Every home buyer needs to be financially ready to join the property market. Preparing early and getting your money in order will ensure you stay within your budget and avoid getting yourself into financial distress. It also means you’re good to go when the property of your dreams hits the market.
There’s a lot to contend with when purchasing a home. As a first-time home buyer, you might need to familiarize yourself with the various costs of finalizing your purchase. You’ve got your down payment and mortgage pre-approval, but what about the closing costs?
It’s crucial to make sense of the buying process and ensure you’re in a financially stable position to cover all additional expenses. Keep reading for our guide to closing costs in Ontario.
What Are Closing Costs?
Closing costs are one-time fees that you, the buyer, must pay at the closing of a real estate transaction. These expenses are in addition to the property’s price and are separate from your down payment and mortgage. You must pay them to purchase real estate in Canada.
The closing costs may include various taxes and fees, from home inspections to lawyer and legal fees.
How Much Should I Budget for Closing Costs?
Closing costs vary. Not every fee will apply to your unique circumstances, but it can help to have an idea so you can plan ahead and get the funds together. That way, there are no surprises when you enter the final stages of the home-buying process.
As a general guideline, closing costs in Ontario average between 1.5% and 5% of the property’s purchase price. Often, you can expect to pay between 3% and 5%. As an example, 5% closing costs on a $500,000.00 home would total around $25,000.00.
It is a significant amount on top of your down payment, and you must pay the money upfront to seal the deal. It can help to use a closing cost calculator to get a more accurate estimate based on variables like the property price, your down payment percentage, and the property location.
Closing Costs to Expect in Ontario, Canada
As multiple closing costs can affect you and your home-buying journey, it’s important to understand the typical closing costs you might face before the closing date. They might not apply to you in the end, but preparation is vital.
Land Transfer Tax
Land transfer tax is payable on property in every province in Canada, including Ontario. When you buy a property, you must pay a land transfer tax, which is a percentage of the property’s value. The costs vary from province to province, but generally, with a higher property price comes a higher land transfer tax. So, this is something to keep in mind when exploring more expensive housing options.
Legal and Administrative Costs
Buying and selling property is a legal process, and you need a real estate lawyer when purchasing a home. They will handle the necessary documentation and mortgage requirements, resolve legal issues, provide advice, and ultimately take care of things on your behalf. As fees vary, it always pays to shop around for lower rates.
Home Inspection Fee
A home inspection is not mandatory, but it is highly recommended. It ensures the home you buy is in good condition and identifies any flaws, such as repairs and potential future problems, that you might not catch during a standard property viewing.
It typically costs $300 to $500. However, it could save you a fortune in the long run if the home inspector discovers an expensive problem.
Property Appraisal Fee
Most lenders will request a property appraisal to conclude that the property’s value is worth what you are paying for it. Sometimes, the lender will make the arrangements and cover the costs, or they may waive the expense entirely. If not, it’s usually somewhere between $300.00 and $600.00.
Property Survey
You might need to pay the costs of a property survey certificate for your new home. It requires a thorough assessment and reflects the structure and overall condition of the property. It can cost a few thousand dollars depending on the property type, survey type, and location. Title Insurance may protect a buyer from not having a survey.
Title Insurance
Title insurance is an insurance policy that protects your property and land ownership. It’s essential to have, as it can counter any ownership disputes that may arise in the future.
CMHC Mortgage Insurance
Buying a house with less than a 20% down payment makes you liable for CMHC mortgage insurance, also called mortgage default insurance. The policy is there to protect the lender if you cannot make your mortgage payments. These closing costs vary in price as it depends on your location, down payment percentage, and how much you are borrowing, among other things.
GST/HST
The Goods and Services Tax (GST) and Harmonized Sales Tax (HST) only apply if you purchase a newly built home. Sometimes, the property builder includes the GST/HST in the selling price, but if not, you must pay the fee as part of your closing costs. It’s best to confirm these details as soon as possible to prepare for a potentially large bill.
How to Reduce Closing Costs in Ontario
You can’t escape closing costs in Ontario, but there are a few tricks to bring the costs down. Here are some tips to make closing costs a little less overwhelming.
- Shop around before choosing a lawyer to assist with purchasing a home. Legal fees vary, so finding a lawyer with lower rates is possible.
- Explore mortgages that offer rebates to help cover the costs
- Cut out CMHC premium by making a down payment of 20%
Bansal Team, Your Pickering REALTOR®
If you’ve got the funds and are ready to browse listings, contact Bansal Team and speak with our real estate agents in Pickering today. We are real estate professionals serving all of the Durham Region, including Ajax, Oshawa, and Whitby. As experts in the field, we’re happy to assist you with any questions about closing costs, mortgage pre-approval, the different neighbourhoods within the Durham Region, and more. We can also support you with selling your home for the best possible price.
Your future home is already waiting for you. Reach out to Bansal Team, your trusted Pickering REALTOR® today!