Closing Costs in Toronto (Ontario)
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WHAT ARE CLOSING COSTS
Home Inspection Fee
Before committing to a property offer, buyers are advised to engage a home inspector to gauge the property's condition. This scrutiny encompasses evaluating the structural integrity, insulation adequacy, utilities functionality, and roofing quality, among other crucial aspects. Sellers, aiming for a swift and smooth transaction, often ensure their property is in satisfactory condition prior to listing. If the inspection unveils substantial issues necessitating repairs, this could influence the offer the buyer places on the property.
Deposit on the Purchase of the Property
The customary initial deposit is 5% of the property's selling price. However, given the competitive nature of today's real estate market, buyers often propose a higher deposit to the seller as a gesture of goodwill to expedite the deal closure. In a bidding war scenario, sellers are inclined towards offers from buyers willing to provide a significantly elevated deposit beyond the 5% threshold. Generally, this payment is rendered within 24 hours post offer acceptance.
This appraisal serves to ascertain the fair market value of the property, typically conducted by the lender post offer acceptance but pre-mortgage approval and possession by the buyer. While major banking institutions in Canada usually absorb the appraisal cost, buyers engaging with smaller lenders might be required to bear this expense directly.
Balance on the Purchase of your Property
The remaining amount post the deposit deduction constitutes this fee, typically covered by your lender/bank, translating to your mortgage.
Legal Fees & Disbursements
Prior to concluding the deal, a buyer must enlist a real estate lawyer to ensure legal safeguarding. The lawyer's role includes reviewing the Offer to Purchase, registering the deed and mortgage, conducting the title search, orchestrating the closing documents, and settling any outstanding disbursements on behalf of their client.
Title insurance, procured during property ownership transition, shields the buyer against unforeseen defects in the property title. Although not mandated, acquiring title insurance is highly recommended due to its broad spectrum of protection against risks like fraud, forgery, and title defects, among others. This insurance also alleviates the necessity for certain steps like obtaining an up-to-date land survey (approx. $1000) and a Compliance letter (approx. $100).
Land Transfer Tax
All properties acquired in Ontario are subjected to a land transfer tax, payable to the government upon deal closure when the deed is registered. For buyers in Toronto, an additional municipal land transfer tax is applicable. The land transfer tax often constitutes the largest portion of closing costs. The fees are structured as follows:
Ontario Land Transfer Tax:
- 0.5% – on the first $55,000
- 1.0% – on portion between $55,000 – $250,000
- 1.5% – on balance over $250,000
- 2.0% – on anything over $400,000
Toronto Land Transfer Tax:
- 0.5% – on the first $55,000
- 1.0% – on portion between $55,000 – $400,000
- 2.0% – on anything over $400,000
First-time homebuyers and those purchasing newly constructed homes may be eligible for an exemption of up to $2,000 on both the Ontario and Toronto land transfer taxes.
In scenarios where sellers have prepaid property tax, utility fees, condo fees, or special assessments extending beyond the selling date, adjustments are made, necessitating the buyer to reimburse the seller for any overpayments.
High Ratio Insurance
Should the buyer's down payment be less than 20% of the property’s purchase price, the mortgage is classified as a high-ratio mortgage. Consequently, most financial establishments and lenders mandate the purchase of mortgage default insurance, the cost of which is determined using a sliding scale ranging from .5% to 2.75% of the mortgage amount. This expense can be appended to the mortgage balance.
Applicable solely to condominium purchases, the status certificate discloses the condominium corporation's financial and legal standing, alongside any outstanding special assessment fees.
HST on New Home Purchases
Effective July 1, 2010, new home purchases have been subjected to HST. However, new homeowners can avail a deduction, which is computed by reducing the provincial sales tax applied to the initial $400,000 of the purchase price to 2%. It's pivotal to clarify the HST payment responsibility prior to the closing date, as sometimes builders incorporate HST in the purchase price.
New Home Warranty Program Premiums
In Ontario, new home builders are obligated to procure warranty coverage for each home they construct, through Tarion Corporation, valid for 365 days. While often included at the point of sale, some builders might charge the premium back to the buyer as part of the disbursements at closing. It's prudent to elucidate the warranty coverage and its reflection at the point of purchase.
