The first thing you need to do when you
buy real estate is to secure financing for your purchase through
a mortgage.
Most customers are aware that it is in the bank’s best interest
to provide a mortgage for them to be able to purchase a house.
The loan is secured: the guarantee of the return of the bank’s
money is Your property. Nevertheless, before granting the loan,
the bank needs to check your credit history and evaluate your
financial situation to make sure you are able to make monthly
payments. A rough estimate for the allowed amount of credit by
the bank is 30% of the total household income for the year.
For example, if your annual earnings are about $60,000 then your
mortgage payments should not be above $20,000 a year (or about
1666$ a month). With that income you can expect to obtain a
$300,000 to $320,000 mortgage.
You may wish to contact a bank specialist, either by phone or by
email, for a Prequalification and a Pre-approval Mortgage. All
you need to do is provide your first and last name(s), the total
income for the household for the year and the estimated
down-payment. Upon the banks positive response, you should
obtain confirmation that, according to the given information and
after having checked your credit history, the bank will provide
you with a mortgage of a certain amount and with a certain
interest rate. This rate will be fixed for you for about 3-4
months. The application and approval process is free, nor does
is obligate you to purchase. The main benefit, however, is that
you are guaranteed that interest rate for your mortgage remains
the same even if it increases while you continue to shop houses.
This also helps you know what property You can afford.
One-time payments when buying real
estate.
Down-payment
Nowadays it is possible to make a purchase of real estate even
with zero % down-payment. However, in order to be able to do
that, you would need to purchase an additional insurance, which
is referred to as “High Ratio Financing.” The cost of this
insurance is between 1 and 4.15% of the total credit amount and
depends on the loan term. The insurance then is added to your
total credit sum, which only slightly increases your monthly
payments. These additional costs can be avoided if you are able
to make a down payment of about 20-25% of the total purchase
price.
Property Transfer Tax
According to the law, when buying real estate one needs to pay
the government an additional tax - the “Property Transfer Tax”.
It is calculated as a sum of 1% of the first $200,000 and 2% of
the remaining purchase price. For example, when you buy a house
for $500,000, your tax will be $8,000: the first $2,000 derived
from 1% of 200,000 and the additional $6,000 from 2% of the
remaining $300,000.
It is important to know that for the first-time property buyers
it is possible to be exempt from the above-mentioned tax through
the “First Home Buyers Exemption”. To obtain this exemption you
will need to satisfy a set of conditions as well as to complete
a special application form when signing the contract for
purchase with your lawyer or notary.
The main conditions in addition to being a first-time property
buyer are:
- the total purchase price should not exceed $425,000 (although,
one may be partially exempt from the tax if the purchase price
is below $450,000)
- the buyer has to be a Canadian Citizen or a Permanent Resident
- the buyer should have lived in BC for at least 12 months to
the day of purchase
- the mortgage should not be below 70% of total purchase price
(in other words, you should not have paid over 30% of purchase
price as a down-payment)
- the buyer(s) should reside in the purchased property for at
least a year after the purchase day
As a first time buyer you can obtain complete information about
this exemption, pertinent to your individual situation, from
your lawyer or notary.
Paying the HST
when buying a new home.
As soon as you buy real estate
directly from the developer and become the first official owner
of a unit, this tax is added to the purchase price. As of
July 1st 2010 this tax is 12%. If your estate costs less than
$500,000 and if you are going to live in the place that you are
purchasing (as opposed to renting it out), then you are entitled
to receive a “New Housing Rebate” on the tax that you have paid.
For example, if your estate costs below $350,000 the rebate will
be at a maximum discount rate and it will return You 36% of the
money paid for HST. A special formula is used to calculate HST
for purchases between $350,000 and $450,000 where the amount of
the rebate proportionally decreases as the purchase price grows.
Usually your lawyer or notary will provide you with the exact
amount of your HST on the day of completion of sale. Moreover,
you have the right to file an application for a rebate within
two years of the completion of sale.
Paying for lawyer or notary services
The buyer has to choose their own notary or lawyer to complete
the purchase and register the property to their name in the Land
Title Registry. The cost of these services varies slightly and
can be around $750 - $850. It is recommend that you find out
ahead of time the cost of services as well as the details on
what exactly is included in those services. Very often the
initial price quoted does not include additional expenses so it
will take some research and diligence to determine the total
cost.
Paying the real estate agent
This service is free for prospective buyers. The agent gets
their commission from the seller for finding a client, filling
out all necessary documents and registering the property under
the name of the buyer.
Annual expenses for real estate maintenance
Annual Property Tax.
As soon as you buy a property, you start paying the annual
property tax. In the middle of the year you will receive a
letter from the municipality with the Property Tax Notice
stating the exact amount of the tax. Usually the deadline to pay
your tax is July 1st. Generally this tax is about $1000 to
$2500. Keep in mind that the British Columbia government offers
a “Home Owner Grant” for those who use their property to live in
it. This Grant is either $570 or $845 (if one of the owners is
over 65 years old). Thus, you need to pay this tax according to
one of the following options:
Column A – No Grant, if you are renting out your property and do
not reside in the premises
Column B – Basic Grant: tax is decreased by $570, if you live in
the property
Column C – Additional Grant: tax is decreased by $845 if one of
the owners is over 65 years of age.
Please be aware of the fact that if in the first year you do not
own the property for the full 12 months but only for a part of
the time, the size of the tax will be calculated accordingly.
For example, if you bought a house on the 1st of July, you will
only have to pay a half of the tax. The other half will be
collected from the previous owner.
Annual Utility Fee
At the very beginning of the year you will receive another
letter from the municipality – Utility Statement (cost for water
or sewer use). The deadline to pay this bill is usually in the
middle of March. On average, this bill is between $200 and $500.
In certain municipalities the “Annual Utility Fee” is calculated
at the same time as the “Annual Property Tax” which means they
will have to be paid at the same time.
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