While it comes as no surprise – buying a home is a major financial responsibility and you may not have considered the additional expenses–known as closing costs–that can impact your offer, the size of your downpayment and the mortgage you qualify for.
Buying a new home in Ontario can be equally exciting and overwhelming. Between the competitive market and amount of paperwork it is easy for even a multi-time buyer to be unsure of the process. At Tilters Professional Corporation, we work with our clients one-on-one and in simple terms to ensure their full protection and understanding during the entire real estate transaction.
To help you better understand the hidden costs that are associated with the purchase of a home in the GTA and Ontario as a whole, we’ve answered some important questions about closing costs.
What are closing costs?
Closing costs are the fees paid at the closing of a real estate transaction—it is common for these various costs to feel unexpected or sneak up on homebuyers. Generally speaking, you’ll want to budget for 1.5% to 4% of the property’s purchase price to cover legal, administrative and other miscellaneous costs associated with closing on a house. These expenses occur before, on and after your house closes.
What’s included in closing costs?
Closing costs include: Land Transfer Tax (LTT), real estate lawyer legal fees, title insurance, moving fees, utility setup, renovation fees, inspection fees and mortgage broker/appraisal fees.
Land Transfer Tax
When you purchase a home (and the land it rests on), you must pay tax to the government. Land Transfer Tax rates vary province to province and are typically calculated based on the sale price of the land and property. To help you better estimate this cost for your budget, we suggest utilizing online tools such as this Land Transfer Tax Calculator.
If you are in the City of Toronto—including North York, Etobicoke and Scarborough—there is a provincial and municipal land transfer tax, so expect to budget a little more. If you are a first-time home buyer in Ontario, you may be eligible for a land transfer tax refund equal to the full value of the land transfer tax up to a maximum of $4,000. To learn more, click here.
You may wonder – when the tax is paid? Land Transfer Tax is collected by your lawyer on closing and your lawyer will pay it directly to the Ministry of Finance on your behalf. So no need to worry about another item on your to-do list.
When buying a home in Ontario, your lawyer’s legal fee and disbursements are considered closing costs (disbursements include any expenses your lawyer had to pay for work on your behalf). A real estate layer will ensure that you are protected on the legal front: reviewing the Offer to Purchase/Agreement of Purchase and Sale, register the deed and mortgage, perform the title search, work with your lender to get your mortgage funds, organize the closing documents and settle any outstanding disbursements for their client.
When choosing a law firm for your real estate transaction, be mindful of the legal fee advertisements. Always ask or look in the fine print to see if the fees are all-in or plus disbursements. While some law firms show a lower upfront fee, it is usually plus disbursements which will include many additional fees such as your title insurance policy which typically starts at $250.00 for a house of $500,000 and goes up from there.
You may also come across “No Closing Cost Mortgage” advertisements. This agreement will not require you to pay closing costs upfront, but they will be bundled into your loan and increase the total cost of your mortgage. The result? Paying more than closing costs with addition of interest. These “deals” are truly expensive.
To help you better budget for legal fees associated with buying a home in Ontario, we recommend utilizing our free Real Estate Legal Fee Calculator, which provides you with our all-in fee quote.
To cover potential losses in case of a dispute regarding property’s title, your lawyer will likely encourage you to buy title insurance (in many cases your lender will also require you have a title insurance policy). You can expect your insurance to start at $250 for properties valued at $500,000 (the fee is a one-time fee at the time of your purchase). Typically, title insurance policies protect against title fraud, municipal work order, zoning violations and other property defects you may be unaware of at the time of purchase. This fee is often grouped in the total real estate legal fee mentioned above. For a better understanding of your title insurance and the cost of a policy, utilize online tools and services such as Stewart Title. https://www.stepsonline.ca/quote/calculatorview)
When you’re purchasing a resale home, common adjustments you’ll see are the tax adjustments which equate the taxes between the seller and buying (exchanged through lawyer), and propane and oil adjustments. Depending on the property there may be other adjustments.
When you purchase a new build home in Ontario, expect more closing adjustments. Listed in the agreement of purchase, the builder will require you to pay the Tarion warranty fee and for any upgrades or features such as driveway paving, tree planting and installing utility meters.
