Don't get surprised by closing costs

Don't get surprised by closing costs

What are closing costs, exactly? When you buy a property, there’s more money involved than just what you’re paying for the actual house or condo. You’ll need to factor in another 1.5% to 5% of the purchase price to cover things like land transfer taxes, lawyer’s fees, title insurance and any adjustments on expenses that the seller may have paid in advance, like maintenance fees.

The amount depends on a few things:

  1. The price of the property.

  2. Where it’s located (Toronto has its own land transfer tax that’s charged in addition to the Ontario one, whereas in other parts of the GTA, you only pay the provincial tax).

  3. Whether you’re a first-time buyer or not (first-timers can get some great tax rebates).

Here's a list to help you budget.

Before Closing

(While these aren’t actual closing costs, they are expenses that should also be factored into your budget.)

Home inspection. When you think you've found "the one," a home inspection is always a good idea, whether you’re buying a house or a condo. So how much is a home inspection in Toronto? It’s a good idea to plan for $400 to $700.

Read more: Do I need a home inspection?

Property appraisal. Lenders want to know your new place is actually worth what you're paying for it. The price tag for an appraisal can be up to $500, but you may or may not have to pay it, depending on your lender.

The deposit. This is usually 5% of the purchase price, which you pay within 24 hours of your offer being accepted. While this is part of your purchase price, you do have to plan ahead to have the money immediately available when you make an offer.

On Closing

The down payment. If you’re a first-time buyer, your 5% deposit can serve as your down payment. But if you’re putting down more than 5%, or you’re not a first-timer and need to put down 20%, this is when you pay the rest of your down payment.

The purchase price (less your down payment). This is the portion that comes from your lender and becomes your mortgage.

Read more: Mortgages 101

Legal fees. Depending on the lawyer you use and the value of your new home, you’ll probably pay between $1,200 and $2,500 in legal fees.

Read more: Why do I need a lawyer?

Title insurance. This may be included in your legal fees, since it's something lawyers generally deal with: it's about $250-$400. Title insurance protects you if there are claims filed against the title of your condo for things like back taxes or unpaid loans from previous homeowners – things that could keep you from owning your new home free and clear.

Land Transfer Tax. When it comes to closing costs, these taxes make up the biggest chunk. They range from 0.5% to 2.5%, depending on the value of the home. There's a provincial tax and a Toronto one, so 416 buyers get hit twice.

Ontario Land Transfer Tax

  • 0.5% on the first $55K

  • 1% on anything between $55K and $250K

  • 1.5% on anything between $250K and $400K

  • 2% on anything over $400K

Toronto Land Transfer Tax

  • 0.5% on the first $55K

  • 1% on the amount between $55K – $400K

  • 2% on anything over $400K

This land transfer tax calculator can help you figure out your costs.

Refunds for first-time buyers

As a first-time buyer, you may be eligible for an Ontario Land Transfer Tax rebate of up to $4,000. For Toronto properties, you can get back a max of $4,475.

Property tax adjustment. If the seller has paid any property taxes for the time period beyond the closing date, you’ll have to pay them back for those. The amount will vary depending on how often they pay property taxes: if they pay twice yearly, and you’ve bought one month into a cycle, you’ll have to cover a few months’ worth. If they pay monthly, and you close mid-month, you’ll just have to pay for a couple of weeks. Your lawyer will give you all the info you need.

Interest adjustment. If you find yourself in a situation where your first mortgage payment falls a couple of weeks or more after your closing date, you may need to pay the interest accrued in that time. More on that here.

Mortgage loan insurance. Putting down less than 20%? You’ll need to factor in mortgage loan insurance from CMHC or Genworth. It’s protects your lender in case you default and is added to your mortgage amount. Try these mortgage calculators to run your own numbers.

PST on your mortgage loan insurance. If you’re paying mortgage insurance, you’ll also need to factor in the 8% Ontario provincial sales tax, which is due on closing day. (Yep, more taxes.)

HST (sometimes). When you're buying directly from the builder, there’s HST involved in the purchase. However, there are rebates available.

Tarion warranty fees. This fee protects owners of newly-built condos and houses. You can estimate them here. Some builders factor this cost into their unit price, but it’s not consistent.

After Closing

These aren’t “official” closing costs, but it’s smart to budget some additional cash to cover these expenses.

Moving costs. This can range from picking up pizza and beer for a few willing friends to paying for a professional crew, and completely depends on how much stuff you have to move. If you’re moving into a building that requires a security deposit to book the elevator on moving day, include that as well.

Utilities. Hooking up your cable, hydro, etc. comes with some up-front costs.

Repairs and maintenance. If you want to paint the bedroom or upgrade the bathroom sink to make your place "yours," don't forget to factor in those costs, too.

Adjustment for utilities, condo fees, etc. If the seller has prepaid their hydro bill or next month's maintenance fees, you’ll probably need to cover that: it's something to talk about with your agent when you're settling the final details.

Overall, closing costs can add 1.5% to 5% to the purchase price. If you don't want those extra expenses to come as an (unpleasant) surprise, plan ahead, and factor them into your buying budget.

Need some advice on closing costs – or anything else related to buying and selling in the Toronto and GTA real estate market? Talk to a Property.ca agent today.

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