Buying a home in Ontario is an exciting journey, but it’s essential to understand all the closing costs associated with it.
Being prepared and budgeting for these costs is essential to making your home buying experience a smooth one. Closing costs, ranging from 1.5 to 4% of the purchase price, are the legal and administrative costs you will need to pay when your house closes.
Below you’ll find the most common closing costs to consider, as well as a few things you may also want to think about as you make your home purchase.
Land Transfer Tax (LTT):
When you buy land (or a house that sits on a piece of land that you will also be purchasing), you pay land transfer tax to the province of Ontario when the transaction closes. It is calculated based on the purchase price of the property and can vary depending on the municipality. For example, if the home you’re buying is in Toronto, they also have a Municipal Land Transfer Tax.
The Land Transfer Tax is one of the most substantial closing costs in Ontario.
The tax rates on land transfers in Ontario are as follows (however these numbers may change in time, so be sure to double check!):
- 0.5% on amounts up to and including $55,000
- 1.0% on amounts exceeding $55,000, up to and including $250,000
- 1.5% on amounts exceeding $250,000, up to and including $400,000
- 2.0% on amounts exceeding $400,000.
First-time homebuyers may be eligible for a rebate, reducing their LTT burden.
Legal Fees and Disbursements:
You’ll need to hire a real estate lawyer or notary to handle the legal aspects of the transaction. They will be responsible for many aspects of finalizing your purchase, including:
- making sure all the money for your purchase is sent to the sellers on closing day
- ensuring all contracts and documents have been signed appropriately by all parties
- conducting a Title Search on the property (more on this later).
Many lawyers charge different fees for their services but you can expect to pay somewhere around $500+ in our area. If you aren’t sure which lawyer to use, your REALTOR® should be able to provide you with a few local names that you can reach out to.
RELATED: Your lawyer will also be the one to ensure you get your keys on closing day. Find out more on our blog: Getting Properly Prepared For Closing Day
Title Search & Title Insurance:
Before the home can officially become yours, your lawyer will do a Title Search. They will make sure there are no issues with the property’s title, such as undisclosed liens or property boundary disputes. This search is generally done about 2 weeks prior to closing which gives the lawyer time to help resolve any issues they may uncover.
While it’s optional, Title Insurance can offer some peace of mind. Today, some lenders require title insurance to protect against losses in the event of a property ownership dispute. This is purchased through your lawyer/notary and costs around $100 – $300.
Adjustments:
Adjustments include payments made between the buyer and seller to cover items like property taxes or utility bills that may have been prepaid by the seller. These adjustments ensure that both parties are responsible for their respective portions.
Property Insurance:
You’ll need to secure homeowner’s insurance before closing the deal. The cost varies based on factors like the property’s location and the extent of coverage. Speak to your insurance provider about possible discounts you may be eligible for if you bundle your coverage with your car or other types of insurance.
Mortgage Insurance:
If your down payment is less than 20% of the purchase price, you’ll need to pay for mortgage default insurance. This protects the lender in case you default on your mortgage payments.
RELATED: You can learn more about your various insurance needs on our blog: Guide to Home Insurance for Canadians
HST on New Homes:
If you’re purchasing a newly constructed home, the Harmonized Sales Tax (HST) will apply to the purchase price. However, there may be rebates available for homes below a certain price threshold.
Whereas, if you’re purchasing a resale home – good news! The HST is generally not applicable to your purchase price!
Property Taxes:
Property tax is calculated as a percentage of your home value, varies by municipality and must be paid each year. You may need to reimburse the previous property owner if he/she has already paid property taxes for the full year.
You are also given the option to set up an automatic payment plan with you lender so that your property taxes are simply paid when your mortgage is paid each month. This can help with budgeting.
Utility Hook-Up Fees:
When you move into a new home, there may be fees associated with setting up utilities like water, gas, electricity, and internet. You can (and should) set these up in advance of moving in, so your utility service is not interrupted.
You may also be responsible for taking over any rental contract items from the previous owner (eg. hot water heater rental). Your lawyer and REALTOR® can find out what items are under contract.
It’s essential to budget for these closing costs when planning your home purchase in Ontario. The total amount can vary widely depending on factors like the property’s purchase price and location. It’s a good practice to work closely with your real estate agent and legal advisor to understand the specific costs you’ll incur during your home buying process.
While it may seem like a daunting undertaking, your Team Kate REALTOR® has done this hundreds of times and knows how to walk you through it, step-by-step. Buying a home doesn’t have to be a stressful experience!
