CAN THE PROPERTY TRANSFER TAX (PTT) BE FINANCED?

FINANCING THE PROPERTY TRANSFER TAX (PTT)

Financing the PTT (Property Transfer Tax)

If you’ve found a home you plan to buy, your REALTOR® will go over Closing Costs, including the Property Transfer Tax (PTT). The PTT is a provincial tax of 1% on the first $200,000 and 2% on the remainder of your home price. For example, the PTT on a $600,000 home is $10,000.

When you register your property title you must pay the PTT, unless you qualify for the First Time Home Buyers’ Exemption.

FINANCING THE PTT
A buyer with a conventional mortgage (more than 20% down payment) may be able to take the PTT out of their equity. If you have less than a 20% down payment you will likely be unable to do this due to lender requirements. The PTT is a closing cost and closing costs can’t be financed as part of a mortgage. Mortgage insurance providers such as CMHC stipulate that applicants must be able to cover closing costs. Lenders, however, look at each situation on a case-by-case basis. If a buyer has good credit and the ability to pay monthly costs, a lender may provide a line of credit or a loan to finance the PTT.

GOVERNMENT LEGISLATION/POLICY
Provincial government: the provincial government sets the tax amount and collects it. There is no legislation or policy prohibiting financing the PTT.

Federal government: the Bank Act, section 418(1) governs the loan-to-value ratio for mortgage insurance. It requires borrowers with a high-ratio mortgage (80% or more of the property value) to buy insurance against default from an insurer such as CMHC. It doesn’t prohibit financing the PTT.

AN EXAMPLE WHERE A BUYER FINANCED THE PTT
A buyer owned an apartment and sold it to pay tuition to medical school. The buyer has now graduated and is working at a clinic for a salary of $200,000 and has not saved a downpayment. The buyer sees a home for $600,000.

In this case, the borrower has good credit and no debt. The lender may offer this buyer a line of credit or loan for the down payment and for closing costs such as the PTT.

source  rebgv

Contact Agnieszka Stryjecka for more information on Vancouver Real Estate.   778.991.5881   vancouver4life@gmail.com