professional. They can help you understand all of the costs associated with purchasing property in British Columbia and give you a realistic estimate of what to expect.