Buying a home is exciting, but the purchase price and down payment aren't the only costs you need to plan for. Closing costs can add thousands of dollars to the total amount you'll need before receiving the keys to your new home.
Whether you're a first-time buyer or you've purchased a home before, understanding these expenses ahead of time can help you budget properly and avoid surprises on closing day.
At The Smallbone Team, we help buyers understand the entire home-buying process, including the costs that can come with purchasing a home. Here's a breakdown of some of the closing costs Ontario home buyers should be prepared for.
What Are Closing Costs When Buying a Home?
Closing costs are the additional expenses associated with completing your home purchase. They are generally separate from your down payment and can include legal fees, land transfer tax, title insurance, adjustments and other property-specific expenses.
The exact amount will vary depending on the home you purchase, its location, purchase price and your individual circumstances.
How Much Should You Budget for Closing Costs in Ontario?
As a general planning guideline, buyers may want to set aside approximately 1.5% to 4% of the home's purchase price for closing-related expenses.
This is only a guideline. Your actual costs can be higher or lower depending on the property and transaction.
For example, if you're purchasing a $1,000,000 home, even a small percentage of the purchase price can represent a significant amount of money. That's why it's important to discuss anticipated costs with your real estate lawyer and mortgage professional before closing.
Ontario Land Transfer Tax
One of the largest closing expenses for many Ontario buyers is Land Transfer Tax (LTT).
Ontario's land transfer tax is calculated using the purchase price of the property and applies at different rates as the property's value increases.
If you're an eligible first-time home buyer, you may also qualify for an Ontario land transfer tax refund, which can reduce the amount you have to pay.
Properties located in Toronto are also subject to a separate Municipal Land Transfer Tax, making it especially important to account for location when estimating your closing costs.
Real Estate Lawyer and Legal Fees
A real estate lawyer plays an important role in completing your purchase. Your lawyer will handle various legal aspects of the transaction, including reviewing documents, conducting title searches, registering the property and mortgage, and transferring funds.
Legal costs vary depending on the transaction and lawyer. Buyers should ask their lawyer for an estimate that includes both professional fees and expected disbursements.
Title Insurance
Title insurance is commonly obtained as part of an Ontario real estate transaction.
It can provide protection against certain title-related risks, such as some ownership disputes, title defects, fraud and other covered issues.
Your real estate lawyer can explain the coverage available and whether title insurance is appropriate for your purchase.
Property Tax and Utility Adjustments
Depending on when you take possession, the seller may have already paid certain expenses beyond the closing date.
For example, if the seller has prepaid property taxes for a period during which you'll own the home, your portion may be added to the amount you owe on closing.
These are typically referred to as adjustments and are calculated as part of the closing process.
Home Inspection Costs
A home inspection isn't technically a closing cost, but it's an expense buyers may encounter during the purchasing process.
A professional inspection can provide valuable information about the home's visible and accessible components before you finalize your purchase, depending on the conditions and structure of your offer.
Inspection prices vary based on the property, inspector and services required.
Appraisal Fees
Your mortgage lender may require an appraisal to help determine the property's value before approving or funding your mortgage.
Depending on your mortgage arrangement, you may be responsible for the appraisal fee. Your mortgage professional can confirm whether an appraisal is required and who will cover the cost.
Mortgage Default Insurance
Buyers making a smaller down payment may require mortgage loan insurance.
This isn't necessarily an upfront closing expense because the insurance premium can generally be added to the mortgage. However, in Ontario, provincial sales tax applicable to the mortgage insurance premium cannot be added to the mortgage and is typically payable as part of closing.
Your mortgage professional can provide an estimate based on your financing and down payment.
Moving and Immediate Homeownership Expenses
Don't forget about the costs that come immediately before and after closing.
Moving expenses, utility setup, home insurance, changing locks, furniture, repairs and other immediate purchases can quickly add up.
Keeping some money available after closing can make the transition into your new home much easier.
A Simple Closing Cost Checklist for Ontario Home Buyers
When preparing your home-buying budget, consider planning for:
Ontario Land Transfer Tax
Municipal Land Transfer Tax, if applicable
Real estate lawyer fees and disbursements
Title insurance
Property tax and other adjustments
Home inspection
Appraisal fees, if applicable
Mortgage-related expenses
Home insurance
Moving expenses
Immediate repairs or purchases
Not every buyer will have every expense on this list, so it's important to get estimates based on your specific purchase.
Don't Let Closing Costs Catch You by Surprise
The best time to think about closing costs isn't a few days before you get the keys—it's before you begin making offers.
Understanding your full purchasing budget can help you determine a comfortable price range and leave enough room for the expenses associated with completing your purchase.
If you're thinking about buying a home in Burlington, Oakville or the surrounding area, The Smallbone Team can help guide you through the buying process from your initial home search to closing day.
Visit sandysmallbone.com to learn more, explore available properties, or connect with The Smallbone Team.
