What Do You Need To Close On a Preconstruction? (Closing Costs)

When you are buying a pre construction home in Toronto, there are many things that you need to be aware of. For example, you need to know the closing costs that you need to pay at the end.

In fact, even if the development is finished within 3-4 years, you should still know these costs.

Now the question is, what do you need to close on a preconstruction?

Let’s take a look at the closing costs for the building. The closing costs include Land Transfer Tax, Levies, HST, Reserve Fund, Tarion Warranty, etc.

However, for more information, it is a great idea to take a look at detailed information in the online Toronto real estate market as well.

Land Transfer Tax

One of the important items to close on a pre-construction Toronto property is Land Transfer Tax. Land Transfer Tax is the amount of money you must pay for the final registration of a pre-construction condo in Toronto.

Now, you are definitely asking how much is that?

Let me give you an example. If you consider 700,000 for a condo, the land transfer taxi would be $10,475 in Ontario. However, when you are thinking about Toronto, specifically, the tax will be doubled, which is around $20,950. You might be wondering if there are savings for first-time buyers? The answer is yes. You will need to pay $6,475 in Ontario and $12,475 in Toronto.

Levies

Another important payment for closing a preconstruction is levies.

Levies are related to development taxes or charges from the municipality charged to the developer, including Education Levies, Public Art Levies, Parks Levies, etc.

Most Toronto condo developments offer capped levies, which means that if your levies are capped at $6000, the developer cannot charge you more than that in the final closing.

However, you need to know that development charges are subject to HST. Therefore, you need to pay more.

HST

Do you have to pay HST? Well, it depends! Most Toronto condo developers include HST in their unit price.

Also, it depends on your purpose, whether you are an investor or a buyer who wants to move in after the purchase.

The amount of money you should pay for HST depends on the price of your home. If it is less than 350,000$, expect to pay 7.8% in HST.

However, if the purchase price is more than 450k, expect to pay a flat fee of $24,000.

Also, you need to know that your money is not gone forever! You can get this money back from the CRA, and in most cases, you will get all or the majority of the money.

Legal fees

You should also consider legal fees so that you need to employ an expert lawyer. Whether they charge $500 or $1500, you should just consider these costs.

Tarion Warranty 

You need to include the Tarion Warranty program as an important payment to close on a pre construction, and you should pay the enrollment fee.

What is Tarion Warranty? The major purpose of this program is to protect customers of new homes by making sure that builders obey rules and provincial legislation.

The fee for Tarion Warranty will cost you between $1000-$1800 depending on the unit price.

Utility Connection

For a new home, residents need to have utility pipes, lines, and meters hooked up in advance so that it becomes ready for you to move in. generally, you can expect to pay around $500-2000 for utility hookups.

Reserve Fund

The reserve fund goes into the condo corporation’s bank account.

Why is that? For future repairs in the building.

For a pre construction condo, you need to provide two months of condo fees to contribute to the condo’s reserve fund.

Mortgage Registration Fees as a Closing Cost on a Preconstruction Condo

When you prepare to close on a preconstruction condo, one of the critical expenses to budget for is the mortgage registration fee. As part of the closing costs on a preconstruction condo, this fee is a mandatory cost that ensures your mortgage is officially recorded with the provincial government. Here’s what you need to know about mortgage registration fees and their role in the preconstruction closing process.

What Are Mortgage Registration Fees?

Mortgage registration fees are charged by the provincial government to register your mortgage on the property’s title. This process ensures that the lender has a legal claim to the property if the borrower defaults on the loan. In Ontario, where Toronto is located, these fees are processed through the Land Registry Office or Electronic Land Registration System (ELRS).

How Much Are Mortgage Registration Fees?

The exact cost of mortgage registration varies depending on the province and the specific transaction. In Ontario:

• The fee is $78 for registering the mortgage electronically.
• Additional costs may apply if other legal processes are involved, such as manual registration or amendments to the agreement.

Why Is It Important?

Registering the mortgage is a critical step when you close on a preconstruction condo because:

1. Legal Ownership: It legally secures the lender’s interest in the property.
2. Title Documentation: Ensures your mortgage is properly recorded as part of the title transfer process.
3. Compliance: It’s a required legal step to finalize the purchase and gain access to your mortgage funds.

Who Pays the Mortgage Registration Fee?

As the buyer, you are responsible for covering the mortgage registration fee as part of your closing costs on a preconstruction condo. This fee is often paid during the final stages of the transaction when your lawyer or legal representative registers the property and the mortgage.

How to Prepare for Mortgage Registration Fees?

1. Work with a Real Estate Lawyer: A lawyer will handle the mortgage registration process and ensure all legal documents are correctly filed.
2. Include It in Your Budget: While it’s not the most significant closing cost, it’s essential to budget for the mortgage registration fee along with other costs like development charges, land transfer tax, and legal fees.
3. Confirm with Your Lender: Verify with your mortgage provider and lawyer the exact amount and timing for payment.

The mortgage registration fee is a small but vital component of the closing costs on a preconstruction condo. It ensures that your lender’s interest in the property is legally recognized and is a necessary step to finalize your mortgage and title transfer. Understanding this fee and its role in the closing process can help you better prepare for the financial responsibilities of buying a preconstruction condo.

If you’re planning to close on a preconstruction condo in Toronto and want to navigate the process smoothly, consulting with a real estate lawyer and mortgage specialist is highly recommended. Proper planning will help you avoid surprises and ensure a successful and stress-free closing!

Conclusion

There are other costs that you need to pay instead of the unit itself when it comes to pre-construction Toronto condos.

It can be said that all miscellaneous costs together, including Reserve Fund, Utility Connection, Tarion Warranty, and other costs that may emerge, will cost around $4000-$5000.

However, the best idea is to connect a top ranked Toronto real estate agent so that they will help you to have more accurate numbers for the costs.