New Home Warranty Program premiums
In Ontario, it is mandatory that new home builders purchase warranty coverage for each home they build, through Tarion Corporation. This warranty is valid for 365 day. Builders often include the cost of this coverage at the time of sale, however some builders can charge the premium back to the buyer afterward, as a part of the disbursements at closing. It is important to clarify the warranty coverage and how it will be reflected at the time of purchase.
HOW MUCH ARE CLOSING COSTS FOR HOME BUYERS
- Home Inspection ($350 and up. Paid on site to the inspection company once they have completed the job)
- Deposit on the Purchase of Property (A minimum deposit of 5% of the property purchase price)
- Property Appraisal Fee ($400 and up. Normally absorbed by the lender)
- Balance on the Purchase of your Property
- Legal fees & Disbursements ($1800 and up. Paid in full on day of closing)
- Title Insurance ($300-$400. Normally included as part of legal fees and disbursements)
- Land Transfer Tax (Land Transfer Calculator will provide that calculation)
- Closing Adjustments ($200 and up. Contingent on the seller’s pre-payment plans)
- High Ratio Insurance (Based on the cost of the mortgage secured)
- Status Certificate (For condo purchases only. Normally up to $100 and included as part of legal fees and disbursement)
- HST on New Home Purchases
- New Home Warranty Program Premiums
How Much Are Closing Costs for Home Buyers?
Closing costs are contingent on various factors, including the property's purchase price and location. Utilizing land transfer tax calculators can aid in deriving an accurate tax payment. The closing costs in Ontario generally oscillate between 1.5% to 4% of the purchase price. For instance, a property priced at $500,000 could incur closing costs ranging from $7,500 to $20,000. Here's a rough estimation of these costs:
- Home Inspection: $350 and upwards, payable on-site post inspection.
- Deposit on the Purchase of Property: A minimum deposit of 5% of the property purchase price.
- Property Appraisal Fee: $400 and upwards, usually covered by the lender.
- Balance on the Purchase of your Property.
- Legal Fees & Disbursements: $1800 and upwards, payable in full on the closing day.
- Title Insurance: $300-$400, typically included as part of legal fees and disbursements.
- Land Transfer Tax: Utilize a Land Transfer Calculator for accurate calculation.
- Closing Adjustments: $200 and upwards, contingent on the seller’s pre-payment plans.
- High Ratio Insurance: Dependent on the mortgage secured cost.
- Status Certificate: Relevant for condo purchases only, typically up to $100 and included as part of legal fees and disbursement.
- HST on New Home Purchases.
- New Home Warranty Program Premiums.
CLOSING COSTS FOR SELLERS
Real Estate Agent Commissions
The commissions for real estate agents can fluctuate based on the property and its location, but generally range between 3%-7% of the sale price.
Legal fees can commence at $500, albeit the final amount could be higher depending on the complexity of the sale and the time invested to address any outstanding issues.
The cost of repairs can start from a few hundred dollars if the property is in excellent condition. However, it might necessitate investing a few thousand dollars to refurbish areas such as the kitchen or bathroom to enhance the purchase price.
Opting to collaborate with a home staging professional is a choice some sellers make. This professional provides guidance on decluttering spaces, rearranging furniture to create a sense of spaciousness, and adding temporary accents to modernize your home's appearance. Staging fees can initiate at $500.
The closing costs are an indispensable aspect of the real estate transaction process, encapsulating a variety of fees and taxes. They represent a significant part of the expenses that both buyers and sellers need to account for, apart from the property's price. In Ontario, the closing costs are relatively higher due to the higher average housing prices and the application of HST, especially on the sale of new properties, which is a higher tax rate compared to other provinces that only use the GST.
On average, closing costs in Ontario range from $11,600 to $29,500, representing about 2-5% of the final home sale price, with the average home sale price being between $580,000 and $590,000. It's crucial for both buyers and sellers to have a clear understanding of these costs, to plan and budget accordingly, ensuring a smooth real estate transaction process.
Real estate transactions can be intricate, encompassing numerous legal, financial, and procedural elements. Hence, engaging with a seasoned real estate lawyer is advisable to navigate through the legal requisites, ensuring all aspects of the transaction are handled meticulously, adhering to the legal framework and ethical standards upheld in Ontario's real estate law practice.
For a more detailed breakdown and personalized advice regarding closing costs in Ontario, reaching out to a real estate lawyer or a reputable real estate firm is highly recommended.
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