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Pre-Construction Condo Closing Costs
Understanding All the Ins and Outs of Pre-Construction Closing Costs
Whether you’re planning to call it home or use it strictly as an investment property, buying a pre-construction condominium unit will probably be one of the biggest financial commitments of your life.
At GTA-Homes, we’re keenly aware of this, and we want to make sure you feel confident in knowing exactly what you’re getting into financially. One common mistake we see with pre-construction condominium buyers is that they’re not prepared for the various closing costs, and since buying a “new build” is a little different than purchasing a resale unit, we thought we’d help outline these costs for you.
When buying a pre-construction condominium, there are a few more steps involved, including two different closing stages known as the Interim Occupancy phase and the Final Closing phase. In this article, you’ll learn about the different types of closing costs and what they are used for. This way, you will know what to expect when purchasing a pre-construction condominium and how much you can expect to pay for it.
You’ve probably heard this term before and you’re wondering exactly what it means. Before you take official ownership and your mortgage can be registered, you will be paying a monthly fee to the developer. This is known as interim occupancy fees. These fees are similar to what your monthly carrying costs on the unit will eventually be.
They’re calculated based on an estimate of taxes, condominium fees and a monthly interest payment on the remainder of the total purchase price, meaning the money you haven’t put down to date.
It’s also important to note that you won’t be paying the maintenance fees directly to the condo corp or property tax directly to the City during your Interim Occupancy. The maintenance fees and property taxes are directly paid by the developer, so you can’t officially be billed by the City for property taxes during Interim Occupancy.
A common concern is that because a builder is receiving these fees, they benefit from extending this period for as long as possible, but this is a common misconception. In fact, there are stipulations in the Condominium Act that address the calculation of these fees, preventing developers from earning a profit this way.
During the interim occupancy period, you are legally allowed to occupy your suite, but as the building hasn’t been registered, you don’t have the title and your mortgage won’t be valid quite yet. This stage can last anywhere from a few months to two years.
Maintenance fees, hydro, gas, water, and property taxes all contribute to the cost of your Interim Occupancy Fees.
The occupancy fees you will be paying the developer to occupy your suite during this time will be calculated on a few different factors including:
- Interest on the unpaid balance of the purchase price of your condo, which is based on the bank’s rate at the time of your interim occupancy date. To be clear, this is the total purchase price, minus your down payment.
- An estimate on the municipal taxes for your unit.
- Condo maintenance fees - a projected common expense contribution to keep the building running.
These fees are charged monthly during the interim occupancy period and are usually given to the developer in the form of post-dated cheques. When you meet with your lawyer to sign the Interim Closing Papers, you will also be giving them the cheques to send to your builder.
Another important part of interim occupancy is the TARION warranty process. As soon as you are granted occupancy of your unit, your one-, two- and seven-year TARION warranties begin. You can fill out your first TARION warranty form within the first 30 days of occupancy. The warranty on the common elements of your building will not begin until your condominium is registered.
What Are the Closing Costs?
Once the City has finished their final inspection and the building is officially registered, your final closing date will approach. Your lawyer will typically contact you once he receives this date from the builder and as soon as they inform you of this date, you should advise your lender.
Closer to the final closing date, your lawyer will contact you again with a copy of the “Statement of Adjustments,” a document that outlines the necessary financial adjustments that will be made as the property is transferred from the vendor to you.
Some of these adjustments may include recalculations on property tax payments and condominium fees. This document package also includes a “Trust Ledger,” which describes how the funds will move through the builder’s account on the day of closing and how much money you will need to bring for the closing process.
This is usually paid with a bank draft or certified cheque and covers the remaining closing costs, such as fees, title insurance, land transfer tax and the remainder of your down payment, if applicable.
The Breakdown of Potential Closing Costs
Below is a rough estimate of what you could pay at final closing for a pre-construction condo priced at $600,000 in Toronto, which is usually around between 8 to 10% of the purchase price. (Please note that these costs vary based on your contract):
- Common Expenses/Maintenance Fees/Condo Fees - Approximately $600 to $1200.
- Reserve Fund - Usually equivalent to two months of condo fees, which could be approximately $1200.
- Realty Taxes/Property Taxes - This can vary, but our estimate for the City of Toronto is 0.75%, which would total approximately $5,000 in this case.
- Miscellaneous Costs including: Utility hookup fees, Tarion Warranty Enrollment Fee, Deposit Administration/Letter Charges, Discharge of Construction Mortgage, Site review by Tarion, Electronic Registration Fee, HST on Appliances - These costs that can add up to approximately $4,000 or $5,000.
- Park Levies, Community Improvement Fees, Art and/or Education Levies - When a new space is developed, the developers are required to pay the municipality a certain amount for new park space, community resources or public art projects, if applicable. In turn, this is worked into the buyer’s closing costs. For a unit of our estimated price, this could be approximately $6,000.
- Development Charges - Approximately $12,000.
- Buyer’s Legal Fees - $1900.
- Land Transfer Tax (Municipal) (Provincial) - This is based on purchase price - use our calculator.
The Difference Between Interim Occupancy & Final Closing Costs
If you’re buying a condominium in the pre-construction phase, you’ll likely experience an Interim Closing. This happens when the City has designated the property as safe to live in, but it has yet to be officially registered because the municipality hasn’t done a final inspection. This means you are legally allowed to occupy your suite, but the developer can’t give you the “title” to your property.
There’s nothing to be concerned about! This is common, even expected during the process. It allows the developer to coordinate what could be hundreds of buyers moving in. It’s also possible that while your suite is ready, other units or some of the common areas are still awaiting final touches.
Once the City completes their final inspection, the building will be officially registered and the buyer will receive the title of their home. At this point, the buyer’s lawyer will get in touch with them to pay the final closing costs. The final closing usually consist of a Statement of Adjustments that outlines condominium fees, title insurance, land transfer tax etc. Once these fees are paid, the buyer will receive title of their unit and can start paying their mortgage fees.
In addition to your deposit, you’ll be responsible for…
Interim Occupancy Fees
- During the interim occupancy period you are able to occupy suite
- The fees you pay during this time can include maintenance fees, property tax etc.
- These payments don't go towards the mortgage
- These fees are charged monthly
Final Occupancy Closing Costs
- These costs come in the form of a Statement of Adjustments
- Final closing costs are eligible for an HST Rebate
- These fees can usually be paid with bank draft or certified cheque
- This process usually occurs after occupancy
These are paid separately from the purchase price of your suite. When you buy a unit in the pre-construction phase, you actually have two separate occupancy dates.
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