Closing Costs are Significant, Be Cash Ready For Them and Use a Real Estate Lawyer
Buying a house in Ontario involves a number of costs that homebuyers need to be aware of. These costs, known as closing costs, are in addition to the purchase price of the property and can add up quickly. Comprehending the nature of these costs and their calculation methods can assist homebuyers in better preparing for the financial commitment associated with purchasing a home.
One of the biggest expenses associated is land transfer tax. This tax can vary from 0.5% to 2.5% of the purchase price based on the property’s purchase price. Homebuyers who are first-time buyers may be eligible for a rebate of up to $4,000, which can help offset some of the expense associated with buying a home.
Another important aspect of closing on a house in Ontario is understanding the legal aspects of home buying. This encompasses the engagement of a real estate lawyer to assist with the legal documentation and guarantee a proper transaction. Homebuyers should also keep in mind the expenses linked to home inspection and insurance, along with any unforeseen costs that might emerge throughout the process. Through awareness and readiness, homebuyers can secure a sound financial investment in their future.
Key Takeaways
- Closing costs are additional expenses that homebuyers need to be aware of when purchasing a home.
- Land transfer tax is one of the largest expenses associated with property transactions in Ontario. First-time buyers may be eligible for a rebate of up to $4,000.
- Understanding the legal aspects, as well as the costs associated with home inspection and insurance, can help homebuyers prepare for the financial commitment of buying a home.
Types of Closing Costs in Ontario: A Giant List
A typical and fair question that people ask is “how much are closing costs in Ontario”? Sadly there is no good answer. See the giant list below to see why there’s no “one size fits all” answer.
Some of the common expenses that home buyers expect to pay include:
- Land Transfer Tax (LTT): This tax is payable by the buyer when they purchase a property. The amount of LTT payable depends on the contract price of the property and can range from a few thousand dollars to tens of thousands of dollars. The Ontario government has an online calculator to help buyers estimate their LTT.
- Legal Fees: Buyers are required to hire a real estate lawyer to handle the legal aspects of the purchase. These can vary depending on the complexity of the transaction, but typically range from $1,500 to $3,000.
- Title Insurance: Title insurance protects the buyer against any defects in the title of the property. The price of title insurance varies depending on the purchase price of the property, but typically ranges from $300 to $500.
- Moving Fees: Buyers may need to hire a moving company to transport their belongings to their new home. The expense of moving can vary depending on the distance, amount of belongings, and other factors.
- Utility Setup: Buyers may need to pay fees to set up utilities such as electricity, gas, and water. These can be in the thousands of dollars.
- Renovation Fees: If the buyer plans to renovate the property after purchase, they may need to budget for renovation. Paint, bathrooms, kitchens, flooring – it all adds up, and these days it adds up expensively. If you are not diligent, closing costs might wipe out your reno budget before you move in.
- Inspection Fees: Buyers may choose to have a home inspection done before purchasing the property. The price of the service can vary depending on the size and age of the property, but typically ranges from $500 to $1,000.
- Mortgage Broker/Appraisal Fees: Buyers who use a mortgage broker may need to pay a fee for their services. Buyers who require an appraisal of the property may also need to pay a fee for this service.
- New Home Warranty: Tarion in Ontario, but several provinces have similar programs. They protect buyers of new builds from developer shortcuts and improper work. $1,000 – $2,000
- Law Society Transaction Levy: less than $100
- Fees for Discharge of Mortgages: Hundreds of dollars, but variable based on the situation.
- Development Charges: Fees charged to builders of properties by the municipality for integrating the new build into the local infrastructure. They are only applicable to new builds and for condos, they can amount to tens of thousands. Developers will often “cap” those charges in your original purchase agreement at something slightly more reasonable or at least more predictable.
- HST on Appliances Installed by the Developer: Applies to new builds only and can be hundreds or low thousands of dollars.
- Performance Audit: $200-$300
- Reserve Fund Contribution: Condos run boards that control common property budgets to maintain the common property elements. To start, you need to pay a sum frequently amounting to a couple of months worth of condo maintenance fees to kickstart the fund. This could run into the high hundreds or just over a thousand dollars unless that condo has different reserve fund policies.
- Property Taxes that the Seller or Vendor have Prepaid: It is your responsibility to pay them back for the remainder of the current calendar year that you’ll be in the property.
- Property Taxes for the Following Year: In many jurisdictions you must pay the next calendar year’s full taxes at close.
