Real Estate Closing Costs in Toronto & Across Ontario
Real Estate Closing Costs in Ontario
Closing costs are legal and administrative costs that you must pay when you purchase a home and typically range between 1.5% and 4% of the selling price. Be sure to have money set aside to take care of closing costs on your Toronto home purchase or home purchase in other parts of Ontario. Often times, buyers will hang on to a portion of their intended down payment to ensure that they have enough money for unexpected costs which may arise on closing day.
Real Estate Costs Required Before the Closing Day of Your Mortgage
- Home Inspection – It is strongly suggested that you make your Offer to Purchase conditional on a satisfactory home inspection by a qualified professional. For a cost between $250 and $500, a home inspector will inspect the property and write a report on the current condition of the house. The cost will depend on the complexity of the property.
- Deposit – In certain cases, you may be required to place a deposit upon submission of your Offer to Purchase. The deposit will be considered a portion of your down payment, if the offer is accepted. The deposit amount varies, but in some cases, can amount to the minimum down payment in Canada of 5% of the purchase price.
- Appraisal Fee – An appraisal is required to determine the value of the property your Offer to Purchase has been accepted for. At times, this may be covered by the lender, but in many cases is a responsibility of the buyer. Lenders require an appraisal to ensure that they could sell the property for at least the amount of the mortgage in the case that the borrower defaults on the mortgage. Costs typically range between $250 and $300.
Real Estate Costs Included in Your Mortgage Financing
Mortgage default insurance, or CMHC insurance, is not a closing cost since it is included in your mortgage balance which you will pay over the life of the mortgage. While it is not a typical closing cost, we list it here because many buyers do not realize that this cost is automatically included in the mortgage amount if the downpayment is less than 20% of the purchase price.
- Mortgage default insurance – In order to protect lenders from the borrower defaulting on their mortgage, if a buyer purchases a home with a down payment of less than 20%, they will be required to purchase mortgage default insurance from the Canadian Mortgage and Housing Corporation (CMHC). The logic here is that it is less likely for a buyer to default on a mortgage if they have a significant amount of their own money already invested. The magic number is 20%.
Toronto & Ontario Home Buyer Closing Costs Due on Closing Day
Here we have listed the closing costs which are the responsibility of the home buyer on closing day.
- Land Transfer Tax (LTT) – Every province charges a percentage of the purchase price as a tax when land is transferred from one person to another. Some municipalities, such as Toronto, also have additional Land Transfer Taxes. First time homebuyers are eligible for a Land Transfer Tax refund. Click here to calculate how much you can expect to pay in Land Transfer Taxes.
- Legal Fees and Disbursements – In order to have a mortgage legally registered, you are required to sign all documents in the presence of a lawyer on closing day. Legal fees can vary greatly depending on the lawyer and the area of Ontario you are in. Typically, Toronto mortgages typically experience higher legal fees than in less populated areas of Ontario. Be prepared to pay a minimum of $500 (plus GST/HST) on legal fees, but don’t be surprised if a lawyer is charging much more. Contact us if you’d like to be referred to a lawyer in your area.
- Title Insurance – Title insurance is required to ensure that the property title is clear of liens and other disputes. Your lawyer will purchase title insurance on your behalf to ensure that you do not experience a legal battle in the future due to an issue connected to the seller. The cost can be anywhere between $100 and $300.
- PST on Default Insurance (CMHC) – Provincial Sales Tax (PST) is charged on the mortgage default insurance purchased through CMHC. Even though the default insurance is wrapped up in the mortgage, you must pay the PST tax upfront on closing day.
Extra Closing Costs for Certain Property Types
The following is a list of closing costs that are incurred by some home buyers as they are only applicable to certain properties.
- Septic tank – If the home has a septic tank, it should be inspected to ensure it is in good working order. Once again, you can negotiate the cost with the previous owner and list it in your Offer to Purchase.
- Water Tests – If the home has a well, you will want to test the quality of the water and ensure there is an adequate supply, as well if the water is potable. You can negotiate these costs with the previous owner and list them in your Offer to Purchase.
- Estoppel Certificate Fee – A certificate fee may be payable if you are buying a condominium or strata unit, and could cost up to $100
Other Toronto & Ontario Closing Costs to Consider
- Property Insurance – Proof of property insurance must be available on closing day to ensure that the property and its contents are covered in case of a fire, or other misfortune. You can often pay insurance premiums in annual or monthly instalments.
- Property taxes – Property tax is calculated as a percentage of your home value, varies by city and must be paid annually. The residential property tax rate in Toronto for example is 0.83%, and on a $500,000 home, would be equal to $4,150 per year. You can pay this amount annually, or you can request that the lender take an extra $345.83 ($4,150 divided by 12 months) with your mortgage payments to help you budget.
Other Ontario Closing Day Considerations
On closing day, you will receive the keys to your new home and take possession of the property. It is important that steps are taken to ensure all documents and requirements are satisfied prior to closing day to avoid delays and possible legal repercussions. Your down payment should already be transferred to the trust account of your lawyer and if you plan to use your RRSP’s, they should be transferred at least a week prior.
Don’t do it alone… Contact us for assistance with your mortgage financing and the smooth process will make closing day enjoyable rather than stressful!