How Much Are Closing Costs in Ontario?
Purchasing a home can be an exciting experience, but it’s important to understand that the costs associated with buying a home go beyond the purchase price. In Ontario, these additional expenses are known as closing costs. They include various fees and charges that are incurred during the final stages of a real estate transaction. In this comprehensive guide, we’ll delve into the nitty-gritty details of what closing costs entail and how much they might amount to…the final strides in your home ownership journey.
How Much Should You Expect To Pay?
Closing costs can vary widely, making it challenging to pinpoint an exact amount for each homeowner. However, financial experts generally recommend budgeting between 1.5% and 4% of the home’s purchase price. For instance, if you’re buying a home for $500,000, you should set aside a minimum of $7,500 and a maximum of $20,000 for closing costs. To get a more accurate estimate, you can use a free online closing cost calculator. These calculators typically request information such as the purchase price, down payment percentage, location, and property type to provide an estimate.
Common Closing Costs in Ontario
Land Transfer Taxes
All real estate purchases in Ontario are subject to land transfer taxes, often referred to as LTTs or PTTs (property transfer taxes). In Ontario, there is a multi-tiered land transfer tax, with the amount owed being dependant on the purchase price of the home. Moreover, certain municipalities, including Toronto, have their own property transfer taxes. This means that if you’re buying a house in Toronto, you’ll face both provincial land transfer tax and municipal property transfer tax. See Toronto calculator here.
The applicable tax rates for land transfers in Ontario are as listed below:
• amounts up to and including $55,000: 0.5%
• amounts exceeding $55,000, up to and including $250,000: 1.0%
• amounts exceeding $250,000, up to and including $400,000: 1.5%
• amounts exceeding $400,000: 2.0%
• amounts exceeding $2,000,000, where the land contains one or two single family residences: 2.5%
Legal fees are among the most common closing costs. When buying a home in Ontario, you’ll need to work with a real estate attorney to finalize the deal. Your attorney will review critical documents such as the purchase agreement and mortgage contract, assist with the title search, and handle title registration. Legal fees can vary depending on your location within the province. Typically, legal fees for buying a house in Ontario, including a standard residential property purchase, can vary from $1,000 to $2,000 or more, depending on various factors.
If you’re purchasing a new home with a mortgage, you’ll likely need to pay an appraisal fee. Most mortgage lenders require borrowers to have their homes appraised to confirm the property’s market value, which determines the loan amount. The cost of hiring a professional appraiser typically falls on the buyer. You can expect to pay about $300-$500 with that amount falling closer to the top end in the GTA.
Title insurance is typically required by mortgage lenders to protect against property ownership disputes after the purchase. In some cases, your real estate attorney may arrange the purchase of title insurance for you, incorporating it into your closing costs. Title insurance cost varies and can range from $250 to $1000 or more depending on various factors such as the property’s value and location, the insurer, and the specific policy coverage.
Property Survey Fee
Mortgage lenders may also require a property survey, where a surveyor assesses the land and structures. Survey costs vary based on location, property size, and the time of year. These can be costly, like over $5000, depending on the above factors as well as the type of survey required.
Additional Closing Costs
While the above costs apply to most homebuyers, some expenses are specific to certain situations or areas in Ontario.
CMHC Mortgage Default Insurance
If your down payment is less than 20% of the purchase price, you may need to pay for Canada Mortgage and Housing Corporation (CMHC) mortgage default insurance. This insurance protects the lender in case you default on your mortgage payments. The cost varies, typically ranging from 2.8% to 4.0% of your mortgage.
New Home Warranties
Buyers of new homes in Ontario may need to pay for a new home warranty. This coverage often includes protection against material and structural defects and varies in cost.
Property Tax Adjustments
Property tax adjustments may apply if the seller prepaid property taxes. In this case, you might need to reimburse the seller for taxes paid beyond the closing date.
Non-Resident Speculation Tax (NRST)
Non-resident buyers in Ontario, including foreign corporations, may face a 25% tax on residential property purchases in the Greater Golden Horseshoe Region.
Interest adjustments may occur when your first mortgage payment is after closing, and interest accrues between the closing date and the first payment.
If you’re buying or building a new home in Ontario, you may need to pay HST (Harmonized Sales Tax), depending on whether it was included in the purchase price. However, you may qualify for a rebate so be sure to consult with your lawyer or contact Revenue Canada.
In addition to closing costs, consider these expenses:
• Home Inspection Fee: While not mandatory, a home inspection is a wise decision for buyers. A professional inspection can uncover potential issues or necessary repairs, providing you with valuable information. The cost of a home inspection is typically the buyer’s responsibility.
• Home Insurance: Lenders usually require proof of home insurance, covering various aspects of homeownership.
• Moving Costs: Whether hiring a professional moving company or doing it yourself, moving expenses should be factored in.
Tips to Reduce Closing Costs in Ontario
Closing costs can add up, but you can take steps to minimize them:
• Shop Around for Legal Services: Compare fees of different real estate attorneys to find the best deal.
• Explore First-Time Homebuyer Incentives: Ontario offers various incentives, including the Home Buyer’s Plan, Home Buyers’ Tax Credit, and land transfer tax refunds.
• Increase Your Down Payment: A larger down payment can help you avoid mortgage default insurance.
• Take Advantage of Home Insurance Discounts: Installing security systems or backup prevention devices may reduce home insurance costs.
Informed & Empowered
Closing costs are an essential part of buying a home in Ontario. While they can vary, being prepared and informed will empower you to make informed decisions as you embark on your journey to homeownership in Ontario. Do some research and consult with an expert like a realtor to really understand the costs involved. You’ll be better equipped to manage these costs effectively and explore potential savings, ensuring a smoother transition into your new abode. Happy home hunting!