- Condo Maintenance Fees: For condos, fees for the current month are also due. Should be hundreds of dollars.
- Various Admin Form Charges: Your lawyer has to pay filing fees, software fees, and charges throughout the process of transferring ownership to you. You will reimburse them at closing. Hundreds of dollars.
- Education Development Fees: These are for new builds only and could be a part of your statement. They could be wrapped into a generic development fee charge. Should be several thousand dollars.
- Park Levies: Same goes for Park Levies as Education Fees above. Could be significantly over $10,000.
It is important for buyers to budget for these expenses in addition to the purchase price of the property. Buyers should also shop around for services such as legal fees and moving companies to ensure they are getting the best value for their money.
Legal Aspects of Home Buying
Real Estate Law
Buying a home is a complex process that requires a thorough understanding of real estate law. Provincial legislation regulates real estate law in Ontario. This includes the Real Estate and Business Brokers Act, 2002, and the Land Transfer Tax Act. Collaborating with a real estate lawyer well-versed in Ontario real estate law is crucial to ensure compliance with all legal prerequisites and the seamless completion of the transaction.
One of the key legal aspects of home buying is the Statement of Adjustments. This document records the financial obligations of both the buyer and the seller. The Statement of Adjustments ensures that all expenses linked to the purchase are accurately recognized and handled. It includes details such as the purchase price, legal fees, and disbursements. Your closing costs in Ontario are completely spelled out on the Statement of Adjustments.
Legal and Administrative Costs
In addition to legal costs, there are a number of other legal and administrative costs associated with buying a home in Ontario. These may include:
- Title insurance: This is a type of insurance that protects the buyer against any defects in the title of the property, such as liens or encumbrances. The cost of title insurance varies depending on the value of the property and the insurer.
- Land transfer tax: This is a tax that is paid by the buyer when the property is transferred. The amount of land transfer tax payable is based on the sale price of the property and varies depending on the value of the property and the location.
- Home inspection: This is an optional expense, but it is highly recommended. A home inspection can identify any issues with the property that may not be immediately apparent, such as structural problems or water damage.
- Mortgage registration fees: If the buyer is obtaining a mortgage to finance the purchase of the property, there will be fees associated with registering the mortgage with the land registry office.
It is important to budget for these expenses in addition to the purchase price of the property. Working with a knowledgeable real estate lawyer can help ensure that all legal and administrative fees are accounted for and that the transaction is completed smoothly.
Mortgage and Down Payment
When purchasing a home in Ontario, it is important to understand the costs associated with a mortgage and down payment. A down payment is the amount of money paid upfront towards the purchase price of the home. In Ontario, the minimum down payment required is 5% of the purchase price.
For example, if the purchase price of the home is $500,000, the minimum down payment required would be $25,000. However, if the purchase price is higher than $500,000, the minimum down payment required is 10% of the portion of the purchase price above $500,000.
In addition to the down payment, buyers may also need to purchase mortgage default insurance if their down payment is less than 20% of the purchase price. This insurance protects the lender in the event that the borrower defaults on the mortgage. The cost of mortgage default insurance varies based on the size of the down payment and the purchase price of the home.
When it comes to mortgages, it is essential to shop around for the best mortgage rate. You can achieve this by reaching out to multiple lenders and comparing their rates and terms. Additionally, it’s essential to take into account the duration of the mortgage term and whether it is fixed or variable. Lots more about Mortgages, here.
Overall, understanding the costs associated with a mortgage and down payment is crucial when purchasing a home in Ontario. By doing research and seeking advice from professionals, buyers can make informed decisions and ensure they are getting the best deal possible.
Land Transfer Tax
When purchasing a home in Ontario, buyers are subject to a land transfer tax. The amount of tax payable is based on the purchase price of the property. The Ontario government and municipalities both charge land transfer tax, and the rates vary depending on the location of the property. Toronto keeps it simple. They nearly just match the provincial tax amount!
Ontario Land Transfer Tax
The Ontario Land Transfer Tax is determined as a percentage of the property’s purchase price. The rates are as follows:
| Purchase Price | Tax Rate |
|---|---|
| Up to $55,000 | 0.5% |
| $55,000 – $250,000 | 1.0% |
| $250,000 – $400,000 | 1.5% |
| $400,000 and over | 2.0% |
First-time homebuyers may be eligible for a refund of up to $4,000 of the Ontario Land Transfer Tax. This refund applies to homes with a purchase price of up to $368,000.
