Buying a home is a significant financial commitment, and it's essential to be aware of all the potential costs involved in the transaction, especially the hidden closing costs that can take many by surprise. In Victoria, BC, Canada, these hidden costs can quickly add up, affecting your budget and financial planning. This blog post aims to shed light on these often-overlooked expenses to help you prepare better for the home-buying process.
Legal Fees and Disbursements
When you buy a house, you will need a lawyer or a notary public to transfer the property's title from the seller to you. Legal fees in Victoria can vary significantly depending on the complexity of your real estate transaction but typically range from $1000 to $2000. Disbursements, which include costs incurred by the lawyer to complete the purchase, such as registering the title transfer and conducting necessary searches, can add additional expenses.
Property Transfer Tax (PTT)
The Property Transfer Tax is a significant closing cost in British Columbia. The tax rate is 1% on the first $200,000 of the property's fair market value, 2% on the portion of the fair market value greater than $200,000 up to and including $2,000,000, and 3% on the portion of the fair market value greater than $2,000,000. For properties in Victoria, given the high real estate prices, the PTT can become a substantial amount. First-time homebuyers may be eligible for a PTT exemption under certain conditions, which can offer significant savings.
For example, this equates to $18,000 on a purchase price of $1,000,000. If you are paying $1,500,000 it would be $28,000. What if you were paying $2,000,000 that would be $38,000. So you can see here that it is a huge expense that can get you by surprise, this is without even going into the next higher bracket of 3% after $2,000,000.
Note that there is some incentives for first home buyers when it comes to PTT, check this BC.gov site for more information.
GST on New Homes
If you are purchasing a new home in Victoria, be aware that the 5% Goods and Services Tax (GST) applies to the purchase price. However, there is a partial rebate available for new homes costing less than $450,000, which can reduce the GST for eligible buyers. This does not apply to resale homes, but it's a crucial consideration for those looking at newly constructed properties.
Home Inspection Fees
Before finalizing your home purchase, it's highly recommended to have a professional home inspection. This can reveal hidden problems with the property that could lead to significant expenses in the future. In Victoria, home inspection fees can range from $400 to $700, depending on the size and condition of the home. This upfront cost can save you thousands in potential repairs down the line.
Insurance Costs
You will need to have home insurance in place as a condition of most mortgages. The cost will depend on the value of your home and the contents you wish to insure. Additionally, if your down payment is less than 20% of the purchase price, you will need to pay for mortgage loan insurance, which can add to your closing costs.
Insurance will vary a lot but you should be allowing around the $2000 per year for a $1,000,000 house, maybe more if you want earthquake insurance. There are some other issues that can arise when purchasing insurance especially when the home is older, there may be some “Poly B” pluming or some other similar issues, your realtor can help you with these things when you find that house! Condo insurance will be a lot less expensive.
Title insurance - just when you think you are done with insurance, the mortgage company will say you need this? A one time fee of $250 - $500, this may be included in the legal fees but just be aware.
Adjustment Costs
Adjustment costs cover the seller's prepaid costs that you need to reimburse, such as property taxes, utility bills, and strata fees if applicable. These costs are prorated based on the closing date and can add a few hundred to a few thousand dollars to your closing costs.
Moving and Utility Hook-Up Fees
Don't forget the costs of moving and setting up your utilities, which include truck rentals, professional movers, and fees to connect or transfer services like electricity, gas, water, and internet. While these costs may seem minor compared to the others, they can still add up.
Realtor fees
Currently in BC, you generally don’t pay realtor fees as a buyer, these fees are part of the seller’s cost. Typically the seller would be paying around a 3% fee to the selling realtor, then that would be split with the buyer’s realtor. There have been some changes taking place in the States as of later 2023 so maybe things my change this side of the border in the future?
