People who are considering buying land in Manitoba — and taking out a loan to do it — need to keep a few things in mind as they move toward the application process. Loans on empty land work a little differently than loans for residential and commercial buildings.
The main difference, at least from a monetary point of view, is that you should expect to put more down with the purchase. You should also expect a higher interest rate on the loan. The reason for this is that banks view loans for land as carrying more risk than loans with homes or other buildings on them. Foreclosure on a borrower’s home is a lot more detrimental than foreclosure on a lot that a borrower owns, so if money gets tight, the bank reasons, the payments on that lot will become less important than payments on the borrower’s primary mortgage.
Planning to Buy Land In Manitoba
The plans that you have for the land will influence the loan as well. Some people buy up land for development down the road, while others plan to break ground the day after they close on the lot. The closer you are to breaking ground, the less risk the bank may assign to your loan, particularly if you plan to live on the land after you’ve built a dwelling. Before you make your offer on the land, though, you’ll want to find out what the zoning laws are for that land. You don’t want to plan to start a child care in a building on property that is zoned industrial, for example. In addition to finding out the zoning, you also want to get a professional survey ordered. This lets you know the exact boundaries of the land, as well as any easements that allow neighboring property owners, utilities and other people or companies onto the land at particular points.
If you’re buying land in Manitoba, the most difficult loan to secure is for land that does not have any improvements at all, such as access to water or buildings already on site. The irony is that, even though the land might not have any amenities or improvements, or even access to utilities, but you’ll still have to pay property taxes for land that is just sitting there, month after month, while you try to negotiate access to basic services.
You’re probably wondering how much more of a down payment lenders will require for a land loan. If you’re buying a house, you can get in for as little as 5 percent down in some cases, as long as you don’t mind paying mortgage insurance premiums. To avoid these costs, you want to put 20 percent down on a house. A lender for a land loan may let you have the financing with 25 percent down, but some lenders require as much as 50 percent down to grant that sort of loan. There are different ways to purchase land if you don’t have the required down payment. If you currently own other prime real estate in Canada with lots of equity, it can be added to the loan as collateral to either reduce or eliminate the need for a down payment.
Here is a checklist of questions that you will want to have answered about the property before you apply for financing to purchase it:
- Is the title on the land clear, or is there at least a clear list of the liens on the land?
- Does the land have a proven water source, or will you have to have one dug?
- How is wastewater going to be taken away from the property? If there’s no system, will the land support a septic system?
- Does the property come with any easements that let other entities onto the land?
- Does the mail delivery come to the land already? What’s the deal with trash and recycling pickup, cable television, wi-fi and other services?
- Are there environmental issues that could hinder your use of the land?
- Is there an available survey that is up to date with the boundaries, as well as any buildings and other improvements?
- Is the province or city considering rezoning the land for any reason?
UNDERSTANDING LAND TRANSFER TAX IN MANITOBA
Manitoba has a land title registry that tracks the owners of the various tracts of property throughout the province. If you are transferring that property through a purchase, you have to pay a tax on the land transfer in most cases, and you also have to pay a fee to register the transfer at your local land title office.
The amount of the tax depends on the fair market value of the property on the date when you transfer the title. The calculation goes like this:
Value of Property Tax Rate
The first $30,000 0%
The next $60,000 ($30,001 – $90,000) 0.5%
The next $60,000 ($90,001 – $150,000) 1.0%
The next $50,000 ($150,001 – $200,000) 1.5%
Amounts over $200,000 2.0%
So here’s a hypothetical calculation. Let’s say you’re buying a property that is worth $800,000. You would owe $13,650 in the land transfer taxes. You would not owe anything on the first $30,000. However, you would owe $300 (60,000 x 0.005) for the next $60,000. Then you would owe $600 for the next $60,000) and $750 for the next $50,000. Finally, you would owe $12,000 for the last $600,000, leading to that total of $13,650 in property transfer taxes. In some provinces, such as BC, the local government has instituted a partial or total elimination of these transfer taxes on the purchase of newly built homes, a measure designed to spur growth in the home construction industry. However, that exemption has not yet become law in Manitoba. Stay tuned to your local news and to developments in provincial law, though, as the recent dip in new home construction is an area of concern throughout much of the country.
It is important to keep this expense in mind when you consider real estate purchases. If you don’t have that to pay up front, you can often roll that tax amount into your mortgage – but then you end up paying interest on that over the life of the loan as well. The more of those types of expenses you can pay up front, the more you will save over time, particularly if you are looking at an amortization period of 20, 25 or 30 years on the loan.
The best way to get up-to-date information about the latest details on land transfer taxes in Manitoba is to contact:
Winnipeg Land Titles Office
276 Portage Avenue
Winnipeg, MB R3C 0B6
In Winnipeg? Call (204) 945-2042
Give our land loan experts at Amansad Financial a call if you have your eye on a piece of unimproved land in Alberta. We will talk about the project with you and make recommendations for the best financing. We have relationships with industry professionals and lending sources throughout the province, so if we don’t already know the answers to your questions about your potential property, we will make sure to find them out for you so that the process is as smooth as possible.