Toronto Land Transfer Tax
In addition to the Ontario Land Transfer Tax, homebuyers in Toronto are also subject to the Toronto Land Transfer Tax. The rates for the Toronto Land Transfer Tax are as follows:
| Purchase Price | Tax Rate |
|---|---|
| Up to $55,000 | 0.5% |
| $55,000 – $400,000 | 1.0% |
| $400,000 – $2,000,000 | 2.0% |
| $2,000,000 and over | 2.5% |
The Toronto Land Transfer Tax also offers rebates for first-time homebuyers, up to a maximum of $4,475.
To calculate the total land transfer tax payable, homebuyers can use online land transfer tax calculators. These calculators take into account both the Ontario Land Transfer Tax and the Toronto Land Transfer Tax, if applicable. It is important to note that these calculators are only estimates and the actual amount of tax payable may differ.
You will likely notice that your Real Estate Agent wants to stay away from detailed discussions about closing expenses. That’s later. For now, they want the focus on getting mortgage financing arranged so that the purchase goes through. They do not want to slow things down by discussing the additional tens of thousands you will owe on close. That drives us crazy.
Home Inspection and Insurance
When purchasing a home in Ontario, it is important to consider the costs associated with home inspection and insurance. A home inspection is a crucial step in the home-buying process, as it can reveal any potential problems with the property that may not be immediately apparent. In Ontario, the cost of a home inspection varies depending on the size and location of the property, but typically ranges from $400 to $600.
Additionally, it is important to consider the cost of home insurance. While home insurance is not obligatory in Ontario, it is strongly recommended. It can safeguard the homeowner from various potential risks, including theft, fire, and water damage. The cost of home insurance varies depending on the size and location of the property, as well as the level of coverage required. On average, homeowners in Ontario can expect to pay around $1,200 per year for home insurance.
Title insurance is another important consideration when purchasing a house in Ontario. Title insurance can protect the homeowner from any legal issues related to the title of the property, such as liens or encumbrances. The cost of title insurance varies depending on the value of the property, but typically ranges from $200 to $500.
Overall, it is important to budget for these additional costs when closing on a house in Ontario. While they may add to the overall cost of the home purchase, they can provide valuable protection and peace of mind for the homeowner.
Additional Costs
In addition to the expenses mentioned earlier, there are other costs that buyers need to be aware of when purchasing a property in Ontario. These costs usually include property appraisal and government registration fees.
Property Appraisal
A property appraisal fee may be required by the lender to determine the value of the property. The cost of a property appraisal can vary depending on the size and location of the property. Your lender may waive the appraisal fee.
Government Registration Fees
Government registration fees serve the purpose of registering the property and facilitating the transfer of ownership. The property’s purchase price determines the government registration fee. For example, if the purchase price of the property is $500,000, the government registration fee would be approximately $1,765.
Buyers need to stay informed about annual property taxes. Property taxes are determined based on the assessed value of the property. They can fluctuate depending on the property’s location.
It is important to note that the Harmonized Sales Tax (HST) may be applicable in certain situations. HST is only charged on new construction. However, there may be an HST rebate available for buyers in certain situations.
Buyers should remain mindful of the extra costs linked to purchasing a property in Ontario. Buyers can prevent unexpected surprises and ensure a smooth transaction by staying well-informed and prepared.
Frequently Asked Questions
What are typical closing expenses when buying a house in Ontario?
Closing costs in Ontario typically range from 1.5% to 4% of the purchase price of the property. For instance, when purchasing a property for $500,000, they may vary from $7,500 to $20,000. These costs may include land transfer tax, legal fees, title insurance, and other expenses.
How can I calculate my closing costs?
To calculate the final expenses, you can use an online calculator or consult with a real estate lawyer. The calculator will take into account the purchase price of the property, the location, and other relevant factors to provide an estimate of your closing costs.
What comprises my closing costs?
They may include land transfer tax, legal fees, title insurance, appraisal fees, home inspection fees, and other expenses. It is important to review your purchase agreement carefully to understand which costs are your responsibility and which costs are the responsibility of the seller.
I don’t know what you mean when you say that the Closing Costs have to be paid in “cash”?
