When we bought our first house, many of our friends were doing the same. Thankfully, we were forewarned by friends to hold back a chunk of money for “closing costs”. It’s tempting to put as much into your mortgage down payment as possible, but you definitely need to keep some back for closing costs.
So what are “closing costs” and how much are they? They are the costs to be paid at completion of a real estate sale on top of a down payment (and CMHC Insurance if your down payment is less than 20%). These are not including things like home insurance, home inspections, or other details that are paid earlier and to other vendors.
Let’s break them down for you:
Land Transfer Tax
This is the big one. When you buy land or an interest in land in Ontario, you pay Ontario’s land transfer tax. This tax is usually based on the amount paid for the land, plus the amount remaining on any mortgage or debt assumed as part of the arrangement to buy the land. Ratehub has a great Land Transfer Tax calculator. Make sure you put the area where you are buying, since Toronto has a municipal land transfer tax as well. If you are a first‑time homebuyer, you may be eligible for a refund of all or part of the land transfer tax. Kingston area examples:
- $350,000 home: $3,725 – First-time homebuyer rebate: $3,725
- $500,000 home: $6,475 – First-time homebuyer rebate: $4,000
- $850,000 home: $13,475 – First-time homebuyer rebate: $4,000
Legal Fees & Disbursements
Legal fees vary, but expect them to be $700-$1000 +HST. Disbursements are the out of pocket expenses every lawyer incurs to close your transaction, including search costs, registration costs for transfer and mortgage, etc. The disbursements vary with each property but may be around $300-$500. Your lawyer will be able to give you a better estimate of these costs, so be sure to ask them.
Title Insurance
Most lenders require title insurance to protect against losses in the event of a property ownership dispute. Title Insurance costs around $100-$300 for homes under $400,000 but increases significantly after that. For more information on Title Insurance and all it covers and does not, visit the Financial Services Commission of Ontario website.
Adjustments
The amount of money due on closing will be “adjusted” to reflect the expenses of the property that should be paid by the seller and those that should be paid by the buyer, depending on the number of days of the year each party owns the property. Examples:
- The buyer will be required to reimburse the seller if the seller has prepaid any property taxes.
- If a home is heated by an oil furnace or there is propane tank (rurally for heating, fireplace or cooking), the seller generally fills the tank before closing and the purchaser pays the seller the cost of the full tank.
HST
HST is not applicable to the purchase price of resale homes, but it is charged on the sale of new or substantially renovated homes. If you are not sure whether a specific home has been renovated enough to incur HST, check with your accountant, lawyer, or tax professional. Also, canada.ca has a great FAQs here for owner-occupied home sales and HST. If you purchase a newly constructed home, you may be eligible for an HST rebate. Check out canada.ca for more details on rebates.
Lastly, if you’re shopping around and come across a “No closing costs mortgage”, don’t be fooled. The lender rolls your closing costs into your mortgage (increasing your mortgage) and you end up paying interest on the closing costs! Remember, if it sounds too good to be true, it usually is.
Do you have real estate questions? Contact us for a no-obligation consultation.
