Let’s be honest, new construction homes come with a hefty price tag. The price that most builders advertise only includes the base price and with essential upgrades, closing costs, and occupancy fees, you can expect to spend 3-5% more. And that’s a lump sum amount. In this blog, we cover all hidden costs you can expect to pay, so you can budget accordingly when buying your pre-construction home.
Land Transfer Tax
Land transfer tax makes the biggest portion of closing costs as it’s calculated based on the purchase price. When buying in Toronto, you pay almost double as municipal land transfer tax applies there. If you’re a first-time homebuyer, you qualify for up to $4,000 in rebates.
Development and Education Levies
These fees cover infrastructure costs like roads, parks, and schools in your new construction home’s neighbourhood. Builders pass these levies on to buyers, which add another $5,000 to $20,000 to your closing costs. Always ask your builder if these charges are capped, because otherwise you can face unexpected hikes later on.
HST on Upgrades and Add-Ons
Anywhere in Ontario, you’ll pay 13% HST on any upgrades beyond the standard finishes included in your home. It’s worth comparing the cost of upgrades offered by the builder to the expense of handling them independently later, as this can sometimes save you money. Some builders include decor dollars as part of their incentives, which can be a valuable perk to consider when purchasing your home.
Tarion Warranty Fees
Tarion Warranty is a mandatory payment for all pre-construction or new construction home owners in Ontario. Builders pay this fee upfront and is later passed on to the buyer. It adds another $500 to $1,500 to the closing costs.
Closing Costs
Other closing costs include legal fees, title insurance, and adjustments for utility hookups, property taxes, and maintenance fees. Together, they cost 1.5% to 4% of your home’s purchase price. Here’s an example for you, when buying a $700,000 home, you’ll pay $10,500 to $28,000 on top of the expenses we mentioned earlier.
Mortgage Loan Insurance
If your down payment is less than 20%, which is quite common for pre-construction projects in Kingston or Amherstview, you are required to apply for mortgage loan insurance through the Canada Mortgage and Housing Corporation (CMHC). It is added to your monthly mortgage payments and can cost 2.8% to 4% of the loan amount.
Utility Hookups and Adjustments
New homes require utility hookups for water, electricity, and gas. Builders outfit these for you and typically charge them as adjustments during closing. Beware as it could add hundreds or even thousands of dollars to your bill. You may also need to pay for internet, cable, or other services, so keep these costs in mind when budgeting. Always discuss these charges before signing the purchase agreement to avoid surprises later on.
Potential Delays and Temporary Housing Costs
Most pre-construction projects in Canada get delayed. If you find yourself in one of these situations, you may need to find temporary housing or extend your current lease. Keep aside 3-6 months of rent aside towards the end of the pre-construction phase.
Landscaping and Driveway Costs
Landscaping, fencing, and paving your driveway are often left for the buyer to complete. But some builders add it as an additional service. You don’t need to rush into getting them done, but if you are, it could cost you between $20,000 to $50,000 depending on your city and property’s size.
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