Preparing For The Final Closing of Your Pre-Construction Property
When purchasing a pre-construction home, you may be waiting several years before your home is fully completed and ownership can be transferred to you. But once the home is near completion, Builders will typically provide only 3-4 weeks’ notice before your final closing date. These weeks leading up to your closing date may feel like an overwhelmingly short amount of time to finalize the transaction. Fret not: we are here to help! Use the following step-by-step guide to help organize your tasks as you gear up for Final Closing:
Contact your lawyer: Your lawyer will likely receive a separate notice from the Builder’s lawyers. But sometimes, the Builder only notifies the Purchaser directly. Forward the closing notice to your lawyer. You will visit your lawyer’s office about 2-3 business days prior to closing to sign closing documents and to deliver closing funds (refer to #4).
Contact your mortgage professional: Most mortgage lenders require at least 3 weeks’ notice to finalize your mortgage. Make sure you notify your mortgage professional of your Final Closing Date as soon as possible. You should also forward your lawyer’s contact information to your mortgage professional, so that your lawyer may receive mortgage instructions in a timely manner.
Purchase home insurance: Many mortgage companies and Builders will require proof of home insurance prior to closing. Leave yourself enough time to shop around for the best premium rate.
Budget for closing costs:
A. Land Transfer Tax: You may use the Toronto Regional Real Estate Board’s online calculator for an estimate.
B. Builder Adjustments: One of the unique characteristics of purchasing a pre-construction home is that the Builder will charge additional “adjustments to the purchase price” related to the construction of the home, at final closing. See below for a more detailed discussion on builder closing costs.
C. Professional Fees:
i. Legal fees;
ii. Closing disbursements, registration costs, and title insurance premiums;
iii. Mortgage broker and lender fees.
D. Remainder of Down-Payment: The balance of your purchase price (that is not covered by your mortgage) is also payable on Final Closing.
Closing Costs (Adjustments) Payable to the Builder
The adjustments payable for your closing will depend entirely on the details of your Agreement of Purchase and Sale (the “Agreement”), and the costs actually incurred by the Builder. Your lawyer will receive a Statement of Adjustments prior to closing from the Builder’s lawyers (typically 1-2 weeks prior to closing). The statement of adjustment will detail all funds payable to the Builder including but not limited to:
Development Charges/Levies: Charges that the Builder must pay to governmental authorities in exchange for development approval. These costs can be substantial (in excess of $10,000) and numerous. Check your Agreement to determine whether or not a maximum “cap” was placed on these costs.
Utility Connection and Servicing Fees: The first purchasers must pay the costs of installation of utility meters, and the connection of utility services. Costs can vary depending on how many services are separated metered vs. bulk metered.
Tarion Warranty Enrolment Fee: Mandatory fee payable for enrolment in the Ontario new home warranty.
HST New Housing Rebate: If you are renting the home instead of moving in personally (or having an immediate family member move in), you may have to pay an additional HST-related cost to the Builder. In the GTA, this additional cost is usually around $24,000. In some cases, this additional cost can be rebated to the purchaser after closing. You should consult with your lawyer in order to ascertain your status.
Adjustments for annual property taxes and monthly condo maintenance fee: Prorated based on your closing date.
Look to Schedule B of your Agreement’s Addendum and Statement of Critical Dates for a full list of possible adjustments. Your lawyer should also be able to guide you through the specifics of your Agreement so that you can anticipate closing costs to the best of your ability.
If you need a lawyer for your upcoming closing date, we are here to help. Contact us for a consultation today.
Author:
Min Ju (Jennifer) Park
Partner
Key Words: Home buying legal process, Pre-Construction home buying legal process, Toronto real estate law, Property transaction laws, Condo ownership legalities, Toronto condominium law