When buying a pre-construction condo, buyers must take into account closing costs when budgeting money. Though closing costs won’t be due until 2-5 years after you buy your condo once construction finishes and the building is ready for occupancy, closing costs are always substantial. Your mortgage won’t cover your closing costs and you’ll need to pay these costs out of pocket. So it’s just as important you have sufficient cash on hand for all closing costs when they’re due as paying your mortgage down payment installments in full as they become due.
The reality with closing costs is they’re always different and vary from project to project. They can’t be readily calculated such as a percentage of the purchase price or on a flat fee basis. However, expect to pay between $10,000-$15,000 closing costs on a studio or 1 bedroom condo.
There are 6 categories of closing costs with pre-construction condos:
- Land Transfer Taxes – whenever residential property is sold (whether pre-construction or resale) in Ontario, both the provincial and municipal governments charge the buyer a tax for transferring the property from the outgoing property owner to the new one. This tax is payable by the buyer upon closing. For properties under $500,000, Land Transfer Taxes typically amount to 2% of the purchase price – 1% paid to the Ontario government and 1% paid to the municipal government where the property is located.
- Development Charges – Development charges (also known as Development Levies) are fees the local municipal government charges all property developers for any new residential property built. The idea is the government makes the developer share in the overall cost of adding new homes to a community by making them help pay for the expanding local public infrastructure. Development charges pay for things like new additions to an area such as new roads, parks, schools, sewage lines, electrical lines, etc. Development charges are payable upon closing and in Toronto are typically $6,000-$8000 for 1 bedroom condominium units.
- Legal Fees – These fees get paid to your lawyer and will really depend on who your lawyer is and what their hourly rate is. Total closing fees payable to your lawyer are typically around $1500-$2000.
- Utility Connections – with new condo buildings all utilities for the building have to be setup and connected, incurring a cost shared amongst all unit owners in the building. Your fee will vary depending on the size of your building.
- Tarion Warranty – Tarion is the official regulator of Ontario’s new home building industry. Tarion is essentially a consumer protection agency for new construction buyers, ensuring they fully get what they paid for with their new property. Tarion is responsible for registering new developers, ensuring they adhere to all residential building codes mandated by the Ontario government, investigating illegal building practices, resolving warranty issues for consumers, and promoting high construction standards with property developers. All new homes in Ontario come standard with a Tarion warranty, but you must pay for it at closing. The fee is usually around $700-$1000 for condos.
- Misc. Fees – this includes various administrative fees incurred throughout the closing process such as mortgage discharge fees, condo status certificate fees, deposit cheque fee, and so on. Each of these fees is no more than $500 each. Collectively these miscellaneous fees total about $1000-$1500 for a 1 bedroom condo.
The above 6 closing fees are always payable for all new construction homes. However, there are two other fees you may have to pay at closing, depending on the developer and your own circumstances: HST and Future Property Taxes
We hope this information helps better clarify the pre-construction condo buying process for you. We realize buying a new condo (whether for yourself as an end user or as an investment) is one of the most important financial decisions you will ever make. Consequently, Lalu Canada believes in full transparency with our clients by providing you with as much information on the condo buying process up front. This will help you make informed decisions plus avoid any surprises or pitfalls in future should you choose to buy one of our properties.