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Property Taxes: Qualifying for a Higher Home Purchase Price

You’d think that calculating property taxes would be pretty standard. While it is, there is some wiggle room. Let’s look at how the calculation of property taxes differs on a resale property versus a preconstruction one.

property tax

Property Taxes on a Resale Property vs.

When buying a resale property, the calculation of property taxes is pretty standard. The lender requires you to use the amount from the local municipality’s most recent annual property statement. Nothing out of the order. However, if you’re buying a pre-construction property, that’s where there can be some wiggle room.

With a pre-construction home, the property hasn’t been fully assessed by closing date. Perhaps the land on its own has been assessed, but the completed property and land together are almost never assessed. So how does the lender come up with annual property taxes to use? Lenders do this in a couple of ways.

The first way is by taking the purchase price and multiplying it by a percentage. Lenders tend to use between 0.75% and 1%. This can make a big difference. If you’re buying an $800,000 property, 0.75% of the purchase price would be $6,000, while 1% of the purchase price would be $8,000. That’s a difference of $2,000! This can make a huge difference in the mortgage debt ratios. It could be the difference between qualifying and not qualifying if your ratios are tight. Ideally, you want to look for a lender who uses 0.75% if your debt ratios are tight.

The second way is by using something called the “mill rate.” Each municipality has one. You can use the mill rate to calculate the annual property taxes of your new home. The mill rates are usually published online. You multiply the mill rate by your property’s purchase price. Using the mill rate, your annual property taxes might only come out to be $4,000. That’s $4,000 less than they would have been using 1% of the property taxes. Now hopefully you can see why the property tax formula matters so much for new home!

How the Canadian Mortgage App Can Help

With the Canadian Mortgage App, you can find out how much you could afford.

Using the Get Pre-Qualified calculator, you can try various amounts for annual property taxes if you’re buying a pre-construction home. You could enter $4,000, $6,000 and $8,000 to see the difference that it makes. If the numbers are borderline, you’ll want to work with a lender who uses a more favourable formula for property taxes.

What are you waiting for? Download the Canadian Mortgage App today to try it out.

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