If you’re considering purchasing a new condo, it is important to know the following costs associated with a pre-sale home.
NEW STRESS TEST
The new rules by the Office of the Superintendent of Financial Institutions (OSFI) states that borrowers making a down payment of more than 20 per cent of the home’s value will undergo a stress test. Buyers with uninsured mortgages will need to prove that they can afford payments based on the greater of the Bank of Canada’s five-year benchmark rate or their contract mortgage rate plus two percentage points. This could reduce your purchasing power significantly, so speak with a financial advisor beforehand.
THE DOWN PAYMENT
Most pre-sale homes require a total deposit of 20 per cent of the purchase price, paid out in stages. The down payment is the part of the home price that does not come from the mortgage loan but from your own money and is paid when you sign your purchase contract. Most often, your deposit will become part or all of the down payment, but you can adjust your down payment with your financial lender when you close.
There will be legal fees and related costs at closing. The minimum cost is $800 (plus GST).
Property insurance: The mortgage lender requires you to have property insurance because your home is security for the mortgage. Property insurance covers the cost of replacing your home and its contents in case of loss.
Title insurance: Your lender, lawyer or notary may suggest that you get title insurance. This will cover loss caused by defects of title to the property.
Loan insurance: If your down payment is less than 20 per cent, you have a high-ratio mortgage and require mortgage loan insurance. Mortgage loan insurance covers a borrower’s default on their high-ratio mortgage.
GST and Property Transfer Tax (PPT) are payable on newly constructed properties in BC. For example, if the strata is greater than $200,000 but less than $2 million, then the PPT is calculated as one per cent on the first $200,000 plus two percent on the remaining portion.
If you are a foreign entity or a taxable trustee purchasing a home in Greater Vancouver, you will pay a 15 per cent additional property transfer tax on your proportionate share of a residential property transfer.
FIRST-TIME BUYER OPTIONS
There are programs available from Canada Housing and Mortgage Corporate to help first-time buyers with mortgage loan insurance, and others such as the RRSP Home Buyer Plan, which allows you to withdraw up to $25,000 to help towards the payment of your home, tax free and you can pay back the amount within 15 years to avoid penalties.
Photo: Vantage in Squamish.