Setting up utilities when moving is a miscellaneous expense often overlooked. This set up and the utility bills that follow are highly variable; however, it is a good idea to get a strong understanding of what utilities will be necessary in your upcoming move:
- Rental Hot Water Tank
- Additional Fees (HOA)
Despite what utilities you may require in your new home, you can expect to see a higher first bill for set up fees or possible security deposits.
Even if you aren’t planning on doing renovations right away, simple issues may need to be addressed when first moving into a new home and can add up. Paint alone can rack up a substantial bill so it is a good idea to have funds set aside for this purpose.
While a home inspection can set you back approximately $500, it could save you thousands on hidden problems that you and your real estate agent may be unaware of at the time of an offer. It is highly recommended to make a purchase offer conditional on a home inspection–even in the tough market we have today.
Property Survey/ Appraisal
Your lender will often require a property appraisal to determine if the selling price of your home is reasonable and how much they are willing to lend you. This fee can set you back between $300 to $500 in Ontario; however, you can always negotiate with your lender to see if they will waive this fee. It is typical for them to do so if you are a new customer. Another option is to explore the use of a comparative market analysis (CMA) to appraise your property.
Who pays closing costs when buying a home?
The buyer is primarily responsible for all closing costs with the exception of one, which is paid for by the seller: the real estate agent’s commission. Commission for both real estate agents of a transaction are paid for by the seller with the commission being split between both parties. The seller is also responsible for their own lawyer fees and mortgage discharge fees (if applicable).
How much are typical closing costs for refinance?
Refinancing your mortgage requires consultation with a real estate lawyer who will review your mortgage loan, its terms and conditions, register the new mortgage and ensure your property has no liens by conducting a title search. Rather than drafting up the financial document Statement of Adjustments – typical of buying a new home – your real estate lawyer will draft a Trust Ledger Statement. What’s the difference? It’s essentially the same financial document but this time it is only with the bank, not another buyer or seller. If you are looking to refinance a home in Ontario, expect a range between $900-$1400 in legal fees, which includes a title insurance policy in favour of the lender (which is typically a requirement of the mortgage). It is your real estate lawyer’s role to facilitate the entire financial transaction between you and the lender. In some cases, when you switch lenders, the new lender may pay these legal fees for you.
How much are closing costs on a new home in Ontario?
When buying a new home in Ontario expect to pay between 1.5% to 4% of the home’s purchase price on closing costs. Ontario has some of the highest closing costs in Canada. Unlike some provinces that only charge GST (5%) on the sale of homes, HST (13%) is used in Ontario. Add that to the already high house prices in the province and the additional LTT in the Greater Toronto Area, and you’ll want to really take closing costs into account before determining your budget for a new home.
As mentioned, when you purchase a new build in Ontario, you can expect additional closing costs in the form of closing adjustments. The builder will require you to pay the Tarion warranty and for any upgrades or features. Before signing an Agreement to purchase a new home, we highly recommend speaking to a real estate lawyer to fully understand the additional costs and obligations associated with buying a new build home in Ontario.
Will I save on closing costs when paying cash for a home?
When buying a home in Ontario in cash, you will stand out as a favourite to the seller, but there are other benefits too. Closing costs such as bank appraisals can be avoided. That being said, the buyer will still be responsible for the majority of closing costs, even when paying cash.
Closing Costs – Key Takeaways
- Closing costs are the excess fees on top of the purchase price of the property or home that are typically due at the closing of a real estate transaction.
- Using a real estate legal fee calculator and Land Tax Transfer calculator can help you determine the additional fees associated with buying a new home and allow you to adjust your budget/search if necessary.
- When you are ready to sign an Offer To Purchase/Agreement of Purchase and Sale, you’ll want to contact a real estate lawyer to review it and ensure your full understanding of the contract.
At Tilters Professional Corporation, we pride ourselves on offering a personalized experience with a strong foundation of customer service. Our team of legal professionals are dedicated to smooth closings and providing our clients one-on-one attention through every step of the transaction. For other helpful tools to assist you while buying a home in Ontario, visit our Tools page or contact our team today.