For many first-time homebuyers, the excitement of finding the perfect home can sometimes overshadow the more intricate financial aspects of purchasing a property. One of the most important, yet often overlooked, elements of the home buying process in Ontario is understanding closing costs. These costs, which are the additional expenses buyers must pay on top of the home's purchase price, are essential for ensuring that buyers are fully prepared for the financial commitment of homeownership.
What Are Closing Costs?
In Ontario, closing costs refer to the various fees and expenses associated with finalizing the purchase of a home. These costs usually cover everything from securing financing and insuring the property to transferring the title of ownership. Closing costs can vary significantly based on factors such as the price of the property, its location, and the specifics of the transaction.
Common Closing Costs for Buyers in Ontario
- Appraisal Fee:
In most cases, lenders in Ontario will require an independent appraisal of the property to confirm its market value before approving the mortgage. This appraisal ensures that the property is worth the amount being financed. The buyer typically pays this fee, which can range from $300 to $700, depending on the size and location of the home. - Title Insurance:
Title insurance is designed to protect both the buyer and the lender from any legal issues related to the title of the property. This includes risks such as undiscovered liens, ownership disputes, or fraud. In Ontario, title insurance is typically mandatory, and the buyer will need to purchase a policy. The one-time premium for title insurance depends on the purchase price/value of the property/mortgagee. Your lawyer will be able to tell you the exact price after the policy is ordered. - Home Inspection Fee:
While not legally required, a home inspection is strongly recommended as part of the buying process. A licensed inspector will evaluate the condition of the property, identifying potential issues such as structural damage, electrical problems, or plumbing issues. Home inspection fees in Ontario usually cost between $500 and $1500, but the peace of mind it provides is invaluable. - Loan Origination Fees:
Mortgage lenders may charge loan origination fees for processing and underwriting your mortgage application. These fees vary depending on the lender and the type of mortgage but typically range from 0.5% to 2% of the loan amount. These fees are typically rolled into the mortgage but must still be considered when budgeting for your closing costs. - Lawyer’s Fees:
In Ontario, it is customary for buyers to hire a real estate lawyer to handle the legal aspects of the transaction. The lawyer will review the purchase agreement, ensure proper title transfer, and deal with registration with the Land Registry Office. Lawyer fees can range from $900 to $1,300, depending on the complexity of the transaction. In addition to the legal fees, there are disbursements incurred by the lawyer on your behalf to be paid, for example-title search cost, software ee, banking fee, registration costs, etc. - Land Transfer Tax:
One of the most significant closing costs in Ontario is the Land Transfer Tax (LTT), which is calculated based on the purchase price of the home. First-time homebuyers may be eligible for a rebate of up to $4,000 on the provincial portion of the tax. The LTT can be quite substantial, with rates varying by municipality. For example, Toronto has its own municipal land transfer tax in addition to the provincial tax. - Survey Fees:
In some cases, lenders will require a survey of the property to confirm its boundaries and ensure that there are no encroachments. While this is not always mandatory, if required, survey fees can range from $300 to $700, depending on the property's size and location. - Home Insurance:
Lenders in Ontario will require that you have home insurance in place before closing. The cost of home insurance varies depending on factors such as the property's location, its age, and the level of coverage.
How Much Are Closing Costs in Ontario?
In Ontario, closing costs typically range from 2% to 5% of the purchase price of the home. For example, on a home priced at $400,000, you could expect to pay anywhere from $8,000 to $20,000 in closing costs. It’s important to plan ahead and budget for these costs, as they can add up quickly and take many homebuyers by surprise.
How to Budget for Closing Costs
- Get a Mortgage Disclosure Early:
One of the first things you should do when starting the home buying process is to request a mortgage disclosure from your lender. This document will provide a detailed breakdown of all estimated closing costs, giving you a clear understanding of what to expect financially. - Factor Closing Costs Into Your Down Payment Savings:
In addition to saving for your down payment, it's essential to set aside funds specifically for closing costs. - Consider the Ontario First-Time Home Buyer Incentive:
First-time homebuyers in Ontario can benefit from various incentives to reduce upfront costs. These include the First-Time Home Buyers' Tax Credit (up to $1,500 in tax relief), the Home Buyers' Plan (withdraw up to $35,000 from RRSPs), and the First Home Savings Account (save up to $40,000 tax-free). Ontario also offers a Land Transfer Tax Refund of up to $4,000 for eligible buyers. Additionally, new federal measures allow a 30-year amortization for insured mortgages on new builds and increase the insured mortgage price cap to $1.5 million, making homeownership more accessible.
Closing costs are an unavoidable part of purchasing a home in Ontario, and they can add up quickly. For first-time homebuyers, it’s essential to be aware of these costs and to plan accordingly. By understanding what closing costs are, how much you can expect to pay, and how to budget for them, you’ll be in a much stronger position to navigate the home buying process and ensure a smooth and successful transaction when you finally close on your dream home.
Always consult with a real estate lawyer and mortgage professional to get a clearer idea of the specific closing costs associated with your transaction. With the right preparation and knowledge, you'll be ready to take on homeownership with confidence.
If you're a first-time homebuyer in Ontario looking to understand and manage closing costs effectively, contact LexCounsel. Our knowledgeable team will guide you through the process to ensure a seamless home-buying experience.Bottom of Form