As you are purchasing a new build I wanted to reiterate a number of items and bring them to your attention. Typically these are dealt with at the lawyers just before closing but I feel that giving you some advice, which is typically not provided by your mortgage broker, will give you the heads up so we can plan accordingly:
Additional Adjustments and Closing Costs: There are typically additional adjustments that are made to the closing costs when the developer finalises items such as utility hook-ups, pre-paid taxes, and any additional costs that are passed down to the purchaser that cannot be included in the mortgage financing. When you signed that 30+ page purchase agreement often months or even years ago, they are mentioned in detail. Sometimes they are capped to a certain dollar amount so you already know the amount but often they aren’t… or even if they are capped, you have forgotten about them! It can be a big shock when three or four days before closing your lawyers asks for an additional $2,000, $3,000 or much more needed to close. My recommendation is that you reach out to your lawyer and the developer to find out if they have an idea of what those additional costs will be – rather know now so we can plan than have a big surprise and not be able to close as you don’t have enough funds. Again, remember that we cannot include these onto the mortgage as they are considered standard closing costs.
HST and Rebates: Now your lawyer and/or your accountant should really be the one advising you on whether you will have to pay HST on the full amount, if you receive a refund, if it is included in the purchase price, or any other nuances. Imagine getting to the day before closing and finding out you have to pay a whopping 13% on the full purchase price and you may not get a rebate! Now of course I don’t want to alarm you but I want you to be prepared as again, unless HST is specifically included in the purchase price on the purchase agreement, we cannot include it in your mortgage financing. Here is a link to Canada Revenue Agencies Bulletin on whether HST rebates apply to purchasing a rental property. My recommendation is to consult with your lawyer and/or accountant now to ensure you know what you qualify for and what may or may not have to be paid on closing. https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/gst-hst-businesses/charge-collect-home-construction/new-residential-rental-property-rebate.html
That is it for now… just wanted to give you the heads up just in case other members of your power team haven’t already done so.
Take care and don’t hesitate to reach out if you have any questions at all.
HST & Additional Closing costs on New Builds and How that Effects Investors