It means you must be able to cut a cheque to your lawyer who will disburse that money to all parties owed (including themselves). The rules mean you cannot include the closing fees in your mortgage and pay them off as if they were part of the property’s cost. You must have the money on hand, somewhere like your chequing account.
What are the legal fees for buying a house in Ontario?
Legal fees for purchasing a house in Ontario can vary depending on the complexity of the transaction. On average, legal fees can range from $500 to $2,500. It is important to consult with a real estate lawyer to understand the specific legal fees associated with your transaction. If you are looking at pre-build condos or homes, the costs will be higher. Mortgage insurance, they’ll be higher. And if your target property is more than the example $500,000 noted above, you guessed it, they’ll be higher. And if you are buying in Toronto, well you know how that will go (i.e. higher).
How much should I expect to pay for land transfer tax in Ontario?
Ontario calculates land transfer tax based on the property’s purchase price. For instance, if you purchase a property for $500,000, the land transfer tax would amount to approximately $7,475. First-time homebuyers may be eligible for a rebate on the land transfer tax.
What are the closing day costs for pre-construction condos in Ontario?
Pre-construction condos closing expenses in Ontario are higher than those for purchasing a resale property. Additional fees may include development charges, education levies, and utility connection fees. It is important to review your purchase agreement carefully to understand which are your responsibility and which expenses are the responsibility of the developer. Here’s summary of some of the shocking facts from a real Toronto condo that closed in 2022:
- The prebuild condo was purchased for $550,900
- $42,000 of the purchase price is attributed to HST that the builder/vendor is obligated to incorporate into the list price. Therefore, the actual price of the condo was $508,000
- The buyer paid a full 20% down on the property amounting to $110,000
- Developers incur development charges, which are imposed by various city departments to integrate the new condo building into the city’s infrastructure. Estimating these fees in advance is challenging as they depend on the bills sent by those entities to the developer during construction Based on your property’s square footage, you pay a share of these fees. In this case, the buyer’s share was over $60,000! However, it’s crucial to highlight that the original purchase agreement explicitly stated that Development Fees are capped at $18,000 (plus HST). This practice is common in the prebuilt condo industry. Make sure your contract has a reasonable cap! It save this buyer $40,000
- Highlights from the Development charges: General development charges=$33,500, Park levies=$14,400, Education development charges=$2,400. Remember these vary. These are just a few of the charges listed on your final Statement of Adjustments.
- Other charges included $3,700 for a Hydro connection fee and $1,400 for the water connection charge.
- Closing fees amounted to over $50,000, excluding some credits that this buyer had accumulated during the condo’s construction process and occupancy period.
That was a very long and not entirely definitive answer. The point in doing it was this: you must have all of your deposit money owed plus your closing fee cheque ready to go at close, and those fees could be tens of thousands and beyond depending on the type of property and location. The secondary point: calculating these fees if very difficult and not for first-timers. You need a real estate lawyer.
How do you pay closing costs? Is it through the real estate lawyer?
On close, your lawyer will draft a Statement of Adjustments that looks like an accounting document listing debits and credits to your side of the transaction. The law firm will likely ask you to pay the balance of that statement to them via a deposit to their trust account. Your lawyer will disburse the funds to all parties owed in the transaction. So you will be writing them one big cheque.
Do I really need Title Insurance?
Yes. To tell you the truth, we don’t know if you can even waive it. In any case, please, please pay the couple hundred dollars to protect yourself from any kind of scam.
First-time home buyer rebates: what are they?
- You will get a rebate of $4,000 on provincial land transfer taxes
- In Toronto, you will get a rebate of up to $4,475 on municipal land transfer taxes
- In Ontario, you may be eligible for a rebate of up to $24,000 on the provincial portion of the HST
Can I trust the value given by an online closing cost calculator?
No. They can’t possibly know how much property tax you’ll owe to the vendor. If you have to prepay for the entire upcoming year, they won’t be aware of that either. How could a tiny bit of code on a website know what your utility hookups will cost? If you’re talking about a condo or new build house, they don’t include any of those expenses. They don’t know how much down payment you have made or owe or how much your lawyer charges or if the vendor owes you a credit of some kind.
The problem is, they give you a false sense of security. Closing costs in Ontario are scary. In reality, the amount you need to have on hand at close will be much higher than the calculator tells you. The last thing you need is to find that you owe $12,300 more than you thought you would.
We have so much more informative, Ontario-specific information queued up for you. Start with buying and selling tips for Canadians.