New-Build Purchase: Pre-Approval, Deposit, and Land Transfer Tax
First-time buyers Wei and Lin sign an agreement to buy a new freehold house from a builder for $899,000, with HST included and all new-housing rebates assigned to the builder. The deposit is 5%, paid in three installments over 12 months; closing is 14 months away. They have $120,000 in savings and a mortgage pre-approval for $800,000 at 5.2%, 25-year amortization, subject to lender approval of the final agreement. The builder’s sales office wants the financing condition waived after 10 days; the buyers’ mortgage broker wants 30 days. Estimated closing costs include Ontario land transfer tax, a $2,500 lawyer fee plus HST, and utility adjustments. The builder is enrolled with Tarion. The buyers ask how much land transfer tax they will pay after the first-time buyer rebate, whether the pre-approval protects them, and what happens to their deposit if the builder does not close.
1. Calculate the Ontario land transfer tax and the first-time buyer rebate.
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Ontario LTT on $899,000 is calculated in brackets: 0.5% on the first $55,000 = $275; 1% on $55,000–$250,000 = $1,950; 1.5% on $250,000–$400,000 = $2,250; 2% on $400,000–$899,000 = $9,980. Total = $14,455. The Ontario first-time buyer rebate is up to $4,000, so the net Ontario LTT is $10,455. If the property were in Toronto, the municipal LTT would be additional; the facts say Ontario only. The buyers should also confirm the rebate eligibility rules and that the builder’s HST-included price and rebate assignment do not change the LTT calculation. This $10,455 should be added to the lawyer fee ($2,500 + 13% HST = $2,825) and adjustments when assessing cash needs.
2. Does the mortgage pre-approval protect the buyers? How should they handle the 10-day versus 30-day financing condition?
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A pre-approval is not a financing guarantee. It is based on preliminary income, credit, and rate information and is usually subject to a property appraisal, final lender review, and a rate hold that may last only 90–120 days. With a 14-month closing, the rate hold will likely expire, so the buyers face rate risk. The builder’s 10-day financing condition is tight; the broker’s 30-day request is more realistic. The buyers should not waive the financing condition unless they have a firm lender commitment for this property, not just a pre-approval. They can negotiate an extension, ask for a longer condition, or increase the deposit only if they can afford the risk. If the builder refuses any financing condition, the buyers need legal and mortgage advice before signing, because they could lose the deposit if financing fails.
3. What should the buyers know about Tarion deposit protection and their cash position?
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The 5% deposit is $44,950, paid to the builder, not to a brokerage trust account. Tarion provides deposit protection for new homes, but it is capped and subject to conditions, so the buyers must confirm the builder’s Tarion enrollment, get receipts for each installment, and understand the current protection limit. If the builder does not close, Tarion may cover an insured deposit loss only within those limits; amounts above the cap may be at risk. On cash: the $800,000 mortgage on an $899,000 price leaves a $99,000 down payment. Add net LTT $10,455, lawyer fee/HST $2,825, and adjustments, and the $120,000 savings are very tight-about $7,700 or less before moving and appliances. The buyers should keep a reserve and not rely on the pre-approval alone.