Whether selling your home, buying your first property, or both, closing costs will be a factor.
But how much are these costs? What do they involve? How can I avoid financial surprises?
In this blog, we’ll break down costs for the Buyer so you won’t be shocked when you put the finishing touches on buying a home.
- What are Closing Costs?
- Closing Costs for Buyers
- Home Inspection
- Land Transfer Tax
- Legal Fees
- Title Insurance
- Mortgage Default Insurance
- Property Appraisal
- Property Tax Adjustments
- Moving Costs
What Are Closing Costs?
Closing costs are fees and expenses paid when a home/property transaction is finalized. They vary depending on whether you are buying, selling, or refinancing. In the latter case, the homeowner is responsible for the closing costs, typically a few thousand dollars. These can be tacked onto your loan to avoid additional out-of-pocket expenses.
Generally as a buyer your largest expenditures are not considered closing costs. These are your deposit(approx 5% of purchase price) and downpayment (approx 5%-20%+ of purchase price). Your deposit which is due at the time you make your offer, will go towards your total down payment which is due when you close on your new home.
Closing Costs for Buyers
In addition to your deposit, downpayment and on-going expenses above, the following are typical closing costs to expect when buying a home:
Home Inspection – If possible, it’s a recommended service to protect yourself from unexpected issues with a new home. In some markets, buyers may be relying on the home inspection provided by the sellers at the seller’s expense.
Cost: $400 to $800.
Land Transfer Tax – As a buyer, your most significant expense other than your down payment is your LTT – land transfer tax. This amount is specific to your purchase area, how many units are within the property, and the purchase price. All of Ontario pays a provincial land transfer tax and in the City of Toronto, buyers pay an municipal land transfer tax.
Cost: Tens of thousands depending on area and purchase price. Ex. $900,000 condo in Mississauga would have a total of $14475 LTT and a $1,500,000 house in Toronto would have a total of $52950 LTT.
| Ontario Land Transfer Tax | |
| Purchase Price | Land Transfer Tax Calculation |
| 0 – $55,000 | 0.5% x Amount |
| $55,001 – $250,000 | (1.0% x Amount) minus $275 |
| $250,001 – $400,000 | (1.5% x Amount) minus $1,525 |
| ⮚ $400,000 | (2.0% x Amount) minus $3,525 |
| Toronto Land Transfer Tax | |
| Value of Consideration | Municipal Land Transfer Tax Rate |
| 0 – $55,000 | 0.5% |
| $55,000.01 – $250,000 | 1.0% |
| $250,000.01 – $400,000 | 1.5% |
| $400,000.01 to $2,000,000.00 | 2.0% |
| ⮚ $2,000,000 | 2.5% |
| ⮚ $3,000,000 to $4,000,000 | 3.5% |
| ⮚ $4,000,000 to $5,000,000 | 4.5% |
| ⮚ $5,000,000 to $10,000,000 | 5.5% |
| ⮚ $10,000,000 to $20,000,000 | 6.5% |
| ⮚ $20,000,000 | 7.5% |
You can use an online land transfer tax calculator to approximate your budget: https://trreb.ca/buying-selling-intelligence/ltt-calculator-residential/
Legal Fees – These fees pay for a real estate lawyer or other legal professional to handle all legal aspects of the home transaction, including document preparation, title searches, and title registration.
Cost: $1500 – $3000+.
Title Insurance – As discussed in this blog, title insurance provides essential protection against issues with the property title, including ownership disagreements. Lenders often require this insurance to grant this type of loan, though homeowners can buy their own to increase protection.
Cost: $200 – $500+.
Mortgage Default Insurance – This protection is mandatory when the down payment is less than 20% of the home’s purchase price. It can also be added to the balance of the mortgage. If you live in Ontario, Saskatchewan, or Quebec, provincial sales tax is added and must be paid upon closing.
Cost: 2.8% to 4% of mortgage sum.
Property Appraisal – This fee assesses the home’s fair market value and is usually required for standard or lower loan-to-value mortgages. Cost: $400 to $800+ (occasionally covered by the lender).
Property Tax Adjustments – This closing fee depends on when the home purchase closes and whether the seller has already paid property taxes. If a portion of the property tax hasn’t been paid for a period when you did not own the home, you are entitled to a credit from the seller. Cost: Varies.
Moving Costs
Don’t forget that unless you have a lot of help and friends with big trucks and spare time, you’ll have moving costs. From renting a U-Haul to buying boxes to hiring a cleaning service to tidy your new or old home, budget for the price of moving your more oversized items from your old home to your new home. And don’t forget the price of gas! Cost: $1000 – $2500.
Additional expenses to consider when purchasing a property (that will vary depending on your situation) include condo fees, property taxes, home insurance, immediate repairs, new furniture and property maintenance costs.
Preparing for all the costs of buying a home will set you up for success and prevent surprise fees. If you’re getting ready to buy, ensure you have budgeted for all the above costs. And if you would feel reassured with further professional help, please get in touch with me!
